United Continental: D+
United Continental‘s (NYSE:UAL) disappointing Q4 results — a $620 million loss ($1.87 a share) compared to a $138 million (42 cents a share) loss a year earlier — illustrate that the devil is in the details of airline mega-mergers.
UAL was hammered by major systems glitches last year as the airline attempted to convert to a single passenger information system. Glitches cancelled and delayed flights, stranded travelers and drove off some of UAL’s best customers as its passenger traffic fell by more than 3% in the last three months of 2012. For the full year, UAL lost $723 million on $31.2 billion in revenue.
During the earnings call, United CEO Jeff Smisek characterized 2012 as the toughest year of its merger integration, although he expressed confidence that the airline is now “back on track.” UAL announced plans to cut 600 front-office jobs in an effort to streamline operations.
UAL’s forward P/E of 5 and its 0.45 PEG are on par with its rivals, again amid its own run of nearly 50% since August. Its operational metrics also have improved in recent weeks, but United Continental still has a lot of work to do to win back profitable corporate travelers.
The grounding of Boeing’s 787 Dreamliner over lithium ion battery problems doesn’t help United, the only U.S. operator of the aircraft. Smisek remains confident that Boeing will fix problems with the aircraft.
Bottom line: UAL still faces real and perceived challenges in 2013 that could impact earnings in the first half of the year.