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Is Hawaii Airlines A Better Investment Than United Airlines?

|Includes: HA, United Continental Holdings, Inc (UAL)


  • The video of the incident with a passenger on United put a focus on airline stocks.
  • Airline stocks have done well in the last few years compared to the market.
  • Hawaii Airlines is a better investment than United Airlines.

For the long-term investor looking for value, bad news is often good news. Let's face it, when bad headlines offer a discount, it can be a good time to invest. However, just because something is put on sale doesn't mean that it is a good buy. It is worth taking a deeper dive into the company's performance before trying to make a play on value.

United Airlines (NASDAQ:UAL) reports quarterly results on Monday and I am sure that many folks will be paying attention to what CEO Oscar Munoz says about their plans going forward. I will be paying attention to their financials. For the last three years, United has decreasing revenue. They did a good job of cost cutting and increasing earnings in 2015, but then earnings were flat last year. The only real bright spot from an investment standpoint is that United has been buying back shares. This makes their P/E look better while the rest of their business isn't really going anywhere. On top of this United has no dividend.

Now, I don't know the last time I researched a company with no growth and no dividend where long term investment made any sense. I find it strange that many folks in the investment world still have a buy rating on this company to which I have to ask, "What are you buying?" You are not buying growth. You are not buying dividend returns. I guess the only real hope here is that earnings continue to be flat, the buybacks continue, and the stock looks even cheaper in six months than it does now. That gives hope that maybe someone will want to pay even more for the stock than they do now.

Meanwhile, there are much better investment opportunities out there. Take Hawaii Airlines (NASDAQ:HA) for example. The company has growth both in revenue and in earnings the last three years. They are not buried in debt and their P/E ratio is only about 10% higher than UAL. Unlike United, Hawaii Airlines is at or near the top of the rankings in several different customer service categories. So, they are running a solid business and making customers happy at the same time. Now that is a company that is worth a look.

Getting back to the recent incident with the removal of Dr. David Dao from a plane, one wonders what is going on in United's management. There are always going to be strange things that happen like a few days later when a scorpion felt from an overhead compartment and stung a passenger on a United flight. What is important is that the company culture is not compromised. The sure way to kill a company long term is to take your customers for granted. The CEO's initial response to Dao being beaten senseless was that he was sorry for having to "re-accommodate" him and that doesn't bode well. It also didn't bode well that the CEO sent an internal letter to employees backing the crew and the policies that led to the beating.

I don't know about you, but I like to know the captain of the ship is steering us to paradise and not to crash into an iceberg. But with United, Oscar Munoz doesn't seem to have a clue. Bloody passengers do not buy more tickets. At the end of the day, the quarterly report is going to have to be blow out to change my mind. At this point, United simply is not a good investment. The numbers say so and the intangibles say so. There are better places for our money.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.