United Airlines, the wholly owned subsidiary of
United Continental Holdings Inc.
), is outsourcing more than 630 jobs across 12 airports in the
U.S., to curtail costs and improve profitability. The market
reacted negatively to the news, with the company's stock closing
the day 3.16% lower on NYSE.
The worst affected employees in this scenario will be the gate
agents, the baggage handlers and the customer service associates
working at airports in Salt Lake City, Detroit, Iowa, Texas, El
Paso, Kansas, Pensacola, Ohio, New Mexico, New York and North and
United Airlines will hire third-party firms to take care of the
work at airports, thus reducing its financial obligations to some
extent. The carrier currently pays as much as $24 per hour for the
work, which it expects will reduce considerably under the
According to United Airlines, such cost saving moves will allow
it to remain competitive. However, the Chicago-based carrier will
take back about 400 jobs that were earlier outsourced at Phoenix,
Denver, Honolulu and Washington airports.
For quite some time now, passenger carriers have been offloading
airport jobs in a bid to gain cost competitiveness. Companies like
American Airlines Inc.
Delta Airlines Inc.
Alaska Airlines Inc.
) have already shifted much of their airports job roles to third
party organizations to reduce their expenses. Notably, American
Airlines and Delta Airlines have their own subsidiary companies to
cater to airport jobs. United Airlines, however, suffers in this
The move does not come as a surprise. It is part of the
restructuring efforts that the carrier intends to put in place in
order to revive its fortune. Since last year, United Airlines has
outsourced nearly 500 jobs in various U.S. and Canadian airports
and has even announced the closure of its hub at Cleveland airport.
The carrier reported lackluster first-quarter 2014 results losing
$1.33 per share owing to a severe winter.
We believe that although this initiative will allow the carrier
to cut down on its operating costs, it will simultaneously put
United Airlines at the risk of inefficient customer service.
Outsourced employees will not only suffer from lower wages, but
will also be deprived of health coverage and travel benefits that
they have been receiving on the airline's pay roll. This can
translate into hurdles for the company in the course of delivering
quality customer service, leading to passenger churns.
United Continental currently carries a Zacks Rank #2 (Buy).
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