United Continental Holdings Inc (NYSE:UAL) faced several challenges in 2012, as it weathered the lingering effects of its merger with Continental. Customers endured system failures, flight delays, and cancellations, hurting the carrier’s reputation — and its customer traffic. In a year, where several other US airlines performed extremely well and booked large profits, the revenue premium (passenger revenue per unit) of Continental fell sharply as it reported a loss of $723 million. Going forward, United needs to improve several facets of its business in order to compete with other American airlines. If it can do so, I believe its share price could enjoy significant upside.
Improved Performance will Lead to Passenger Growth
The integration process between United and Continental reduced the carrier’s on-time arrival rate to 63% during July 2012. However, United Continental Holdings Inc (NYSE:UAL) made considerable efforts to improve its performance, and recently reported 80% on-time arrivals for February 2013. If the airline can maintain this rate and continue to improve performance, then positive word of mouth should help the passenger traffic grow. But it’s absolutely mandatory for the airline to maintain that operational reliability in order to negate all the reputation damage incurred during 2012.
United has turned its attention to improving the basics and gaining competitive edge through much-improved customer service. In order to offer an enhanced customer experience, United is investing heavily in special flight crew training; in addition, it is also involved in developing a mobile application to give loyal customers easier check-ins and and augment the overall experience.
To further bolster the customer experience, it is installing WiFi in aircraft. Nowadays, several airlines use on ground internet services to offer Wi-Fi during flights. But these services cut out over water, or if the aircraft is far from any ground station. The new satellite-based Wi-Fi technology offered by United Continental Holdings Inc (NYSE:UAL) will enable a superior experience, eliminating glitches such as network blackouts. Corporate travellers contribute a substantial share to the overall revenues of United, and such an initiative is extremely attractive to the segment.
United has also shown interest in changing the seating structure in the premium class, installing new flat beds and developing incrementally on the overall experience.
Corporate passengers usually have unplanned travel, booking last-minute tickets. This results in higher fares for the travellers, which supports a higher revenue premium for the airlines. In the last six months, United madeconsiderable improvements in all facets, and now looks set to attract a higher volume of business travellers. If it can manage to incrementally develop on the progress shown, the revenue premium is certain to exceed all expectations.
Current Standing against Competition
United Continental Holdings Inc (NYSE:UAL) primarily competes with Delta Air Lines, Inc. (NYSE:DAL) and US Airways Group, Inc. (NYSE:LCC).
