Another day of turbulence for United Airlines stock
Facing a still-raging public relations crisis, shares of United Airlines on Wednesday gave up early gains and turned negative after suffering a $255 million loss in market value yesterday as investors weigh the long-term fallout on the company’s business.
At 1:05 p.m. ET, shares of United Continental Holdings were down 24 cents, or 0.3%, to $70.47 -- after giving up early gains that had pushed shares up to $71.73, or nearly 1.5%. On Tuesday, shares at one point had slid more than 4% to a low of $68.36, which at the time had erased nearly $1 billion in the airline’s market capitalization. Since touching its intraday low yesterday, the stock has rebounded more than 3% but still remains below where it closed Friday before the start of the uproar caused by the airline forcibly removing a passenger Sunday from one of its planes due to a shortage of seats.
The video image of the passenger being dragged down the aircraft's aisle and off the plane that went viral on social media and has been greeted with an acute negative response continues to cause problems for the embattled airline. Earlier today, CEO Oscar Munoz, who issued an apology Tuesday, told ABC News in his first on-camera interview that "the expression of apology is important in a discussion like this," but said he would not resign.
In a sign that the negative publicity is hurting United's shares, rival Delta saw its stock rise more than 1% Wednesday after it said in an earnings report that it expects passenger revenue to rise between 1% and 3% in the April-thru-June period, after dipping 0.5% in the first three months of the year. Delta's upbeat guidance indicates that it expects business to be stronger this quarter.
Steve Chiavarone, a portfolio manager at Federated Investors, doesn't think the negative headlines United now faces will have a long-term negative impact on the stock. "Once you take a step back, it probably doesn't mean all that much to the business of United," he says. The reason: most air travelers will continue to choose the airline that offers them the flight time and cost that they are looking for." One potential headwind to the stock, however, is if the crisis results in an executive leadership change at the top, such as CEO Munoz being forced out, he adds.
Munoz, who took over the CEO post in September, recently resumed his full-time duties after a heart attack late last year and a heart transplant in January. Since he took over, he has been working to overcome a period marked by delays and computer snafus at the airline.
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Among the losers in the flap: billionaire investor Warren Buffett's Berkshire Hathaway, which is the largest institutional holder of the stock, according to YahooFinance. Buffett began building a position in the airline late last year and at the end of 2016 held 26.62 million shares. At Tuesday's intraday low, Buffett's holdings were showing a paper loss of roughly $84 million.
Investors that don't own individual shares of United, may be exposed to the airline via investments in index funds or exchange traded funds (ETFs) that mimic the performance of the Standard & Poor's 500 stock index, which the airline is a member of. For example, at the end of January, the SPDR S&P 500 ETF Trust fund held 3.33 million shares of United.
Currently, the Wall Street analyst community has not changed its recommendations on United shares. Of the 16 analysts that cover United tracked by Thomson Reuters I/B/E/S, four have a "strong buy" rating on the stock, five rank it a "buy" and seven have a "hold" rating on the shares. The average price target on the shares is currently $83.19, which is lower than the $85.44 projection a month ago.
One Wall Street firm, Cowen & Co., upped its price target for United to $75 from $72 on Tuesday following United's March business update on Monday, which went better than Cowen expected. (Cowen's report did not mention the PR flap.) United reported that its first-quarter unit revenue came in flat, which was better than Cowen's estimate of a drop of 0.5%. The airline also said that its jet fuel costs in the first three months of 2017 were lower than forecast. Cowen upped the airlines earnings per share estimate for the first quarter to $0.42 from $0.24, which is above Wall Street's consensus forecast of $0.34.
Some branding experts say United faces a tough fight in earning back loyalty from its customers.
"United Airlines is facing an uphill battle to win back customers," says Steve Arsenault, a former United Airlines employee and now a senior consultant at loyalty consultancy Kobie Marketing. "In this case, the customer certainly doesn't feel valued. The result is an immediate loss of consumer trust and loyalty, as we're seeing all over social media. The problem for United is that loyalty is a long game, and now they are tasked with earning back their customers' trust. And it won't happen overnight."