United Sheds Punching-Bag Status With Biggest U.S. Airline Rally

(Bloomberg) -- United Continental Holdings Inc. is starting to shed its status as a Wall Street punching bag.

Six months ago, the stock tumbled 11 percent in a day as shareholders rejected United's aggressive growth plan. Investors worried that the carrier was swiping a page from U.S. airlines' 1990s playbook: Add flights to grab market share -- and subsequently lose money.

But a funny thing happened on the way to all the expected red ink. United has advanced 19 percent this year through Monday, the only airline stock to gain in an index of five major U.S. carriers. The second-best performer, Delta Air Lines Inc., fell 3.9 percent over the same period, while American Airlines Group Inc. slid 25 percent.

The index advanced 1.7 percent at 12:57 p.m. in New York, led by American's 2.1 percent gain.

While higher fuel costs prompted Delta and American to cut their 2018 profit forecasts this month, United boosted its outlook. That suggests that the airline is starting to benefit from a turnaround effort under Chief Executive Officer Oscar Munoz. United is bolstering its hubs with more flights, improving its airfare-pricing system and upgrading its offerings in business class.

United also joined Delta and American in slightly paring its growth plans, easing fears that its expansion would undermine pricing power. The airline seems more committed to its 2020 earnings target of $11 to $13 a share than to its goal of expanding capacity 4 percent to 6 percent a year through 2020, Susan Donofrio, an analyst at Macquarie Group Ltd., said in a note to clients.

United's image took another blow in March when a dog died in its care after a flight attendant had the pet and its crate placed in an overhead bin. “We got it wrong,” Munoz said. Less than a year earlier, the dragging of a passenger off an airplane in Chicago shocked and horrified people across the world.

But neither incident exerted a lasting influence on the company's shares. Meanwhile, and less conspicuously, Munoz and President Scott Kirby have been improving on-time performance and securing a measure of labor peace with new contracts.

“Investors are seeing operational improvements at the airline along with a more thoughtful and committed management team that's focused on earnings growth versus taking back market share,” Donofrio said in an email.

To contact the reporter on this story: Justin Bachman in Dallas at jbachman2@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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