The following is an excerpt from JONATHAN R. LAING | May 5, 2012 | Barrons.com |
The skies have been anything but friendly of late for United Continental Holdings (ticker: UAL), the world’s largest airline.
Two weeks ago, the carrier reported a hefty first-quarter loss of $448 million. Granted, some $162 million of that loss were one-time expenses arising from the continued cost of cobbling together the systems of United Airlines and Continental more than a year after their December 2010 merger. But the remainder of the loss—$286 million—largely was the result of glitches in United’s reservation and separate “yield management” systems. Reservation kiosks didn’t work for a time. Reservation agents were overwhelmed. Seats went unsold or were sold at too low a price.
All of this cost United dearly in terms of passenger revenues and profitability. Year-over-year growth in the all-important passenger revenue per available seat mile rose only 5.2%, compared with 14% for Delta Air Lines (DAL) and 8.2% for US Airways Group (LCC).
Yet the impact on United’s stock was muted following the April 26 earnings report. The shares, which closed Friday at $22.28, are down just 3% since the news, as Wall Street analysts were looking for a bigger first-quarter loss before special items. Also United is now trading at just 5.8 times the $3.86 a share in earnings that analysts are forecasting for this year and four times next year’s projections of $5.52. Most analysts have circumspect price targets for the stock of about $26, though Sterne Agee analyst Jeff Kauffman, who foresees a sea change in airline profitability afoot because of industry consolidation, has an 18-month price target of $38.
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