United Airlines parent UAL on Friday said it lost a staggering USD$17 billion in the fourth quarter on reorganization expenses and skyrocketing fuel prices.
The USD$17 billion in reorganization items recorded in the quarter represent mostly claims allowed during the bankruptcy process. They are expected to be settled when the company exits bankruptcy for a small fraction of the amount, the company said.
"The USD$17 billion (loss) is meaningless because it involves all sorts of accounting issues," said airline consultant Michael Boyd.
The airline, which has been in bankruptcy since December 2002, has been hurt along with other major airlines by high fuel costs and overcapacity. Some carriers have seen renewed stability lately as excess capacity comes out of the market.
Excluding the charge, UAL said its operating loss was USD$182 million compared with USD$570 million in the same quarter last year. Total revenue increased by 10 percent, to USD$4.4 billion.
"These results set us on track for the year ahead," UAL's Chief Executive Glenn Tilton said in a recorded message to employees. "We will push forward and build on this momentum, knowing there is much to be gained simply in improving our execution."
The carrier ended the quarter with an unrestricted cash balance of USD$1.8 billion and a restricted cash balance of USD$957 million for a total of USD$2.7 billion.
The airline forecast its fuel price would average USD$1.92 per gallon in the first quarter. For all of 2006, UAL said it anticipates fuel expenses would increase by about USD$885 million over its previous assumption, which was based on a fuel price of USD$1.48 per gallon.
UAL has taken criticism in the last few months because of a fuel forecast that many experts say is overly optimistic. The carrier said in its reorganization plan, approved by a bankruptcy court, that it expects the price of oil to average USD$50 a barrel over the next five years. NYMEX oil futures were trading above USD$67 a barrel on Friday.
"They're facing reality," said Ray Neidl, airline analyst at Calyon Securities. "They can offset some of that in a better revenue environment."
UAL's Chief Financial Officer Jake Brace agreed the airline can offset high fuel prices by controlling non-fuel costs.
"It's consistent with what we've been saying all along," Brace said, adding the airline still believes fuel prices will fall in line with its forecast.
Currently, UAL has no hedges in place for 2006 to protect itself from unexpected spikes in fuel prices, due in part to restrictions placed on the airline in bankruptcy. Brace said the airline will consider fuel hedging once it emerges from bankruptcy.
UAL said it expects its mainline capacity, the number of seats it puts up for sale, to increase by about 1 percent in the first quarter of 2006.
