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United To Reduce its Fleet By 4 Percent

Fuel costs squeezing airlines, leaving passengers with fewer flights

By Mark Huffman
ConsumerAffairs.com

March 18, 2008

Now, with skyrocketing fuel costs, this trend appears to be continuing. Speaking at the JPMorgan Aviation and Transportation Conference, Jake Brace, United Airlines executive vice president and CFO, said the company may reduce its fleet by 20 aircraft, or four percent of its aircraft.

He did not say how many, if any, flights would be eliminated, but said United would continue to reduce capacity this year.

It's just one of the moves Brace said will be necessary to offset what could be more than a $1 billion increase in fuel costs in 2008. A company press release, written for financial reporters in advance of the conference, reveals what else consumers can expect from the friendly skies.

"The company is executing against its fuel conservation plan, leading efforts to pass commodity costs onto customers, and identifying new sources of revenue by unbundling services," the release states. "United recently announced a $25 second bag fee for non-elite customers that is expected to generate $100 million in annual revenue."

Brace said the aircraft targeted for mothballs are generally older, narrowbody planes that are less fuel efficient. Additionally, he said the company has increased its fuel hedges since January, and now has 20 percent of its fuel hedged for full year 2008.

Brace said United is looking to further reduce other costs and is reviewing non-aircraft capital spending having already delayed the purchase of new aircraft until the industry recovers to a level where he says those assets can earn a reasonable return.

"We are taking a prudent step now by reducing our fleet, taking assets out of the network that don't make sense at these fuel prices, to better position United to be successful in an ever-challenging environment," Brace said. "United has an aggressive five-year plan focused on creating shareholder value. We have led the industry in reducing domestic capacity and continue to lead efforts to pass commodity costs onto our customers, as other industries do."

But as airlines such as United reduce domestic capacity, consumers are left with fewer, and more expensive options for air travel.

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