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Airline Industry

US carriers trimming flying, cutting jobs

Jul 21, 2009

Continental Airlines Inc. plans to eliminate 1,700 jobs and Southwest Airlines Co. said 1,400 employees took voluntary buyouts, while United Airlines will shrink international capacity by an additional 7 percent.

United parent UAL Corp. reported a second-quarter loss of $2.23 a share excluding one-time items, beating the $2.61 average estimate of 10 analysts Bloomberg surveyed. Continental’s adjusted deficit was $1.36 a share, 1 cent worse than analysts projected, while Southwest’s profit of 8 cents exceeded expectations.

Continental, United, Southwest and other carriers have kept planes full by dropping fares to entice vacationers. The slide in corporate travel wiped out benefits of lower jet-fuel costs from a year earlier, forcing airlines to further shrink payrolls and trim seating capacity.

“It’s all they can do now, keep controlling costs to get them in line with the revenue,” said Helane Becker, a Jesup & Lamont Securities analyst in New York who recommends buying UAL and Continental shares, and holding Southwest.

UAL gained 21 cents, or 6 percent, to $3.72 at 4 p.m. in Nasdaq Stock Market trading. Southwest, which said revenue will fall more in this quarter than in the second, slid 43 cents to $6.87 in New York Stock Exchange trading, and Continental tumbled 75 cents to $9.42.

Continental and Atlanta-based Delta Air Lines Inc. said they will add a $5 fee for checking luggage at the airport instead of online ahead of time, bringing the charge to $20 for the first bag and $30 for the second. The increases match Tempe, Arizona-based US Airways Group Inc.’s creation of a similar fee in April designed to speed check-ins.

United Cutting Capacity

UAL said its additional capacity reductions will come in the last four months of this year, after the peak U.S. summer season ends. If the economy doesn’t improve, “more capacity is going to come out of the industry,” Chief Operating Officer John Tague said on a conference call with analysts.

UAL’s plan to reduce flying is a “prudent move,” Jim Corridore, an analyst at Standard & Poor’s Equity Research in New York, wrote today in a note.

The Chicago-based carrier didn’t announce any job cuts today after saying in June it would eliminate an additional 600 flight attendant jobs, bringing its total since mid-2008 to more than 9,000 positions.

Including one-time items for fuel hedging adjustments and other accounting, UAL said its second-quarter net income was $28 million, or 19 cents a share. UAL’s fuel bill fell 64 percent to $665 million for the quarter compared with a year earlier, helped by locking in prices ahead of time.

Continental Jobs

Houston-based Continental’s new job cuts are on top of leaves of absence for 700 flight attendants and firings of 500 reservation agents that were already announced.

Continental’s net loss including one-time items was $213 million, or $1.72 a share. Continental paid $891 million for fuel, a 46 percent decline.

Continental President Jeff Smisek, who will succeed Larry Kellner as chief executive officer on Jan. 1, said today on a conference call that the carrier is ready to cut more capacity.

“We think the drop-off in business travel has stabilized, although clearly it’s stabilized at a low level,” Smisek said. “We do think we’ve hit the bottom, but we don’t know how long we’ll bump along the bottom.”

Continental has “no visibility” on how business and leisure travel demand will hold up after the peak season ends, Smisek said.

UAL and Continental both said revenue plunged by more than 20 percent in the second quarter as companies curbed travel spending, prompting carriers to discount leisure fares.

Southwest Buyouts

Southwest said its buyouts will cost about $70 million through next year, and that employees will start departing at the end of July. The offers include cash bonuses and travel benefits.

The Dallas-based carrier’s net income was $54 million, or 7 cents a share, ending three straight quarterly losses. It was the only carrier among the six biggest in the U.S. expected by analysts to report a profit for the quarter. Southwest’s fuel expense was $726 million, 23 percent less than a year earlier.

Southwest’s revenue slid 8.8 percent to $2.6 billion in the quarter, and the company said it plans unspecified steps in the second half of the year to help raise revenue.

Southwest will cut capacity by 1 percent next year, Chief Executive Officer Gary Kelly told analysts on a conference call.

The carrier is prepared for “significant continued weakness” after the summer travel season ends, Kelly said.

US carriers trimming flying, cutting jobs
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