Oil Rise Could Lead UAL to Ground Planes
Wednesday November 7, 4:50 pm ET
By Dave Carpenter, AP Business Writer
United Exec Says Oil Price Increase Could Cause It to Ground Planes
CHICAGO (AP) -- United Airlines could ground up to 100 or more of its airplanes if soaring fuel prices ultimately cause consumers to buy fewer tickets, a top executive said Wednesday.
As crude oil prices approach $100 a barrel, Chief Financial Officer Jake Brace said there has not yet been any evidence of a falloff in demand, which has been strong since the second quarter.
But he said United, a unit of UAL Corp., and other airlines eventually will have to deal with skyrocketing prices by either raising fares further or reducing capacity rather than flying with too many empty seats.
"Either the industry passes on the higher fuel prices or we're going to have to lower capacity, but you have to make the equation work," he said in comments to a Goldman Sachs conference in New York.
Brace said United has a little more than 100 aircraft unencumbered by debt, including 50 Boeing 737s, "that we could ground whenever we needed to if the demand environment were such that it didn't make sense to fly those planes."
The 100 planes would represent more than a fifth of United's mainline fleet of about 460 aircraft, as of Dec. 31.
It also has 13 narrow-body airplanes and one 757 coming off lease in 2008 that also could help it adjust capacity.
"We can adjust the domestic fleet by putting planes on the ground," Brace said.
United fully controls planes that are unencumbered by debt, and would not have to answer to creditors if there were grounded.
United executives had said they expected 2008 capacity to be flat to up 1 percent, by shrinking domestic capacity by 3 percent to 4 percent and growing international capacity to offset that.
Brace said those plans were made when oil cost $20 less per barrel than it does now. If fare increases don't stick, capacity cuts are likely, he indicated.
"We're taking it under advisement right now," he said. "It's hard to tell what's going to happen to fuel prices from here. But we're getting ready to react to it."
Besides its mainline fleet, United also had 290 aircraft operated by regional partners as of Dec. 31.
Wednesday November 7, 4:50 pm ET
By Dave Carpenter, AP Business Writer
United Exec Says Oil Price Increase Could Cause It to Ground Planes
CHICAGO (AP) -- United Airlines could ground up to 100 or more of its airplanes if soaring fuel prices ultimately cause consumers to buy fewer tickets, a top executive said Wednesday.
As crude oil prices approach $100 a barrel, Chief Financial Officer Jake Brace said there has not yet been any evidence of a falloff in demand, which has been strong since the second quarter.
But he said United, a unit of UAL Corp., and other airlines eventually will have to deal with skyrocketing prices by either raising fares further or reducing capacity rather than flying with too many empty seats.
"Either the industry passes on the higher fuel prices or we're going to have to lower capacity, but you have to make the equation work," he said in comments to a Goldman Sachs conference in New York.
Brace said United has a little more than 100 aircraft unencumbered by debt, including 50 Boeing 737s, "that we could ground whenever we needed to if the demand environment were such that it didn't make sense to fly those planes."
The 100 planes would represent more than a fifth of United's mainline fleet of about 460 aircraft, as of Dec. 31.
It also has 13 narrow-body airplanes and one 757 coming off lease in 2008 that also could help it adjust capacity.
"We can adjust the domestic fleet by putting planes on the ground," Brace said.
United fully controls planes that are unencumbered by debt, and would not have to answer to creditors if there were grounded.
United executives had said they expected 2008 capacity to be flat to up 1 percent, by shrinking domestic capacity by 3 percent to 4 percent and growing international capacity to offset that.
Brace said those plans were made when oil cost $20 less per barrel than it does now. If fare increases don't stick, capacity cuts are likely, he indicated.
"We're taking it under advisement right now," he said. "It's hard to tell what's going to happen to fuel prices from here. But we're getting ready to react to it."
Besides its mainline fleet, United also had 290 aircraft operated by regional partners as of Dec. 31.
