It looks like United is going to be laying off 1,000 workers and managers this year (thanks, Martin, for the link) despite just completing their three-year bankruptcy reorganization plan. This is a bad sign, but it’s not the worst of it.

USA Today, in the same article, also quotes United CEO Glenn Tilton’s remark that “some long-haul routes that worked at $50 a barrel don’t fly at $65 a barrel”. That’s understandable, but problematic. United, like most of the major US ‘legacy’ airlines, doesn’t hedge much any of their fuel. Their 2006 first quarter results state that their “mainline fuel price [is expected to] average $2.15 per gallon for the second quarter and $2.06 per gallon for the full year (including taxes).” Compare with Southwest, who (according to their 2005 annual report) paid an average of $1.03 per gallon for the year.

Most major airlines break even with their domestic routes and profit on their international flights. If United has to drop once-profitable routes because of fuel costs, it could mean bad things for their future. Fortunately they still have the bankruptcy reorganization mindset, and seem willing to cut their losses – in the past, they might have just kept on slogging with their current structure. The industry is still cyclical, but the margins are getting narrower.