UAL labor conflict worries investors
Shares of United Airlines parent UAL Corp. fell 5.9 percent Monday after a veteran industry analyst downgraded the company, citing festering labor discord he said includes pilots calling in sick and working the minimum number of hours required.
Analyst James Higgins of Soleil Securities Group said there is "rising evidence" actions by pilots contributed to the carrier's bad December in which it had double the industry average number of delays. He said such actions are legal but threaten the company's profits.
Shares in the company fell $1.82, to $29.18 in Monday trading after touching a 15-month low of $27.85, at which point it was down 10.2 percent for the session.
United has blamed the raft of cancellations and delays largely on the worst December weather in its 80-year history, while the pilots' union has claimed staffing shortages were at fault.
Neither the company nor the Air Line Pilots Association responded immediately to requests for comment on the analyst report.
Higgins said his profit and revenue estimates for the company are now not much more than educated guesses because the airline may be forced to offer fewer flights.
United pilots are upset with management, in particular with the $250 million special cash dividend to investors the company approved last month, he said.
"The pilots' anger is manifesting itself in several ways," he said in a report to investors. "Most notable is a perfectly legal refusal to accept flying beyond amounts specified in their contract. We also believe UAL is facing increasing pilot sick calls, among other actions that hurt operations and earnings."
The company said Friday its December traffic fell 1.2 percent due to bad weather.
United pilots, angry about what they see as excessive pay for the company's top managers after they were forced to take big pay cuts in bankruptcy, elected more combative new union leaders in October.
Many pilots are demanding the Chicago-based carrier, which has returned to profitability after its 2002-06 bankruptcy restructuring, rework the existing five-year contract not due to expire until 2010. United has said it won't make such a move.
Robert Mann, an airline consultant based in Port Washington, N.Y., said the situation at United is reminiscent of what happened with Northwest Airlines last summer as well as with United during a turbulent summer of 2000, when thousands of flights were canceled.
By relying on volunteerism to cover additional pilot needs that crop up, as other airlines also do, it is more vulnerable to labor-related turmoil, he said.
"When the going gets tough and you need a team to play under adverse conditions, you better hope you have team members and not people who have a bone to pick with you," Mann said. "When you have a bone to pick with management, sometimes it's the customers who are the collateral damage."