United to cut 7,000 jobs, more flights
MINNEAPOLIS United Airlines shares zoomed up 45 percent on Tuesday after it announced plans for a major cash infusion, a smaller-than-expected quarterly loss, and reductions in flying and jobs intended to help it fight high fuel prices.United raised its job elimination goal to 7,000, from about 3,800 previously.United stirred together an extended credit-card agreement with Chase Bank USA, new debt on its planes, and other financial maneuvers that it said would add $1.7 billion to its cash balance, including $200 million it expects to get over the next two years. United ended the quarter on June 30 with $2.9 billion in cash.The news seemed to help investors get over the $2.73 billion second-quarter loss reported by United parent UAL Corp. Most of the loss was a non-cash special accounting charge of $2.3 billion. United lost $151 million, or $1.19 per share, without the accounting charges.Revenue rose 3 percent to $5.37 billion, from $5.21 billion a year ago.Analysts surveyed by Thomson Financial expected UAL to lose $2.05 per share on revenue of almost $5.39 billion. Analysts’ estimates generally exclude one-time charges.United’s cash-raising moves grabbed the spotlight, though.The carrier extended its credit card agreements with Chase Bank, a unit of JPMorgan Chase & Co. As part of that deal, Chase will accelerate a payment of $600 million for buying the frequent flier miles it uses to reward credit card customers.United also freed up about $350 million in previously restricted cash by signing a new credit card processing agreement with Paymentech LLC, which Chase partially owns. Credit card processors often hang onto some of the money for airplane tickets that have been sold but not used, in case they get returned. A sharp increase in the holdback for Frontier Airlines helped send that small carrier into Chapter 11 bankruptcy protection in April.United’s holdback dropped from $385 million to $25 million, Chief Financial Officer Jake Brace said on a conference call. He said the agreement includes triggers that could raise the holdback to higher levels again.He did not offer details about how United won the smaller holdback, except to say that it was not by selling the frequent flier miles for less. He said United in fact won a higher price for its frequent flier miles.United expects to raise $330 million during the third quarter by borrowing against aircraft and releasing restricted cash.The company needs the money. United’s fuel bill will rise more than $3.5 billion this year, said Chairman, President and Chief Executive Glenn Tilton on a conference call.”We’re doing all we can to control our costs and to improve our revenue to offset fuel,” he said. New fees for checking luggage as well as other baggage fees are expected to bring in $275 million per year in new money for United.United and other carriers have all announced capacity cuts. But in a reversal of earlier expansions of international flying, Tilton said United will trim overseas routes by 7 percent in the fourth quarter. He said routes to be eliminated will include Denver-London, Los Angeles-Frankfurt and San Francisco-Nagoya, Japan. Tilton said United will close its Nagoya station.He said fourth-quarter mainline domestic capacity will shrink 16 percent compared with the previous year. United dropped about 50 routes from its domestic schedule on Thursday alone as it takes 100 aircraft out of its fleet, including all of its 737s, Tilton said in a hot-line message to employees on Tuesday.United previously announced plans to eliminate roughly 3,800 jobs through furloughs, layoffs, and early retirement packages, including as many as 1,600 from salaried workers and management. But on Tuesday the company said it will aim to cut 7,000 jobs by the end of next year in conjunction with fewer flights, with the additional reductions coming from front-line workers.In afternoon trading UAL shares rose $2.55, or 51.1 percent, to $7.54.For the first half of the year, United lost $3.27 billion, or $26.33 per share, after making $122 million, or 88 cents per share, during the first half of last year. Revenue rose 5.2 percent to $10.08 billion, from $9.59 billion during the first half of last year.
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