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United Airlines, the second largest carrier in the US, is to ground planes, slash flights from its schedules and cut up to 1,600 jobs as it struggles to cope with the economic downturn and the soaring cost of jet fuel.
The moves are the latest in a string
of restructuring plans that are reshaping the US airline industry, holding out the prospect that carriers may finally move to a sound financial footing but jacking up costs and inconvenience for the travelling public.
Following the lead of other airlines that are rationing flights and pushing up ticket prices, United said it would cut capacity on its main routes by up to 18 per cent by the end of next year.
It plans to retire all 94 of its single-aisle Boeing 737s, its least fuel-efficient planes, and will also stop flying six Boeing 747 jumbos.
In all, the United fleet will shrink by more than a fifth.
The company had already announced it would retire 30 planes and cut 500 jobs, but the latest spike in oil prices has sent the cost of jet fuel into unprecedented territory and forced United to increase the scope of its restructuring plans.
United currently employs 55,000 people.
"This environment demands that we and the industry act decisively and responsibly," said Glenn Tilton, United chief executive.
"We continue to do the right work to reduce costs and increase revenue to respond to record fuel costs and the challenging economic environment."
United has twice explored merger opportunities recently, first with Continental and most recently with US Airways, hoping that a deal would provide cover for cuts in routes and staff, but opposition from pilots' unions and other complications scuppered both sets of talks.
Yesterday, shares in UAL, United's publicly traded parent company, leapt 8 per cent on hopes that it will get to grips with over-capacity as an independent company.
United also said yesterday that it would scrap its economy class-only Ted brand, reconfiguring the planes under the United brand with first and business class seats.
Analysts have predicted it will take a 20 per cent reduction in capacity n and a 20 per cent increase in fares n before the US airline industry reaches financial stability.
For years, companies have traded in and out of bankruptcy, and Brian Nelson, an analyst at Morningstar, said it was too early to be confident the industry can avoid bankruptcies, and even a major liquidation, before the current cycle is through.
"The wild card is what the remaining players do, and what low-cost carriers do. The industry is in flux and United's move is a step in the right direction, but I am not optimistic. United is not financially fit, and could have liquidity issues."
The oil price spiked at US$135 a barrel last month, and despite a modest pull back since then it is still more than double its level a year ago.
Several US airlines have stopped flying, as have all three of the transatlantic business-only airlines, most recently London-listed Silverjet.
The soaring cost of jet fuel also threatens the profitability of European airlines.
Both British Airways and Ryanair have warned in the past few weeks that their profits will be wiped out this year unless the oil price falls.
- INDEPENDENT