Untied

Those who follow me on Twitter are already aware I was caught up in the United Airlines meltdown leading up to the July 4th holiday. Long story short, our 28 June flight from the Azores to the U.S. was cancelled, and with few other options we were instead sent to Paris on the 29th. We made it to Washington, D.C., soon after, but needed another two days to secure passage to Atlanta.

The experience, as is always the case with airline meltdowns, was full of frustration and chaos. When our initial flight to Atlanta from Washington was cancelled, United’s system helpfully rebooked us on a flight 10 days later. That’s funny because, according to Google Maps, you can actually walk from Washington to Atlanta in less time.

But this isn’t a post to complain about, or make fun of, United Airlines. That’s what Twitter is for. This is a post about seeing the forest for the trees.

In the middle of my unexpected “bonus vacation,” and while killing a considerable amount of time making fun of United on Twitter, colleague Adam Levine-Weinberg brought up some of my own words as a counter.

It is a pretty good zing, especially by Twitter standards. But as I am sure Adam would be the first to tell you, it is also a lousy way to view the world.

The thing is, in the world outside of Twitter, two things can be true at the same time. United was a basket case for decades. Its issues were made worse by a bungled 1990s attempt to create an employee ownership plan, and then were further complicated by its 2012 merger with Continental Airlines that took years to fully integrate.

That all began to change in 2015 when Oscar Munoz was named CEO. (Full disclosure: I’m a big fan of Munoz. If you’d like to hear part of a conversation I had with him earlier this year talking about the work he did with United, click here. He also wrote a good book about his experience.)

By almost any measure, Munoz succeeded in getting United out of its malaise and made great progress in solving a lot of its long-running problems. Talk to United employees today (and trust me I had a lot of time to talk to United employees in recent weeks), and to a person they talk about how much better things are now.

Or, to put it another way, using words previously thrown in my face, after a long period of real struggles United finally “has stable and progressive management that has done a good job modernizing its long-sleepy operation.”

Fact.

They also had a really lousy week in late June.

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This hints at one of the essential truths of investing: Time frame matters. Two opposing things can be true at the same time, and there is money to made focusing on the truth that is currently out of favor. The most obvious example of this is in Wall Street analyst estimates and upgrades/downgrades.

As we’ve discussed before, certain stocks or sectors can have macro headwinds that make it almost impossible for them to outperform in the near-term. Analysts, who are paid to predict what will happen in the next three to six months (a year tops), will inevitably downgrade good businesses. That often impacts the stock price. But those good businesses also have the wherewithal to survive the headwinds, and still be long-term winners. In those moments, where two things are both opposed and true, there are opportunities.

Which isn’t to say United is such an opportunity right now. For one, even with its operational meltdown the stock is up 45% year to date. And up 15% since June 1. There’s no bargain to be had here. (Which, by the way, is the market’s recognition of the broader point that despite these stumbles the company has still come a long way and made a lot of progress over the last decade.)

FWIW, I have no interest in buying United stock. I’m not saying you should buy or sell United stock. Airline stocks in general are not the greatest sector to hunt in. I did buy Delta near its COVID lows and continue to hold it. That’s probably a mistake on my part, but I have a problem with selling, and I do respect that management team. I’m not saying you should buy or sell Delta stock. (I guess I am saying you should have bought in March 2020, when, in an example of what was discussed above, the near-term sentiment did not match the long-term potential. It is so easy in hindsight!)

If aviation is of any interest to you as an investor, there are better ways to invest than airline stocks. That’s probably a separate post.

Some thoughts on United… Oscar Munoz is now gone and selling books. He was replaced by Scott Kirby. I first met Kirby in 2005 or so, not long after America West bought US Airways. The combined company assembled a lot of people like me in Tempe, Ariz., to explain how wonderful the merged entity would be.

Kirby was an America West exec and my recollection of him was he was the smartest guy in the room. By far. Head and shoulders above the other execs. He also, to be polite, seemed fully aware of this, which I guess is why I should not be surprised he is also prone to horrible PR gaffs during a crisis.

Kirby has some really difficult decisions to make from here. United’s Newark hub is both an operational nightmare, and a key part of its network. For aviation geeks who would like to go deeper, the always-excellent Edward Russell has a good discussion of the Newark challenge here.

I think Kirby, assuming he survives that PR gaff, will continue to make progress modernizing United and moving the company past its nightmare days. I also think as a consumer I’d rather fly other airlines, and as an investor I’d rather hunt elsewhere.

Two seemingly opposing things can be true at the same time.

NOTE: We have another AMA on the schedule. So get your questions in now via email (lou (dot) whiteman (at) live (dot) com) or, if it still exists, on Twitter. Nothing is out of bounds, especially since I can just ignore the questions I don’t like.

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