Updated from 10:39 a.m. EDT
Shares in United Airlines parent
plunged 37% Tuesday after the carrier missed analysts' estimates for the latest quarter and said it will lay off 1,100 workers.
United lost $537 million in the first quarter, driven primarily by a $518 million increase in fuel costs. The loss was equal to $4.45 a share. Analysts surveyed by Thomson Financial had expected a loss of $3.41. Revenue rose 7.7% to $4.71 billion, but fell short of the consensus Wall Street estimate of $4.75 billion.
In response, United announced staffing and fleet reductions. The carrier said it will cut 500 salaried and management jobs and about 600 union-represented workers by the end of the year.
Looking out to the final quarter of the year, UAL said mainline domestic capacity will decrease by approximately 9% during the fourth quarter, on top of a 5% reduction in the same quarter of 2007. Also, consolidated capacity will be 4% lower than it was a year earlier.
The lower capacity will be driven by the elimination of 30 older narrowbody aircraft from United's fleet, which is 10 to 15 more planes than the carrier announced in March.
"We're taking the necessary steps to become profitable over time," said CEO Glenn Tilton on an earnings conference call. "Industry consolidation is in my mind a component of [our] action plan. The industry needs to pull every lever available."
If the cost of crude oil stays above $110 a barrel, Tilton said, United's annual fuel bill will increase by more than $2 billion.
UAL's stock tumbled $7.88 to a 52-week low at $13.55 amid worries that the company could be in danger of violating its loan covenants. CFO Jake Brace dismissed that speculation as untrue.
Meanwhile, JPMorgan analyst Jamie Baker said in a report that estimates were skewed because three of 12 analysts covering UAL severely underestimated the loss. JPMorgan has a financial relationship with United that involves noninvestment banking services.
During the quarter, mainline revenue per available seat mile, excluding items, rose by 8.6%, owing to strong passenger and cargo yields that were partially offset by lower load factors.
Mainline domestic passenger RASM grew by 11.1%, aided by a 6.4% capacity reduction, while international passenger RASM increased 5.5%, despite a 9.6% capacity expansion. Consolidated passenger RASM was up 8.3%.
Cost per available seat mile, taking out fuel and special items, climbed 2.4%. UAL said it will target $400 million in nonfuel cost savings this year, raising its target from $200 million announced earlier.
This is the second busy week for quarterly results from the airline sector. Also Tuesday,
(JBLU - Get Report)
missed estimates and said it
will slow capacity growth
Later this week,
(DAL - Get Report)
plan to merge
, will issue their numbers.
(CAL - Get Report)
, the parent of American Airlines, reported last week.