Will United’s Passenger Debacle Be a Boon for Other Airlines?
If you’ve been on social media or watched the news at any point in the past couple of weeks, you’re probably already aware of the United passenger scandal. Regardless of where you stand on the issue – support of the passenger, or support of the airline – the real world implications are more far-reaching than you might think.
Just after a video of the incident went viral, United’s stock fell several points from just north of $70 per share to a low of $67.75 in one week. The company’s mismanagement of the issue prompted a flurry of negative press with some even suggesting that the CEO should resign or be dismissed. The whole airline industry’s practice of overbooking flights came under fire and many investors began to speculate as to what the fallout for other airline companies might be.
A Closer Look at the Airline Industry
At first, it seemed like United might be in trouble with a drop in the stock value leaving room for other airlines to step in, but the stock has quickly corrected back to the upside as investors took advantage of the brief discount.
Ultimately, the airline industry is an oligarchy with a high barrier to entry. The limited number of airlines and heavy government regulation means that prices and policies are not as competitive as other types of industries. Despite United’s PR disaster, there aren’t really any other options for consumers who need to travel. While there are some small regional airlines, the vast majority of travelers use only four: United, Delta, American Airlines, and Southwest.
Coming into 2017, airlines were largely viewed as a bullish industry with plenty of consolidation and low oil prices. The aerospace sector has been experiencing a large lift in light of Donald Trump’s election and airline companies have been taking advantage by investing in new planes and rebuilding infrastructure. Deregulation is on the table for the industry, while also creating a case for further gains across all airlines.
Despite the continued PR nightmare with United, the stock is still climbing higher. If anything, the situation might actually end up being a positive thing for the stock price as investors buy into the weakness.
Ironically, the passenger fallout might actually turn out to be best for United itself. The drop in the stock price looks like it served only to put it on sale, which investors quickly took advantage of. Oil prices will be a key concern moving forward – more so than United’s policies.
There is some good news for consumers though. The incident sparked an industry-wide debate with Southwest being the first airline to announce that they will no longer overbook flights. Whether or not that translates into additional gains or losses is yet to be determined.