United Continental Shifts Jobs to Trim Costs - Analyst Blog


United Airlines, the wholly owned subsidiary of United Continental Holdings Inc. ( UAL ), 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 South Carolina.

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 outsourced model.

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. ( AAL ), Delta Airlines Inc. ( DAL ) and Alaska Airlines Inc. ( ALK ) 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 regard.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: DAL , UAL , AAL , ALK



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