United shares nosedive as fuel costs soar

Shares in United Airlines collapsed by 37 per cent yesterday on fears that the company, which only emerged from bankruptcy protection two years ago, is at risk of being sent back there by the soaring cost of jet fuel.

The airline said it was tearing up the five-year recovery plan it set on its emergence from bankruptcy in February 2006, cutting flights and shedding 1,100 jobs in an attempt to stem growing losses.

The company said its fuel bill for the first three months of the year had gone up by $618m (£310m), and it reported a quarterly loss of $537m, far more than Wall Street had been expecting.

That immediately raised fears that the company might breach financial promises it has made to creditors, and analysts who questioned the company on a conference call yesterday went away without reassurance. UAL is not having trouble meeting its debt covenants and is not renegotiating their terms, chief financial officer Jake Brace said, but with weaker revenues and an oil price at a record high "it's difficult to predict whether we will have an issue or not", he added.

The loss at UAL was the worst in the US airline industry, but most of the major carriers are already deep in the red and shares plunged across the sector yesterday. JetBlue, the budget carrier, said it lost $8m in the first three months of the year; smaller rival AirTran said it lost $34.8m.

Airlines have been attempting to cut capacity and raise ticket prices to make up for their soaring fuel bills, but these efforts are being complicated by the weakening economy, which has darkened the outlook for revenues and increased the pressure for industry consolidation.

UAL is believed to be in merger talks with Continental, while Delta and Northwest have already announced plans to merge, although that deal was given a lukewarm reception on Wall Street because of the limited cost savings envisioned.

Meanwhile, last night, the Italian government was rushing to pull together a $425m emergency loan to save the ailing Alitalia airline, after Air France-KLM withdrew their takeover offer.