United to 'cut fleet, axe low-fare unit'
UAL Corp's United Airlines, the world's second-largest carrier, will cut its fleet by about 70 planes and shut the low-fare Ted unit to counter record fuel expenses, a person familiar with the plan said.
The reductions will take effect later this year, adding to the 30 aircraft taken out of service and 1,100 job cuts that United announced in April, said the person, who didn't want to be identified because the matter is still private.
The second round of cutbacks in two months at Chicago-based United reflects the strain of jet fuel's 76 percent surge over the past year. The Ted unit, which started in 2004 as a low-fare competitor, will join more than a dozen carriers in the United States, Asia and Europe that have collapsed in the past six months.
"Some of these capacity cuts are being done with the precision of a chainsaw," said Michael Boyd of Evergreen, Colorado-based consulting firm Boyd Group. "You can't just park planes and cut routes. It has to be the right kinds of planes on the right routes."
The airline will announce additional cuts among management and salaried workers, the person said, adding that the number of unionized, front-line workers who will lose their jobs hasn't been determined. United has about 52,500 employees.
Grounding planes
United plans to ground about 64 Boeing Co 737s and six Boeing 747s by the end of 2009, according to the person. Aircraft the company owns will be taken out of service and later sold, while leased aircraft will be returned to their owners, the person said. United had a fleet of 735 planes in operation as of the end of March.
The plan comes less than a week after the collapse of merger talks with US Airways Group Inc. Chicago-based UAL has posted four quarterly losses since exiting bankruptcy in February 2006.
Jean Medina, a United spokeswoman, declined to comment on the airline's fleet or capacity plans. The Wall Street Journal reported the planned reductions in the size of the fleet late on Tuesday (local time).
Airlines' efforts to cover fuel costs with fare increases and new baggage-check fees have fallen short, leading JPMorgan Chase & Co analyst Jamie Baker to estimate that the US industry's losses will top $7.2 billion this year.
UK-based business-class operator Silverjet Plc, long-haul budget carrier Oasis Hong Kong Airlines Ltd, Columbus, Ohio-based Skybus Airlines Inc and Frontier Airlines Holdings Inc of Denver have all failed in recent weeks.
Stocks pummeled
Forecasts of losses are weighing on airline shares, chopping UAL's market value this year by 76 percent to $1.07 billion and making the carrier the worst performer among 14 stocks in the Bloomberg US Airlines Index. The index has tumbled 35 percent in 2008.
UAL gained 65 cents, or 8.3 percent, to $8.53 on Tuesday in NASDAQ Stock Market composite trading. The Germany-traded shares advanced 3 cents to the equivalent of $8.56 as of 9:55 am in Frankfurt.
Credit-default swaps on the company rose 57 basis points to 3,216 on Tuesday, according to New York prices from CMA Datavision. The price to protect $10 million of United debt for five years is equivalent to $3.2 million annually. Credit-default swaps increase as investor perceptions of credit quality deteriorate.
Baker's loss estimate would be a record for the US airline industry. Globally, airlines may lose $6.1 billion this year, the International Air Transport Association, whose members account for 93 percent of international traffic, said this week.
Delta Air Lines Inc President Edward Bastian said that the Atlanta-based carrier would further pare flying this year, expanding on domestic seating-capacity cutbacks announced earlier of as much as 11 percent. Delta is grounding 90 planes and eliminating 3,000 jobs through buyouts. That represents about 5.5 percent of Delta's workforce.
AMR Corp's American Airlines, the world's largest carrier, said on May 21 it would reduce capacity on domestic routes by 12 percent.
United's Ted was starting to compete with discounters including Frontier Airlines Holdings Inc and Southwest Airlines Co. Ted, which takes its name from the last three letters of United, flies from cities such as Denver and Chicago to leisure markets including Miami and Cancun, Mexico. The unit operates Airbus SAS jets in one class of service.
Agencies
(China Daily 06/05/2008 page16)
