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United shows service and shareholders don’t fly
April 10, 2017 / 10:16 PM / in 8 months

United shows service and shareholders don’t fly

DALLAS (Reuters Breakingviews) - United Continental has an image problem – but investors don’t seem to care. An innocent passenger on the airline’s flight from Chicago to Louisville on Sunday was forcibly removed by airport security after staff realized they didn’t have enough seats for their own off-duty cabin crew and pilots. A fellow passenger’s video of the incident quickly went viral. It’s United’s second PR flub within a month – yet the stock closed up almost 1 percent on Monday in a flat market. That’s a sign of the industry’s current strength – but it may not last.

Two ground crew members walk past a United Airlines airplane as it sits at a gate at Newark Liberty International Airport in Newark, New Jersey, June 18, 2011. REUTERS/Gary Hershorn

Airline stocks have been soaring in recent years thanks to a number of business tailwinds, from falling oil prices to higher demand to sturdier balance sheets. As a result, the NYSE Arca Airline Index is hovering at its highest level since the Sept. 11 attacks in 2001.

Even some of the more turbulent customer-service problems have improved. Fewer people lost their baggage and more flights were on time last year, according to data from the latest annual Airline Quality Rating, released on Monday by Wichita State University and Embry-Riddle Aeronautical University. Booting people off the plane due to overbooking, United’s incident notwithstanding, has declined, too, as have complaints overall.

United, though, often ranks low on the list. It took eighth place out of 12 carriers in the AQR survey. Only American Airlines and no-frills outlets ExpressJet, Spirit Airlines and Frontier Airlines fared worse. United, which faced a backlash in March after barring two teenagers from a flight for wearing leggings, does no better in customer surveys: last year J.D. Power placed it last of the major airlines and second-last ahead of Frontier.

That may make shareholders’ sanguine attitude hard to understand. But America’s airline industry is an odd bird; its reliance on regional hubs means companies, especially longer-standing fliers like Delta and United, often retain a large share of some routes.

As a result, repeated – or even chronic – bad service may have little if any effect on seat bookings. What’s more, a lot of passengers are more sensitive to price than pleases-and-thank-yous, suffering poor service as long as the flight is cheap. With low-budget airlines steadily chipping away at more of their routes - and often besting them on attentive attendants and the like – stock in the Uniteds of the skies may not remain immune to bad press for long.

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