It's been four years since United (UAL) and Continental merged to become the nation's second-largest airline, but the air up there is a bit turbulent. The stock might be up (to the tune of more than 150% since the merger) but the much-watched JD Power annual satisfaction survey puts the mega carrier second to last for the third year running. So why do investors love airlines like United and others (XAL) even while customers largely don't?
"Fewer competitors and obviously reduced capacity is the thing that investors are celebrating," says Yahoo Finance senior columnist Mike Santoli. "We all have to deal with the results."
Those results include on-time performance (described as landing within 14 minutes of the scheduled arrival) 79.4% of the time in 2013. Higher costs and new fees, while not unique to United, don't help either.
"What you're seeing with United Continental in particular," Santoli notes, "is two huge, very regulated, heavily unionized companies that thought they were gonna take 18 months to get themselves together and four years later still haven't figured it out."
But do they need to? As airlines merge, travelers have fewer choices and, satisfaction not withstanding, United still makes investors money. True, but not so fast, says Santoli.
"I do thing there are threats on the horizon," he says. "[United has] a hub at Denver where some of the low-cost carriers have a good foothold and are kind of eating their lunch there, so I do think they could be nipped away at. [United has] seven hubs. Do they need seven hubs in this country? And yet it's so politically difficult and tough with the unions to shut one down. So, yeah, over time I think you get some market-share slippage." Still, Santoli admits "customers don't really have a wide range of choice. You're gonna kind of take what you can get."
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