United outlines cuts as it targets profitability in 2013

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United Airlines will reduce its headcount by about 600 employees, as it targets ways to return to profitability this year.

The Chicago-based carrier will reduce its management and administrative staff by about 6%, or 600 positions, through a combination of layoffs and voluntary departures, says John Rainey, chief financial officer at United, during an earnings call today. It hopes that these cuts as well as improved efficiency elsewhere in the company will improve returns and return it to profitability.

United's 2012 revenue results "clearly fell short of our expectations", he says.

The airline reported a $589 million net profit in 2012 excluding $1.3 billion in special charges. It lost $723 million during the year with the charges, many of which were integration related.

United will continue the capacity discipline it maintained in 2012 this year. The carrier plans to cut capacity by about 1% year-on-year for the full year, however they will be more pronounced during the first quarter with capacity dropping by 4.1% to 5.1% compared to the same period last year, according to an investor update today.

Atlantic will lead the cuts during the first quarter with capacity down 8.6% to 9.6%, while Latin America will be cut the least with capacity up 0.4% to down 0.6%.

Capacity was down 1.5% in 2012 versus 2011.

Costs per available seat mile (CASM) excluding fuel and special charges are expected to increase by 4.5% to 5.5% in 2013. The metric will increase by 8% to 9% during the first quarter.

Rainey says that increases in labour and pension benefit expenses will drive the jump in CASM during the first quarter. Integration related costs are anticipated to fall to about $250 million for the year.

United anticipates that it will pay an average of $3.23 per gallon for jet fuel during 2013, and $3.27 per gallon during the three months ending 31 March.

Net capital expenditure is expected to be $1.4 billion for the full year and $350 million during the first quarter.

Dept and capital lease payments will total $1 billion during the first quarter, due to the maturity of $400 million in senior secured notes and $200 million in senior second lien debt on 1 February.

United plans to take delivery of three Boeing 787-8s and 16 Boeing 737-900ERs, and remove five Boeing 767s, 22 Boeing 757s and 2 737s this year. In addition, it will add 16 Bombardier Dash 8 Q400s to its Express fleet and cut one 50-seat aircraft.