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Restructuring Costs Hit UAL

United Airlines' parent UAL (UALAQ) reported a sharply wider third-quarter loss of $1.77 billion after recording hefty expenses related to its restructuring.

However, the Chicago-based company, which has been operating under bankruptcy-court protection for nearly three years, said Monday that it would have turned a modest profit had it not been for those costs. Like other U.S. airlines, United reported improving revenue trends.

United, the nation's second-largest carrier by passenger traffic, said its loss equated to $15.26 a share in the latest quarter. A year ago, the company lost $276 million, or $2.38 a share.

Revenue rose 8.1% to $4.66 billion from $4.30 billion a year before.

UAL shares, which the company will render worthless upon its planned exit from bankruptcy early next year, were unchanged at 50 cents.

Noncash charges related to United's rejection of airplanes totaled $1.7 billion. United said the charges could be reduced when it departs from Chapter 11.

Excluding the reorganization costs, United would have earned $68 million even though it paid 37% more for jet fuel in the latest quarter than it did in the third quarter of 2004.

"United is a fundamentally better company today with sustainable improvements across the business and solid operational performance," said Glenn Tilton, United's CEO. "The results we are reporting make it clear that we have done well this quarter in overall cost control, especially given the significant reduction in capacity. There is more work to do -- and opportunity to be gained -- as United becomes even more vigorously competitive in generating revenue and reducing costs."

Under bankruptcy protection, United has made its cost structure more competitive by forcing workers to accept large concessions and by canceling its pension plans and dumping its remaining pension obligations on the government's insurer.

With U.S. carriers including United reducing domestic capacity -- that is, the number of passenger seats flown -- fares and unit revenue are rising.

United said revenue per available seat mile, an industry measure of unit revenue also known as RASM, increased 11% from a year ago in its mainline operations, which exclude regional feeder flights. Meanwhile, yield, which measures average fares, rose 9%.

United reduced overall capacity by 5% year over year, and passenger traffic fell 3%.

Looking ahead, United expects its fourth-quarter mainline capacity to fall 3% from the same period a year ago.

In an attempt to ease the pain caused by high fuel costs, United has entered into hedge contracts on heating oil that would cover about 9% of its expected fuel needs for the fourth quarter. The contracts limit heating oil prices to $1.32 a gallon, far less than the $1.90 the airline paid for jet fuel in the third quarter.

There are no financial markets for jet fuel, so airlines sometimes use other refined petroleum products like heating oil to hedge their jet fuel prices. United's hedges, however, won't cover the additional refining cost for jet fuel if it exceeds that for heating oil.

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