corporate america

United Airlines Stock Drops $1.4 Billion

United Airlines Stock Drops $1.4 Billion

By Ryan Velez

The recent outrage over United Airlines’ decision to forcibly eject a passenger from an overbooked flight stirred up plenty of ill will towards the company both in public and on the Internet, but it’s easy to see how people may have been skeptical about how this affects the bottom line. Similar incidences from other companies had generated negative publicity, but not enough to affect the profits of the affected companies. Fortune reports that this may be the exception, as of Tuesday, shares of United fell as much as 6.3% in pre-market trading, dropping $1.4 billion from the now $21 billion company by market cap. By early trading Tuesday, shares were down 4%.

Part of the issue may not just be the decision itself, which has come under further scrutiny after video footage released Monday showed the passenger in question bleeding from the head and clinging to the curtain on the aircraft. The apologies from United and its CEO Oscar Munoz have come across as tone-deaf and stirred up more anger rather than diffusing it. In an email to employees on Monday, Munoz defended his staff’s actions, calling the passenger “disruptive and belligerent.” This sparked even further anger, and because the passenger in question was Chinese, many are calling the actions discriminatory, especially among the Chinese community. In China, it has gone viral, becoming the number one topic on Weibo, the Chinese answer to Twitter.

Interestingly enough, a boycott of United Airlines, which some have proposed, should be a potential boon to the stocks of other airlines, but this doesn’t appear to be the case. Shares of Southwest Airlines, Delta, and JetBlue also dropped roughly 1%. Some believe that the trend may be coming from FCC chief Ajit Pai’s announcement late Monday that he wanted to ban cell phone calls on flights.

In United’s case, some suspect that it may boil down to a market overreaction over the sheer amount of negative sentiment and press United has managed to drum up over the last few days, including CFRA’s analyst Jim Corridore.

“We think this situation was handled in a deplorable fashion, but note that United has the right to refuse boarding to any passenger for any reason… We hope United will respond with apologies and procedural changes,” he wrote in a Monday note. “Overall, we think the demand for United Airlines flights is unlikely to be affected by this poor customer service incident.” History would seem to agree with Corridore’s assessment, as while poor press can be a nightmare in the short-term, the majority of major companies dealing with this issue can bounce back. It is the smaller businesses caught in these issues that tend to suffer the most.

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