UAL Posts $5.3 Billion 2008 Loss
Jan 22, 2009
By Darren Shannon
United Airlines, crippled by fuel costs and almost no growth in revenue, lost $5.3 billion in 2008.
The announcement of this net loss, which included a $1.3 billion net deficit in the fourth quarter, was coupled with the revelation that United’s staff cuts would be extended to 9,000 employees, a 2,000 increase on the reductions unveiled in the second quarter of 2008. This staff losses include 1,000 front-line employees and another 1,000 from salaried and management ranks.
“Last year was by any measure a challenging year – defined by unprecedented volatility and unpredictability – but for United it was also characterized by steady and durable improvements,” said Chairman, President and CEO Glenn Tilton in a Jan. 21 conference call. “Our management team made timely decisions that resulted in fundamental improvements across our business, which will hold us in good stead in 2009.”
These decisions include a cut in capital expenditure to $450 million (and ceasing any new aircraft commitments for 2009) and the continued retrofit of the carrier’s widebody fleet that is reducing premium capacity in favor of more coach seating. This retrofit will be extended to the company’s Boeing 777s in the fall, noted Tilton in his call.
United’s capacity control initiative, which drops 100 aircraft from its fleet by the end of 2009, is also proving fruitful, said the airline. As part of this program, United has confirmed that in the first quarter it will drop up to 14% of its mainline domestic capacity, compared to the same period last year, and 15% from its international services in the first quarter while adding about 5% to its Express regional operations.
For the full year 2009, mainline capacity will fall up to 9.5% while Express’ will grow 9% for a consolidated drop of between 7% and 8%.
United is also continuing to raise cash. Early in the first quarter of 2009, the company closed an additional aircraft financing transaction, which raised $95 million, and expects to raise about $160 million from a cargo facility relocation agreement with Chicago O’Hare Airport.
The company expects to raise about $350 million by the end of the first quarter, although it is unclear how much of this is from a stock issue detailed in a separate Jan. 21 Securities and Exchange Commission filing that raised $168 million for the airline between Dec. 1, 2008, and Jan. 12.
United ended the year with $2 billion in unrestricted cash, a restricted cash balance of $272 million and $965 million in cash deposits for its fuel hedges.
“United, like many airlines across the industry, experienced significant cash pressures associated with fuel hedge positions in 2008 as oil prices declined more than $100 a barrel,” said Senior VP and CFO Kathryn Mikells. “The cash impact, while significant, is now behind us, and we are well positioned to manage through a challenging 2009 with good expected cost performance building on our momentum from this past year.”
But even the cash burn in 2008 was dwarfed by the carrier’s fuel costs and the subsequent penalties of overpriced hedges, adding almost $3 billion to this line item in the 12 months to Dec. 31. The total $7.7 billion fuel expense accounted for 30% of annual costs, and was 80% higher than the next highest cost.
Total costs in 2008 rose 28.9%, or about $5 billion, to $24.6 billion. Revenue was $20.2 billion, up 0.3%.
“Our industry continues to be challenged by a volatile fuel and revenue environment, and against that backdrop, we are delivering strong cost results even as we reduce capacity and improve quality,” said Executive VP and Chief Operating Officer John Tague. “Our operational performance continues to improve, benefiting from reduced capacity, new runways and, most importantly, the work of our people, who are focused on running a good airline for our customers and our investors.”
Photo: Airbus
