The United Airlines debacle in Chicago is most definitely the viral story of the week. For those still blessedly ignorant of the details, company representatives called local law enforcement to remove a paying, ticketed, and boarded passenger from a Chicago/Louisville flight to make room for deadheading flight crew. They did this after passengers refused offers of travel vouchers and re-booking on the next day’s flight to Kentucky.

United’s corporate call to law enforcement resulted in the passenger being assaulted and dragged from the plane. The unfortunate “lottery winner”–the airline claims he was selected “at random”– bleeding from his nose and mouth, was filmed by the rest of the passengers as he was “reaccommodated” by the airline. The horrified passengers then used their smart phones to upload all of that video to the internet, and United then had a world-wide PR disaster on its hands.

We see here how deregulation of the airline industry, once touted as a means of reducing fares, increasing service, and boosting profits, has led to a sorry state of affairs where paying customers are–now–literally being treated like cattle. A perfect viral metaphor–and SNL hasn’t even had a chance to get this incident into a sketch yet.

United transformed what would have already been a PR nightmare into a full-fledged viral disaster when CEO Oscar Munoz initially blamed the passenger for his beating and removal and tried to claim the customer had been belligerent and disruptive when the numerous videos showed nothing of the sort. He also claimed in his initial response that the customer was merely being “reaccommodated” by the airline.

After his initial tone-deaf response, Munoz found true religion and prostrated himself before his dwindling customer base and world-wide mockery by promising that in the future, law enforcement would never again be summoned to remove a paying customer from any United aircraft.

This incident also provides an opportunity for investors to learn more about quantitative investment services. ValuEngine is a quantitative system of stock valuation and forecasting. Our proprietary models collect, analyze, and recalculate our forecast and valuation metrics every trading day.

They look at the underlying financial data to rate and rank numerous data points for every equity in our database. However, they cannot quantify acts of god, human error, accidents, or–most relevant here–the bad media generated by a poor corporate or customer service culture.

We do not adjust our models to deal with bad press. As an investor, one can be assured that our ratings are never adjusted for such reasons and thus are always systematic and, above all, objective. So, here we find a counterintuitive situation where we rate United a BUY, even with the bad news.

Short-term, that may be the wrong call. Longer term, for our models the stock may become more attractive because until any boycott or customer flight shows up in the underlying financial data–eg earnings, the stock will only become more attractive–as the share prices fall but the underlying fundamentals appear to remain the same.

However, once any customer boycott or revenue decline–and customers in the airline’s important Chinese market are particularly incensed about this incident because it has been revealed that United targeted three others for removal from the plane but only the Asian passenger was forcibly removed by the police– has a chance to make its way into the financial data, we may see a drop in attractiveness over time.

If the underlying numbers deteriorate, or the current share-price fallout continues–UAL was down 4% inter day yesterday, but recovered a bit as investors bought on the dip and closed down only @1%–our models may adjust their calculations and the stock will no longer be rated a BUY. That’s how ValuEngine works.

Be aware of this and remember as an investor that even if the numbers are attractive, human interaction can have a way of wrecking any company–even a giant of the corporate world. United has to deal with a giant, self-inflicted wound here. And this comes at a time when the company seemed to be thriving. They hit an all-time high back in December.

Below is today’s data on United Continental Holdings, Inc. (UAL):

VALUENGINE RECOMMENDATION: ValuEngine continues its BUY recommendation on United Continental Holdings, Inc. for 2017-04-11. Based on the information we have gathered and our resulting research, we feel that United has the probability to OUTPERFORM average market performance for the next year. The company exhibits ATTRACTIVE Company Size and P/E Ratio.

Print Friendly, PDF & Email