There’s a saying by Warren Buffett that we bring up a lot around here: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” If you’ve taken that on as one of your personal investment mantras then your ears might have perked up a little when you first heard about the United Airlines passenger assault scandal. Oh you didn’t hear? Allow me to inform you.
— Anthony De Rosa ? (@Anthony) April 11, 2017
A few days ago, a Dr. Dao was aboard a United Aircraft, already buckled up and ready to get in the air. He had paid for his seat just as you’d expect. However, the airline decided to put 4 United employees on the already fully booked flight, meaning that 4 passengers would have to leave. The airline offered volunteers $800 apiece, but no one volunteered.
Airline representatives asked Dr. Dao to step forward, but he refused saying that he had patients who needed his care the next day. After repeated requests, the airline decided to force the issue, and Dr. Dao was literally beaten and dragged from the plane. He suffered a broken nose, damaged sinuses, a concussion, and other injuries. The whole event was recorded on multiple passenger devices, even the part when Dr. Dao rushed back onto the plane, bleeding profusely, babbling in his concussed state about how the airline people were going to kill him.
Then What Happened?
United’s CEO responded by doing exactly what you shouldn’t do in a situation like this. He doubled down, reporting that the passenger was disorderly. By that time, $UAL had tumbled, with more than $1.3 Billion in dumped shares at the time of this writing.
The CEO has since relented, going on the record that the video of the event caused him “shame”, but is the damage done, or is this a good time to snap up some cheap UAL?
That’s right folks. By the look of it, the United Airline scandal is far from over. With Dr. Dao’s lawyer announcing that his client will need reconstructive surgery, and video recordings of the brutal event available from multiple angles, I think we have not seen the full extent of this stock’s punishment. Stay tuned for next week when I think we’ll see what the damage really is (both to the stock and to Dr. Dao).
It’s not just that this unfortunate event happened, or that it was reported. The major factor is the fact that the internet latched onto this story, then latched its teeth into United. If you spend any time at all on Facebook, Twitter, or Reddit, you saw a gruesome outpouring of bile at United and everything they represent.
For many internet people, especially those who do not travel frequently by air, one airline is very much like the next. The public (especially those who live most of their waking hours online) now know United as “that airline”, and this impression is going to stick.
United sits as a price point shared by several other airlines. The next time you, and a million travelers like you, go online and see their ticket offered by 4 airlines at about the same price, they’re going to see United and remember Dr. Dao’s bloody, terrified face.
If I had to guess, I’d be we see a 10% drop in UAL by next week and, eventually, the sacking of CEO Oscar Muñoz. This is one of the great corporate scandals in recent memory, and easily the most significant in terms of contemporary internet culture.
$UAL’s fundamentals are actually fairly good. Their P/E ratio and revenue trends are noteworthy, but not enough to pull them out of this public relations tailspin.
If you’ve got UAL, dump it now if you haven’t already. If you want to play the short game, UAL is probably as safe a bet as you’re gonna get.