December 12, 2018 / 8:35 PM / a month ago

United Airlines CEO doubles down on growth strategy as stock rides tailwind

CHICAGO (Reuters) - With many rival airlines scaling back plans to add travel routes and seats in a bid to protect margins, Oscar Munoz is taking United Airlines in a different direction.

United Airlines Chief Executive Officer Oscar Munoz poses for pictures in his office at the company’s headquarters in Chicago, Illinois, U.S., November 14, 2018. Picture taken November 14, 2018. REUTERS/Tracy Rucinski

The No. 3 U.S. air carrier is forging ahead with a strategy to boost its flight network by another 4 percent to 6 percent next year after an estimated 5 percent network growth in 2018, Munoz, CEO of United Airlines since 2015, said on Wednesday.

The growth plan has allowed United to claw back market share in a competitive U.S. airline sector and boost its profitability. Traditionally capacity growth in the airline business has come at a cost to yields because it can drive down fares.

So far, United has bucked the industry trend, increasing unit revenues - a closely watched metric that compares airlines’ sales to available seat miles - at a faster pace than rivals American Airlines (AAL.O) and Delta Air Lines (DAL.N).

When the airline unveiled an aggressive plan to add capacity in the middle of a price war with low cost carriers in January, the stock of parent company United Continental Holdings UAL.N fell 7 percent.

But United investors have more than reversed course, sending its shares up about 30 percent so far this year against a roughly 2 percent drop on the S&P 500.

United has overhauled its hubs in Chicago, Houston, Denver, Newark, New Jersey, Washington, D.C., Los Angeles and San Francisco with 220 new flights and better coast-to-coast connecting options.

(For graphic on U.S. domestic market share, see: tmsnrt.rs/2SLzKcA)

Munoz offered new details to his growth strategy on Wednesday, saying United will add flights to New Delhi, Toronto and Melbourne from San Francisco to tap higher-paying international routes.

“The strategy is working,” Munoz told journalists.

The expansion comes after United revamped its home base - Chicago O’Hare Airport - in a way that allows passengers to make easier connections when traveling to the two U.S. coasts and cities in between.

A similar overhaul at Denver, its fastest growing and most profitable hub despite heavy competition from low-cost carriers Southwest Airlines (LUV.N) and Frontier Airlines, will be launched in February. San Francisco is now set for its largest international route expansion, subject to government approval.

Much of United’s domestic expansion so far has targeted a portion of the market share lost when the airline cut 1,200 flights following its post-bankruptcy merger with Continental Airlines in 2010.

“It’s not predicated on anything other than where does it make sense for us to fly. Where are the customers? Do we have the right aircraft, and in essence, can you make money?” Munoz told Reuters in an interview. “We’re not chasing that 1,200.”

The growth plans and investor optimism have allowed Munoz to put the passenger and animal scandals of 2017 in the rear view mirror, and focus on improving relations with its own passengers and labor force.

To turn around its image, Munoz has provided “compassion” training to employees and empowered flight attendants and gate agents to resolve passenger complaints on the spot with travel credits or vouchers.

“United’s No. 1 challenge is to avoid any more notable public relations disasters. Customers, investors and Twitter users will not forgive as easily the next time,” Jim Corridore, equity analyst at CFRA in New York.

Reporting by Tracy Rucinski; editing by Edward Tobin

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