Fuel costs pummel airlines in 1st qtr; shrs tumble

A man checks in at a United Airlines automated terminal at the Denver International Airport, January 23, 2007.

CHICAGO (Reuters) - Record high fuel prices led three U.S. airlines to report hefty quarterly losses on Tuesday, with UAL Corp, parent of United Airlines, posting its largest loss since it completed a Chapter 11 restructuring two years ago, sending airline shares plunging.

AirTran Holdings, parent of AirTran Airways, reversed its year-ago profit while JetBlue Airways also reported a loss, although it was smaller than expected and below the loss it posted a year earlier.

Airline shares were broadly weaker on the day, with the Amex airline index down more than 11 percent, to its lowest level ever, after Nymex crude oil futures hit a record high of $119.74 a barrel.

UAL shares tumbled 40 percent to the lowest price since the February 2006 bankruptcy exit before bouncing back a bit.

Other airlines' stock also got whacked including: Continental Airlines, down 11.5 percent; American Airlines parent AMR Corp, down 11 percent; Northwest Airlines, down 14.6 percent; and US Airways, down 10.5 percent.

The entire industry was hamstrung in the first quarter by soaring fuel, despite carriers' best efforts to control costs and stir up new revenue streams.

The losses reported on Tuesday, which follow those reported last week by AMR and Continental, put additional pressure on carriers to merge as a way to cut costs and boost revenue.

Last week, Delta Air Lines and Northwest proposed a merger that would create the world's largest airline.

"I think the industry needs ... to pull every lever available to it to deal with this issue of escalating fuel price, be it a bubble or not, because it's our current reality," UAL Chief Executive Glenn Tilton said on a conference call with analysts.

Tilton said that while there are advantages to consolidation, it is just one way to stabilize the industry.

UAL has been in talks with Continental about a merger to create an airline even larger than the one resulting from a Delta/Northwest tie up. UAL has not confirmed the reported talks, but Tilton said he has informed labor groups about "the opportunity that we may have before us."

OFFSETTING FUEL

UAL's loss was the largest reported by a major carrier for the quarter. But the airline said it plans to ramp up cost-cutting for 2008, trim domestic capacity and pull 30 aircraft from its fleet.

"We consider the first quarter to be disappointing, though are impressed that the company is taking more aggressive steps than others in response to crushing fuel costs," said Jamie Baker, analyst at JP Morgan, in a research note.

The company said it lost $537 million, or $4.45 per share in the first quarter, more the triple the loss of $152 million, or $1.32 per share, a year earlier.

UAL blamed the weak results on a $618 million rise in its consolidated fuel bill. The company reported operating revenue of $4.71 billion, up from $4.37 billion a year earlier.

The airline said it is targeting $200 million in nonfuel cost savings in addition to the $200 million announced earlier. The cost cuts will require a reduction in UAL's salaried and management work force by 500 employees and its unionized work force by about 600 -- about 2 percent of its workers.

UAL said it would pull 30 aircraft from its fleet, reduce capital expenditures by about $200 million and cut domestic capacity by about 9 percent by the fourth quarter.

"It's a necessary step. More is probably going to have to be done if oil prices stay where they are now," said Calyon Securities analyst Ray Neidl.

Other major airlines are implementing significant cost cuts. Delta, for example, said in March it would cut 2,000 jobs and scale back operations.

Airlines also are charging higher fares, and adding fees for items and services that used to be included in the fare. Most notably, carriers have started to charge fees to check a second bag. JetBlue announced its second bag check fee on Tuesday.

Earlier on Tuesday, AirTran said it lost $34.8 million, or 38 cents per share, in the first quarter, reversing a year-ago profit of $2.2 million, or 2 cents per share.

JetBlue, meanwhile, posted a narrower-than-expected net loss of $8 million, or 4 cents per share, compared with a loss of $22 million, or 12 cents per share, a year earlier.

UAL shares were down 33.36 percent at $14.28 in afternoon trade. AirTran shares were down 23.68 percent at $3.48 on the New York Stock Exchange. JetBlue shares were down 6.29 percent at $4.62 on Nasdaq.