Thursday 18 January 2018

Why the current PR crisis is unlikely to affect United Airlines long-term profits

United Airlines face turbulent times
United Airlines face turbulent times
Ellie Donnelly

Ellie Donnelly

By now many of us have seen the video of the United Airlines passenger being forcefully removed from an overbooked flight. It doesn’t make for pleasant viewing.

We have laughed at the tweets and the memes that the public relations disaster has inspired, my personal favourite being “Pepsi: nobody will embarrass themselves as much as us this week. United: hold my beer...Sean Spicer: hold my Pepsi...” from @elspeth_47.

And we may even have felt satisfaction at seeing the United Airlines share price tumble – nearly $1bn was wiped off the company’s share price on Tuesday.

One month on from the CEO of United Airlines, Oscar Munoz receiving a ‘communicator of the year award’ from PR week, a reward which according to the airline acknowledged his “efforts over the past year to better engage with employees and customers as he led a dramatic transformation at the airline” the company is in the mist of a PR disaster.

However, this will pass. Passengers will continue to fly with United. The share price will recover.

History of PR disasters

This is not the first PR disaster that the airline has faced. In 2008 United baggage handlers destroyed a guitar belonging to musician Dave Carroll.

Following the incident, Carroll wrote a song about it which has been viewed over 17m times on YouTube. The share price dropped in the days after but the airline recovered.

In March this year the company came under fire again after it refused boarding to two girls who were wearing leggings. At the time the airline said that the girls were flying on an employees and guests pass which has a dress code.

The company weathered the storm and the incident had no impact on the company’s share price.

In fact, the company announced that traffic for March 2017 was up 3pc year-on-year when compared to March 2016.

People will continue to fly with the airline due to the limited competition in the US airline industry.

As a result of several mergers in the US airline industry since 2005, American Airlines, Delta, Southwest Airlines, and United Continental (United) now control about 70pc of the US air traffic market, according to Fortune magazine.

That four airlines control so much of the passenger traffic in the US is confirmation that competition is limited, and passengers have few choices when choosing which airline they want to fly with.

Also, other companies have faced the threat of consumer boycott in the past and recovered.

Investors care about the numbers and in 2016, United and United Express operated more than 1.6m flights, carrying 143m customers, according to its annual report.

On a daily basis, United and United Express operate more than four thousand five hundred flights to over three hundred airports.

Net income for the company in 2016 was $2.3bn, with pre-tax earnings of $4.5bn in 2016.

While the short-term outlook for the company may be turbulent, it is likely that smooth skies lie ahead.

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