United takes dive
OIL PRICE FALLOUT | Airline to raise fares, cut flights and 1,100 jobs
The impact of soaring oil prices became clear when United Airlines reported a $527 million first-quarter loss Tuesday: higher fares, fewer flights, fewer planes and 1,100 fewer jobs.
The airline said fuel expenses for the quarter jumped to $1.9 billion, an increase of more than $600 million compared to first-quarter 2007.
(AP file)
UAL Corp., United's parent, lost more than a third of its value, with shares falling $7.88 to $13.55 as investors worried about whether the carrier could meet its post-bankruptcy financial commitments.
Jake Brace, United's chief financial officer, told analysts that United was in compliance with its covenants and that it still has $2.9 billion in cash. United lost $4.45 per share, triple last year's loss, though revenue grew 6 percent to $4.71 billion.
Tuesday's report came as oil hit a record, settling at $119.37 a barrel. Oil is clearly United's biggest problem. A recent Merrill Lynch research report estimated United might lose $609 million in all this year if oil stayed at $110 barrel.
United said it would trim its work force, with 500 of the cuts expected to come from management ranks. Spokeswoman Jean Medina said no decision had yet been made about how many positions will be cut at United's world headquarters in downtown Chicago, where about 400 people work.
Reductions in the union work force will include pilots, flight attendants and mechanics. In a memo to employees, CEO Glenn Tilton said the cuts would come through a combination of attrition, retirements and furloughs.
The airline also announced it would trim an additional 9 percent of its mainline domestic capacity on top of the 5 percent it cut in the fourth quarter of 2007. Medina said no decisions had been made about which routes would be cut, but she indicated some international flights might be trimmed as well.
The airline also will reduce the size of its fleet by 30 aircraft -- 10 to 15 more than previously announced.
Mark Walton, a corporate travel consultant based in Arlington Heights, said the capacity reductions almost certainly will translate into considerably higher fares for leisure and business travelers on some routes.
"We may soon get to the point where some people simply may not be able to afford to fly," Walton predicted.
He found a $1,423 one-day advance purchase round-trip fare between Chicago and Cincinnati in the United and American reservation systems last week.
"That's for a 400-mile trip," Walton said.
Collectively the nation's airlines have tried to push through about 45 fuel and fare surcharges since October.
With oil prices not expected to fall much from their historic highs anytime soon, United will look to cut about $400 million from its planned spending for the year. But Medina said the rollout of a new premium class product, which began in November 2007 and will continue into 2009, would not be affected by the spending cuts.
Also, the carrier was mum about its merger plans Tuesday, but in his memo, Tilton said a merger is "one of the changes required to address the gap between where we stand today and profitability and sustainability."
Continental Airlines is widely seen as the leading candidate to merge with United, but in the wake of the announced Delta-Northwest merger, United was said to have talked also with U.S. Airways. Medina declined to comment on the merger talks with other carriers or on United's timetable for a merger deal.
Contributing: AP
