United reports $2.7 billion loss, stock soars

Parent of No. 2 airline rallies despite losses caused by high fuel prices, severance-related downsizing charges.

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By Aaron Smith, CNNMoney.com staff writer

I think expanded drilling in Alaska is:
  • A way to bring down the price of oil quickly
  • Nothing but political pandering
  • A smart step toward energy independence
  • A waste of time

NEW YORK (CNNMoney.com) -- United Airlines parent UAL Corp. stock soared 68% Tuesday after it reported a second-quarter net loss of $2.7 billion Tuesday due to the soaring price of fuel and announced thousands of new job cuts.

UAL Corp. (UAUA, Fortune 500) said its loss of $21.47 per share stemmed from $2.6 billion in previously recorded accounting charges, including a $2.3 billion special charge for "goodwill impairment."

Excluding these charges, the parent of the nation's second-largest airline reported a loss of $151 million for the quarter, or $1.19 per share.

But that was better than the loss of $2.05 per share that analysts surveyed by Thomson/First Call had expected on that basis.

The company's stock ended the day $3.42 higher to $8.41 a share.

United said operating revenue totaled $5.37 billion, falling just short of the $5.40 billion analysts had expected.

"Our industry continues to be challenged, perhaps as never before, by fuel prices that continue to march higher," United Chief Executive Glenn Tilton said in a webcast with analysts. "We're taking the difficult but imperative action of cutting jobs throughout the company."

Jack Brace, chief financial officer, said United plans to cut 7,000 jobs, or 12% of its total workforce, by the end of 2009, much larger than the previously announced cuts of approximately 1,500 jobs. Brace also said the airline will eliminate 100 of its least fuel-efficient airplanes from its fleet.

John Tague, chief operating officer, said United will also eliminate its least fuel-efficient routes, aiming for a 13% capacity reduction by the end of 2009.

"At current fuel prices, the economics of certain routes just don't make sense right now," said Tague. "Routes that cannot withstand the pressure of elevated fuel costs will be eliminated."

United also announced that it extended its Mileage Plus bank card partnership with Chase Bank, meaning that United will receive a $600 million payment from Chase, and increase its cash flow over the next two years by $200 million.

Other airlines struggling with rising fuel prices also posted quarterly losses Tuesday.

But airline stocks rose as oil prices prices plunged. US Airways (LCC, Fortune 500) jumped nearly 59% on Tuesday and JetBlue (JBLU) climbed almost 16% by the end of the day.

"The market probably liked what it heard on the conference call with the capacity cuts," said Ray Neidl, airline analyst for Calyon Securities. "But I think the biggest thing is the change in oil prices."

Oil plunged as much as $5.41 a barrel in Tuesday trading, before settling $3.09 lower, due to concerns about energy use in a troubled economy and reduced fears that a tropical storm in the Gulf of Mexico will hurt production.

"Oil prices going down has certainly had an impact," said U.S. Airways Chief Executive Doug Parker in an analyst call, when asked to comment on the rising stock prices.

The Tuesday trading is in stark contrast to the airlines' performance so far this year. Year-to-date, the Amex Airline Index (XAL) has plunged 50%.

US Airways, the nation's No. 6 carrier, reported a narrower second-quarter loss than had been forecast on revenue that came roughly within expectations.

The airline posted a net loss of $101 million, or $1.11 per share. Analysts had expected a loss of $1.29 per share. Excluding charges, the net loss was $567 million, or $6.16 per share, the company said.

The carrier reported total operating revenue of $3.25 billion, versus Wall Street's projections for sales of $3.27 billion.

JetBlue Airways booked a net loss of $7 million, or a loss of 3 cents a share, as operating revenue surged 17.7% to $859 million.

Analysts had projected a loss of 7 cents per share on revenue of $856 million.

Rising fuel prices are squeezing the money-losing airline industry, which is in its worse state since the fallout immediately following the terrorist attacks of Sept. 11, 2001.

Sales gains "are clearly not keeping pace with the extraordinary increase in the price of jet fuel," JetBlue Chief Executive Dave Barger said in a statement.

US Airways CEO Parker echoed that view. Losses "reflect the unprecedented rise in fuel prices that are impacting our industry," he said.

The Air Transport Association expects fuel costs to jump to $61.2 billion this year, up nearly 50% from $41.2 billion in 2007. Airlines have also increased fares, added fees to services that once came for free, cut thousands of jobs and reduced capacity by eliminating their least fuel-efficient flights.

Parker said these a la carte charges, which include charging fees for the first checked bag, will result in an additional $400 million to $500 million in annual revenue.

Other measures, such as removing the in-flight entertainment system, will save the company $15 million a year from "reduced fuel burn," he said. To top of page

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