United Continental Holdings Inc.
) has chalked out plans to overhaul its finances, as the airline
behemoth has financially underperformed its domestic competitors
in recent times. The news seems to have had a positive impact on
shareholders as the stock price rose almost 4% on Tuesday's trade
The Chicago-based company plans to reduce its annual costs by
$2 billion by cutting fuel cost through more efficient planes.
Further, United will also enhance its productivity by slashing
sourcing cost, improving maintenance procedure and optimizing
The company is also concentrating on augmentation of ancillary
revenues by $700 million to $3.5 billion by 2017, and expects to
achieve this by offering new products to customers and increase
fees on the current ones. United intends to use such measures to
boost its pre-tax profitability by 2-3 % over the next four years
and aims to return cash to shareholders by 2015.
We believe that the financial restructuring is an attempt by
the company to console unsatisfied shareholders, who have been
facing weak company performance over the last few quarters.
However, it remains to be seen how well the company executes its
plans, as it has lagged its peers in this regard over the last
couple of quarters.
US Airways Group Inc.
) and American Airlines Inc, a subsidiary of AMR Corp. received
clearance from Department of Justice for their proposed merger,
which will create the largest global carrier. This in turn will
increase competition for legacy U.S. carriers like United and
Delta Airlines Inc.
Besides managing competitive threat, United also announced
that it will reorganize some of it trans-Pacific and
trans-Atlantic routes. The company will eliminate Seattle-Tokyo,
Tokyo-Seoul flights, and introduce a second daily Houston-Tokyo
flight. During restructure of its trans-Atlantic routes, United
plans to launch new Houston-Munich, Washington-Madrid and
Chicago-Edinburgh routes along with a New York-London flight
during the peak summer season.
Similar to its policy in Europe, United is also expanding into
secondary Asian markets to leverage from their growing trade
flows and business activity. The company will add new routes from
San Francisco to Chengdu and Taipei from the summer of 2014 on
The Boeing Company'
) wide bodied aircraft.
Although the financial restructuring sound good for United's
shareholders, we believe the passengers could feel the pinch as
they end up paying more in fees.
Currently United carries a Zacks Rank #3 (Hold).
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