We’re currently bearish United Continental (UAL) for several reasons, two being real standouts. The cost cuts involved with the American Airlines bankruptcy will allow the airline to emerge leaner with the ability to offer lower fares. American’s gain is UAL’s loss and the company will need to stay competitive in order to compete against American’s cost advantages.
Another issue at hand involves fares across the entire industry. July and August ARC data shows fares declining year-over-year, despite rising costs. This suggests to us that American’s cost reductions are pressuring industry margins. A “race to the bottom” for the cheapest flights isn’t what’s going on but staying competitive with price is always a concern.
There are myriad other issues UAL faces as well including issues integrating with Continental post-merger and weak industry structure. Keith has shorted UAL as a real time position and has yet to close it out.