Fuel costs could ground 100 United jets

United Airlines could ground 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, there has not been any evidence of a fall-off in demand, which has been strong since the second quarter, Chief Financial Officer Jake Brace said.

But United 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, Brace said.

"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.

Major U.S. carriers have raised fares at least seven times since Sept. 1, as jet-fuel prices have surged 23 percent in that span. Fuel is the largest expense for some airlines, overtaking labor costs.

United, a unit of Chicago-based UAL Corp., has the flexibility to reduce capacity by not renewing some leases for Boeing Co. 737 planes, Brace said.

"We can adjust the domestic fleet by putting planes on the ground," he said.

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 more than a dozen narrow-body airplanes 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 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 increasing international capacity to offset that.

Brace said those plans were made when oil cost $20 less a 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."


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