United to undergo mega makeover to boost profits

Bloomberg

United Continental Holdings Inc. rose to its highest value in almost three months after Chief Executive Officer Oscar Munoz said he is reviewing all aspects of the airline’s operations in an effort to boost profitability.
“It is a top-to-bottom, full-scale view on everything that we do,” Munoz said. “It’s something that we have to do and acknowledge, and that involves management structure.”
In a note to employees last week, Munoz said the company will examine the mission of its hubs and smaller “spoke” airports while also seeking ways to modernize operations and information technology. United, which is trying to become as profitable as other major U.S. airlines, announced a strategy last month to create or save an extra $3.1 billion by 2018 through selling more premium-cabin seats, using larger jets and other measures.
“I think there’s this perception that if they close a hub, it’s going to be good,” Janus Capital Management analyst Kris Kelley said in an interview. “I’m encouraged by the thought that he’s willing to explore everything.”
United rose 2.1 percent to $48.87 at 1:52 p.m. in New York after advancing as much as 4.2 percent to the highest intraday price since April 26. The carrier also posted the biggest gain in a Bloomberg index of U.S. airlines.
In the employee letter, Munoz said the review likely will “create a lot of discussion in break rooms.” He said he recognized that United needed to complete labor agreements with flight attendants and other groups, and told the workers that it’s ”important that you share in United’s success.”
United reported second-quarter adjusted earnings of $2.61 a share Tuesday after regular trading ended, beating by 5 cents the average of analyst estimates. The airline also said it sees full-year capacity increasing no more than 1.5 percent from last year, compared with the previous plan to expand by as much as 2 percent.
United is joining efforts by American Airlines Group Inc. and Delta Air Lines Inc. to curb an overabundance of flights and seats, which has put pressure on fares and hurt airline shares. Passenger revenue for each seat flown a mile, a benchmark financial gauge known as unit revenue, has been falling for more than a year.
Unit revenue dropped 6.6 percent in the second quarter and will fall 5.5 percent to 7.5 percent in the current three-month period, Chicago-based United said.