UAL announces 1,100 job cuts after loss triples on fuel costs
CHICAGO -- United Airlines parent UAL Corp. lost about a third of its market value Tuesday after reporting a $537 million first-quarter loss due to soaring fuel costs and saying it is cutting flights and 1,100 jobs.
The sell-off accelerated and shares of other airlines dropped after Delta Air Lines Inc. CEO Richard Anderson said in Washington that in the face of record fuel prices domestic carriers would need to raise fares by 15 percent to 20 percent just to break even.
At the same time, crude oil prices jumped by more than $2 and neared the once-unimaginable $120-a-barrel mark.
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Anderson said higher fares would likely diminish demand for air travel, and prompt carriers to further reduce their schedules.
UAL's loss, in what it called an "extraordinarily difficult" environment for airlines, was the biggest since the nation's second-largest carrier emerged from bankruptcy in 2006 and worse than Wall Street expected. Shares in the company plummeted 37 percent to $13.55 in Tuesday trading.
Chicago-based UAL said its nearly 8 percent growth in revenue from the first quarter of 2007 was more than offset by a $618 million jump in fuel costs, which rose nearly 50 percent in a year.
The carrier follows American Airlines parent AMR Corp. and Continental Airlines Inc. into the red for the quarter because of fuel costs. Southwest Airlines Co. is the only large carrier to have reported a profit so far. Delta and Northwest report first-quarter results today, while US Airways Group Inc. reports Thursday.
UAL said it will lower its planned 2008 spending by $400 million and eliminate 500 salaried and management jobs and 600 union jobs by the end of the year. UAL also said it will cut capacity 9 percent by the fourth quarter, on top of a 5-percent reduction in the fourth quarter of 2007, and take 10 to 15 more narrow-body aircraft out of its operating fleet for a total of 30 to be grounded.
"Although both our revenue performance and our non-fuel cost performance were good this quarter, they were not enough to offset the significant and rapid rise in fuel prices," CEO Glenn Tilton said in a message to employees.
"The path to sustainable profitability requires us to fundamentally overhaul every facet of our business," Tilton said.
Combining with another carrier could be next, especially in the wake of the proposed tie-up this month of Delta and Northwest Airlines Corp.
While Tilton did not specifically address talks with Continental, he did say that consolidation is "one of the changes required to address the gap between where we stand today and profitability and sustainability."
UAL's net loss for the January-through-March quarter amounted to $4.45 per share, compared with a loss a year earlier of $152 million, or $1.32 per share. Revenue was $4.71 billion, up from $4.37 billion. Analysts were expecting $4.75 billion.
The breathtaking extent of the stock drop raised questions about UAL's financial health. But Chief Financial Officer Jake Brace told analysts on a conference call that the company has no problems in meeting its debt obligations, and it still has $2.9 billion in cash.
Standard Poor's revised its outlook on UAL's debt last week to negative from stable. SP airline analyst Philip Baggaley said he anticipates potential difficulties in the company making its required $928 million in 2008 debt and capital lease payments because of the weak economy and high fuel prices.
"Currently they don't have a problem, but given the earnings outlook they could well have one later this year," he said Tuesday.