Shares of United Airlines tumble after 3Q financial report

Shares of United Airlines dropped more than 12 percent on Thursday — their biggest one-day percentage decline in eight years — after a contentious conference call that caused analysts to question whether United executives are making progress on their turnaround plan.

Analysts speculated whether a management shakeup could be coming.

United had already signaled that weak pricing will continue for the rest of this year. On the call, several analysts pressed management for evidence that the company is doing enough to raise revenue and control costs.

CEO Oscar Munoz appealed for patience. He said United "dug ourselves in a hole" compared to competitors, and that his management team is working on a plan for long-term success.

"It's a difficult period for us as we work through all this information," Munoz said. "The team has only been in place really for a year and we're just getting our mojo working ... I just need a little more time."

Munoz was named CEO in September 2015. He cemented his executive lineup by hiring former American Airlines president Scott Kirby for the same job at United in August 2016.

United executives claimed Thursday that measures they spelled out at an investor day last year to raise revenue and cut spending were going well, but they declined to give specifics or back away from expansion plans.

Barclays analyst Brandon Oglenski was especially pointed in his criticism, telling Munoz that the CEO should know that when a company makes public statements about financial targets, investors will want to measure it against those numbers. He said United's earnings, margins and stock price were doing worse in 2017 than those of key rivals.

Shares of United Continental Holdings Inc. tumbled $8.21, or 12.1 percent, to close at $59.78. It was the biggest one-day drop ever in price, and the biggest percentage decline since October 2009. The shares have dropped 18 percent this year, while shares of American, Delta and Southwest airlines have gained between 6 and 18 percent.

Stifel analyst Joseph DeNardi said Thursday's sell-off reflected "an erosion in confidence of management." He said the top question he heard from investors was whether this could be "a catalyst for management change."

"Clearly, patience with executing the turnaround at United is wearing thin with investors," DeNardi wrote in a note to clients.

Cowen and Co. analyst Helane Becker said there had been "rumblings" from investors about another shakeup at United before the call, but afterward "they aren't rumblings, but full-fledged screams."

The prickly call came a day after United reported that third-quarter profit fell by one-third to $637 million as hurricanes led to 8,300 canceled flights and $210 million in lost revenue. A key measure of pricing power fell 3.7 percent, and the Chicago-based airline forecast it will drop by 1 percent to 3 percent in the fourth quarter.

Analysts said the fourth-quarter forecast wasn't so bad, but raised doubts about recent business initiatives.

"People are beginning to wonder, is the strategy working?" Stephens Inc. analyst Jack Atkins said in an interview. "When will we see that materialize in the financials?"

United is on pace to increase domestic passenger-carrying capacity by more than 4 percent this year. Atkins said that is too fast and undermines pricing power, and that United is simultaneously seeing a "really troubling" increase in costs.

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David Koenig can be reached at http://twitter.com/airlinewriter