United Airlines Caused Outrage by Ejecting a Passenger-And Its Stock Went Up
United Airlines made all the wrong kinds of headlines Monday after forcibly ejecting a customer from an overbooked flight. Photos and videos of the bloodied passenger being dragged off the plane by security quickly circulated via social media, and soon enough, the company had a PR disaster on its hands.
But you wouldn’t have known that from looking at the stock market on Monday afternoon. Shares of United Continental Holdings closed up nearly 1% Monday, even as Twitter users threatened to boycott the company over its treatment of a customer. The rise wasn’t part of an overall market bump: The S&P 500 was basically flat for the day.
So why did investors deem United Airlines to be what turned out to be $355 million more valuable, despite the negative news?
It’s not entirely true that investors didn’t care about the incident. United stock dipped as much as 2.5% in pre-market trading Monday, likely in reaction to video and news of the incident, which broke late Sunday. But some investors swooped in to buy on that dip, sending shares up in trading after the market opened. After all, many are expecting better financial results from United , especially given overall strength in travel and the wider economy. (The company will release first quarter 2017 earnings April 18.) Shares of the company have risen some 33% over the past year.
United released its March traffic figures Monday afternoon, reporting a 3% year-over-year increase in traffic for the month. That allowed United to give a more upbeat first quarter guidance of relatively flat unit revenue. But it also had trouble filling up all its seats, with its consolidated load factor falling 0.3 points to 81.3% in March compared to a year earlier.
There’s evidence to suggest that PR snafus like this weekend’s don’t have a long-term impact on the airline’s stock. An incident nearly two weeks earlier in which United Airlines asked two teenage girls to leave a flight for wearing leggings sparked a media fire storm, but had no effect on the company’s share price.
While a boycott would be bad for the company, it’s still too early to say whether one will materialize, and whether it would be effective if it did. Starbucks, for example, has weathered several boycott threats with no clear effect-most recently over a promise to hire some 10,000 refugees within five years.
Perhaps most important: After years of mergers and consolidation, customers don’t have as many options as they used to for domestic air travel. United is one of the “Big Four” airlines that now control about 70% of the U.S. market, and for some travelers in some regions, the carrier is their best or even only option, no matter what controversies may erupt.
