On paper, United have been doing pretty well over the last year. So why are investors running scared and why have share prices plummeted recently? It’s all down to new plans that have been proposed by the airline. Big plans to increase capacity on their planes. The idea is, to increase capacity by 4-6% every year for the next three years.
A lack of faith in the validity of these plans had a huge effect on share prices. Within just three days, United shares had fallen from $77.97 to $65.66. The impact of this news was also felt by other US airlines as faith in the airline industry as a whole seemed to have been affected. Share prices of Delta, Southwestern and American Airlines all fell, albeit not as far as United’s!
Why have United made this plan?
President of United, Scott Kirby has stated that the airline hasn’t increased capacity at major hubs, and so hasn’t been able to take advantage of the recent increase in interest in flights. The business is instead going to the low-cost airlines. He then went on to say that the only way forward was to match or beat the low-cost airlines.
How do they plan to implement this?
Several plans have been announced to increase capacity. These include more basic economy seats, with the option of paying extra to choose your seat. So those passengers wishing to be seated next to their travelling companion, will have to pay to guarantee this. They will also be introducing a premium economy class of seating. This will have a larger seat with more legroom, and there will be some other little extras for passengers booking this upgrade such as an amenities kit and an enhanced menu.
Are United running scared?
By the look of the share price fall, it would seem that many investors believe they are, and a quick look at initiatives in the recent past also seem to indicate this. Cost cutting measures have been implemented throughout the business, with some seeming rather extreme. Apparently, they have started printing their in-flight magazine on lighter paper to reduce the fuel bills. They’ve also stopped carrying duty-free products and even started taking less orange juice on board! It’s all perhaps a little worrying?
Will the share price fall damage United irrevocably?
If you hold shares in United, you might be worrying right now. Realistically, there is likely no reason to panic. Share prices can rise and fall on the announcement of news like this, but only time will tell what will happen when the plans are put into practice.
Emily is an avid writer with a passion for the travel industry. She also loves learning and writing about nutrition and healthy living. Emily is based in the UK.
