United’s On-Time Arrival Rate Rises—Could Share Price Follow?
United Continental’s operational performance has improved dramatically since July, when the carrier’s 64 percent on-time arrivals rate was the worst in the industry.
In August, the rate, which measures the share of domestic arrivals within 14 minutes of schedule, increased to 72.2 percent. For September, it is more than 80 percent. On Monday, it was 92 percent. (Read More: Airline Tarmac Delays Up in July, Government Reports.)
“Running above goal, we’re delivering better on-time performance,” United said on Friday, Sept. 21, in an internal newsletter for employees, noting: “If we continue to improve our performance, co-workers could receive a September payout through our on-time bonus program.”
The improved performance could signal the impending conclusion of an ugly chapter in the story of implementation of the 2010 merger between United and Continental. The operational impact has been severe, resulting in reduced unit revenue for several months: It was perhaps best illustrated by a July incident in which 300 passengers were stranded in Shanghai for three days. That month, S&P Capital IQ analyst Jim Corridore wrote that “UAL’s merger integration issues are leading it to underperform peers.
“While we think long term the merger will bring great benefits, we have less confidence in management’s ability to manage the integration in the near term,” Corridore said.
United’s lagging merger integration has kept a lid on its share price, which is up about 4 percent this year. During the same period, shares in peer Delta Air Lines have gained 10 percent, while the NYSE Airline Arca Index s up about 15 percent. Conceivably, the improved operations are signaling that merger integration problems have largely been addressed.
For the summer schedule, United sought for the first time to fully merge operations of the two airlines. In July, after the shortcomings of that effort became apparent, United enhanced preventive maintenance, increased the number of spare aircraft and adjusted its arrival and departure procedures.
Now the industry’s focus has shifted to the poor operational performance at American Airlines, at which delays and cancellations have surged recently, largely as a result of an increase in pilot maintenance requests.
Aviation consultant Robert Mann said United’s problems were not atypical.
“Airlines go through this in mergers,” he said. “Even though they have single operating certificates, sometimes it’s two years before schedule planning groups produce a single consolidated schedule. And if you take two philosophies that are different in terms of (building in extra time and more spare aircraft), and if you choose the more aggressive of the two, then you’ve hung the other one out to dry.”
He added: “If you run a system with no slack in it, it works when it works. But variances (often due to weather) can kill you and the randomness in the variances cause the whole thing to fall apart.”
—By TheStreet.com’s Ted Reed
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