What’s Wrong with United Continental? …again

It seems like every day there’s another Wall Street analyst telling us what’s wrong with United. Interestingly enough, Wolfe Research’s Hunter Keay and Jared Shojaian have taken the strange move of reissuing their advice to management which was already published back in May of this year:

We believe [United Continental] has a structural deficiency relative to peers. We believe this deficiency is partly a result of a network that is too large and uses planes that are not optimized for the routes they serve. We believe in order to fix this problem there must be a willingness to forego revenues in order to save costs. We believe bad IT and poor customer service metrics exacerbated the problem, but good IT and better customer service can’t completely fix it. We believe planes need to be put down without replacement, we believe the associated headcount must be evaluated, and we believe a hard and honest evaluation of the value of the current network will yield a difficult conclusion: fewer planes, fewer cities served, and less revenue might result in lower costs and higher profits. We believe current [United Continental] management will get there.

United Continental flies 1,623 different route combinations, 58% more than Delta Air Lines and 65% more than American Airlines. United also serves 471 airports, versus just 340 for American Airlines and 342 for Delta Airlines.

Even more interesting as United’s 2Q performance actually showed revenue improvements:

United’s total revenue increased by 3.3% to $10,329 in 2Q14 driven by the 3.6% growth in passenger revenue. Passenger revenue accounted for 87% of the total revenue in 2Q14. Corporate revenue increased by 6% in 2Q14. The drivers of corporate revenue include the PerksPlus product, a points-based loyalty program for small to medium sized businesses, and a 3% increase in revenue from large corporate accounts despite the decrease in corporate revenue in April due to the shift of the Easter holiday. The revenue increase can also be attributed to expansion in network. United launched nine domestic markets and 14 new domestic routes in 2Q14. Non-stop flights were launched from Houston to Munich, and Newark to Santiago and the Dominican Republic apart from new seasonal services from Chicago and Washington. To improve revenue from the Pacific region, United launched services to Chengdu, China, and Tokyo. Several other routes including Houston to Santiago, Chicago to Belize City, Denver to Panama, Houston to Punta Cana, and San Francisco to Kelowna were introduced. United’s PRASM of 14.21 cents was lowest among its legacy peers, Delta Air Lines and American Airlines whose unit revenue was 14.99 cents  and 14.57 cents, respectively. However, its low-cost peers, Southwest and JetBlue had a lower PRASM of 13.94 cents and 12.05 cents, respectively.

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