United Continental Holdings Inc (UAL) is up around 3% in Tuesday early morning trading as the company announced a plan to increase sales and efficiency, adding a whopping $3.1 billion a year in operating income by 2018.
Previously, United CEO Oscar Munoz set a period of nine months to review UAL’s strategy, but this was delayed after Munoz suffered a heart attack last October.
The news is welcome, as United has lagged behind both Delta Air Lines, Inc. (DAL) and American Airlines Group Inc (AAL) in terms of both traffic and operating income. UAL’s operating income for the past year has clocked in at $5 billion, while competitors DAL and AAL have hit OI of $7.8 billion and $6.2 billion, respectively.
United’s latest initiatives should boost sales by around $1.8 billion and save $1.3 billion.
What’s to Come for UAL?
UAL plans to do this through commercial enhancements, cost structure changes and operational improvements. The goal is to achieve half of this efficiency plan over the next three years by charging steeper fares, optimizing passenger segmentation and cutting costs from delays and cancellations.
What’s more, United assured investors that its Q2 consolidated passenger revenue would decline between 6.5% and 7.5% year-over-year, rather than between 6.5% and 8.5%. And Munoz is doing all he can to buoy customer sentiment around the United brand:
“As United continues its focus on elevating the customer experience, it recently announced the all-new United Polaris business class, free snacks and transformed airport clubs. And on July 1, United will introduce illy premium coffee on board all flights. Additionally, the company is expanding its industry-leading route network with new service to several destinations across Europe and Asia, including its new flight between San Francisco and Singapore.”
But the UAL rally may have trouble beyond the company’s control.
Namely, sentiment hasn’t been the greatest for airlines of late, as the price of oil casts doubt over the airlines’ ability to control pricing and the ongoing rout in per-passenger revenue has soured investors on the industry. Moreover, technically speaking, shares are just a couple percentage points away from colliding with a rapidly declining 50-day moving average.
Still, United is making the right strides toward winning back customers and investors alike. Today’s move in UAL stock is justified, if nothing else.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
