TED begins operations at ORD

ooo i flew UAL last year when i went to the US with bmi. I flew down to Orlando with UAL in a 733. Very Good Srevice. Was very ill after we got to our villa, cos the lovely stewardess kept giving me cans of Pepsi, i think i had 6 in all:D

Virgin Express recently added 4 euros per one way to compensate high fuel prices. But, when Saoudi Arabia increases production+ all other OPEC countries, fuel prices will descent again. Usually normal petrol (not Diesel) costs around €1 here. Now it costs €1.17!

I’ve just seen an article that says UAL is prevented by law from hedging fuel because they filed for bankruptcy protection.

Some airlines have a significant fuel hedging program that buffers them from the ups and downs of the oil market. Southwest has fuel hedged through the summer I think which is incredibly smart. It’s a gamble that has paid off for them. Other airlines haven’t hedged nearly that much.

The size of UAL means that they’ll have a significantly larger bill for fuel than smaller carriers. Usually the economics of scale will account for that with normal operations but when you’re trying to leave bankruptcy or get another financial bailout it becomes more of a factor. They’re attempting to secure a $1.6 billion loan of which there would be $750 million less due to the increase in fuel cost. That leaves them with only $850 million to float the company and exit bankruptcy which isn’t nearly what they planned on having available when they made preperations at the end of last year.

The one way to adjust for that change would be to liquidate assets. Less planes, hubs or routes would allow any bailout $$ to carry further in saving the remaining company. Up to this point UAL hasn’t sold off anything. They’ve furloughed employees and parked some aircraft but that doesn’t necessarily save money. There seems to be some talk of UAL selling off Pacific routes which would explain why Northwest Airlines isn’t allowing any industry fare increase. They want to put pressure on UAL and see those Pacific routes become available to strengthen the NWA presence. NWA would rather burn a few million by keeping ticket prices down and force the already bleeding UAL to sell off assets.

If UAL can hold out longer than USAirways they might have a chance. The collapse of USAirways solve the excess industry capacity which would boost returns for the rest of the airlines. That in turn would ease the pressure on UAL. It’s a race to the bottom for UAL and USAirways.

The fuel prices should be killing everyone, though, not just United. There really is no end in sight for the fuel crisis.

It’s not all roses for UAL, full seats don’t equal revenue. All the airlines are showing loads equal to or greater than Pre-9/11 but that’s not equalling success. Fuel is way up and ticket prices are still way down. UAL is looking for a miracle.

By Caroline Daniel in Chicago
Published: May 23 2004 17:34 | Last Updated: May 23 2004 17:34

United Airlines has warned that its fuel costs this year will be $750m higher than it had first estimated and has downgraded an earnings forecast made only five months ago, casting doubt on the airline’s chances of securing a critical US government loan guarantee.

The deteriorating financial situation, which includes reducing its operating earnings for 2004 by $776m, was disclosed in a filing with the bankruptcy court late on Friday. The revisions contrast with the upbeat impression executives at the world’s second-largest airline have sought to convey in recent weeks of steady restructuring progress.

The filing instead suggests that higher fuel prices have eroded the limited financial cushions United had built into its plan, and that it is failing critical coverage ratio tests that providers of exit financing usually demand as a condition of providing funds.

The fuel crisis comes as the Air Transportation Stabilisation Board, the federal body set up after September 11 to aid the airline industry, is preparing to decide on whether to grant United a $1.6bn loan guarantee.

If the ATSB says no, United faces an uncertain future as it has few other sources of financing available to help it come out of bankruptcy.

The ATSB is expected to make a decision by the end of June.

According to the filing, United updated its business plan at the end of April to include higher fuel costs and pension relief.

Although the airline has hit revenue forecasts, the new plan, dubbed Gershwin 4.1, forecasts United will generate $606m less in net cashflow and $776m less in operating earnings in 2004 than it had forecast in December.

United also said it was failing to meet important coverage ratios – the ratio of its free cashflow divided by fixed cash obligations, mainly pension funding and servicing debt.

It said lenders typically want a ratio of 1.3 before they provide financing. “Skyrocketing fuel costs have reduced United’s projected coverage ratio in 2004 from 1.29 to just 0.68. United now satisfies the 1.3 coverage ratio requirement in 2005, 2006 and 2007 by only the thinnest of margins,” the filing said.

Moreover, it added that a 1.3 ratio is usually acceptable to lenders only at the start of a loan.

“The steadily increasing coverage ratio that lenders expect to see, as was the case in Gershwin 4.0 (albeit minimally), does not surface in Gershwin 4.1 at all until 2008.”

United said its financial situation underlined the need for cuts to its retiree welfare benefits, which remain the highest in the airline industry.

It asked the court to agree to impose retiree cuts to help it save $57m of cash a year.