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United Grounded on Poor Earnings

The No. 2 carrier fails to meet the Street's expectation on sagging revenue.
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reported disappointing first-quarter results Wednesday as domestic unit revenue sagged.

The second-largest carrier said it lost $152 million or $1.32 a share. Revenue was $4.4 billion, down 2.1%, vs. the year-earlier quarter. Analysts surveyed by Thomson Financial had expected a loss of 47 cents on revenue of $4.6 billion. United shares recently were falling 50 cents, or 1.3%, to $38.66 on Wednesday.

A change in accounting for frequent-flier miles reduced revenue by $107 million, while bad weather reduced revenue by $32 million, the company said.

On a conference call, CFO Jake Brace said United may further reduce planned 2007 capacity growth, currently projected at 1% or less. In the first quarter, United boosted consolidated capacity by 0.6%.

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"We have too much capacity

in the U.S. and more importantly, we have foolish behavior," Brace said. "We're seeing a lack of discipline and how

capacity is managed. We were a contributor to overcapacity in the first quarter, and we're going to correct that."

CEO Glenn Tilton said the carrier's performance was not linked to a softening economy or a fall-off in business travel, although business travelers increasingly take advantage of what were once considered to be leisure fares.

During the quarter, North American passenger revenue per available seat mile (PRASM) declined 4.1%. The airline reported a 16.1% increase in Latin America PRASM and single-digit increases in the trans-Atlantic and Pacific regions. After adjustments for the change in frequent-flier accounting, mainline PRASM increased by 1.9%.

Tilton said the industry has failed to use consolidation to reduce capacity. "Consolidation is a strategic imperative in the industry," he said. "For me to be able to effect it, I need to have somebody agree with me." Reminded that other CEOs have said consolidation is unlikely during a strong cyclical period, he said: "It is a little puzzling to me for someone to think about it in a passive context, as if you had nothing to do with it."

On the cost side, mainline cost per available seat mile, excluding fuel and special items, was 7.74 cents, down 3.3%. United reduced debt by $1.4 billion during the quarter, and had cash and short-term investments of $1.4 billion on March 31.