United jumps after adding American’s No. 2 to its team

Bloomberg

United Continental Holdings Inc. surged after the surprise hire of American Airlines Group Inc.’s president strengthened its executive roster and won praise from industry analysts.
Scott Kirby will help United close its profitability gap with American and Delta Air Lines Inc. in the next 12 to 18 months, Savanthi Syth, an analyst at Raymond James Financial, said in a report. She raised her recommendation on the shares to the equivalent of buy from hold.
Kirby’s sudden hiring fills a key void at United with an airline-industry veteran and potential successor to Chief Executive Officer Oscar Munoz, a former railroad boss who returned from medical leave this year after undergoing a heart transplant. Since getting back to work, Munoz has unveiled a $3.1 billion plan for savings and extra revenue, brought United to the brink of labor peace after years of discord and hired new chiefs to oversee finance and revenue.
“In 11 days, United completely revamped their C-suite and will now look to unlock the company’s potential,” Helane Becker, a Cowen & Co. analyst, said in a report Tuesday. “Given concerns over Mr. Munoz’s health, the potential for Kirby to eventually be his successor is a real one.”
United jumped 8.6 percent to close at $50.99 in New York, the second-largest gain on the S&P 500 Index. American rose 2.4 percent to $37.05.
Fare Pressure
At American, Chief Operating Officer Robert Isom, 52, takes over as president. He will continue to oversee operations while assuming responsibilities for revenue, the airline said in a statement Monday.
The two presidents at American and United assume their new jobs as airlines contend with concerns that the supply of flights and seats is exceeding demand, driving down fares. That’s led to drops in revenue for each seat flown a mile, contributing to the stock-market losses even after lower fuel prices have helped carriers post record profits.
Prices may deteriorate further if Kirby prompts United to adopt American’s aggressive approach to matching some fares at low-cost carriers, said Rajeev Lalwani, an analyst at Morgan Stanley.
“This may introduce downside risk to industry pricing dynamics,” Lalwani said in a report. “To the extent these sorts of competitive strategies are rolled out at United as well, it would be impactful to the industry.”