United to retire it's 737 fleet plus some 744's

United Airlines parent UAL will reduce its work force and domestic fleet, following similar cuts by rivals as the industry grapples with high fuel costs and a weakening economy, the company said on Wednesday.

The plan, which pushed UAL shares up 9 percent, calls for reducing domestic capacity by 14 percent in the fourth quarter.

That means the elimination of 100 planes from the fleet as well as 1,400 to 1,600 job cuts. Included in the plan are the previously announced layoffs of 500 salaried and management employees and the retirement of 30 Boeing 737s.

“With fuel at historically high levels, United and our competitors need to redefine ourselves in this marketplace,” UAL Chief Executive Glenn Tilton said in a message to employees. “The answers are not easy, yet this environment demands that we and the industry act decisively and responsibly.”

UAL lost USD$537 million in the first quarter and has been in merger talks with rivals to try to bolster its competitive position amid rising fuel costs.

However, the company recently ended discussions with US Airways, saying last week that it would not seek a merger now. Upon announcing the decision, Tilton promised to “size the business appropriately.”

UAL said it expected to retire all of its 94 single-aisle Boeing 737s if it can reach a deal with lessors. It also will retire six Boeing 747 jumbos.

Over this year and next, UAL will reduce its mainline domestic capacity by 17 or 18 percent and shrink consolidated capacity — which includes regional flying — by 9 or 10 percent.

UAL’s downsizing is consistent with recent steps taken by American Airlines, which said last month it would cut its domestic capacity by 11 or 12 percent in the fourth quarter and eliminate more than 1,000 jobs.

In March, Delta Air Lines, which plans to merge with Northwest Airlines, said it would cut 2,000 jobs through voluntary retirement and reduce domestic capacity by 10 percent this year.

Airline experts generally agree that the industry must cut its capacity by 20 percent and raise fares by 20 percent to stabilize.

The airline industry began recovering from a years-long downturn in 2006 as carriers cut capacity on competitive domestic routes and raised ticket prices accordingly.

A spike in the price of crude oil, which is directly linked to the price of jet fuel, eroded some of the financial progress airlines have made. And the prospects for weaker travel demand as the US economy slows threatens to undo the gains altogether.

Before AMR and UAL’s actions, airlines had been cutting capacity for more than a year, but by smaller percentages. The big reductions by the two largest US carriers may prompt others to make similar moves.

“We could see the other majors increase the magnitude of their cuts,” Corridore said.

(Reuters)