(Bloomberg) — United Airlines Holdings Inc. Chief Executive Officer Scott Kirby warned of $175 oil prices that would dramatically drive up jet-fuel expenses, outlining worst-case scenarios even as the aviation industry benefits from current record travel demand.
The already elevated price of jet fuel is prompting the airline to cut 5 percentage points of capacity in the near term where routes are temporarily unprofitable, Kirby told staff in a memo late on Friday. At the same time, he said the carrier is strong enough to weather a crisis and won’t defer investments or furlough workers.
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“The reality is, jet fuel prices have more than doubled in the last three weeks,” Kirby told employees in the memo. “If prices stayed at this level, it would mean an extra $11B in annual expense just for jet fuel. For perspective, in United’s best year ever, we made less than $5B.”
Airlines globally are grappling with a painful spike in oil prices. Major US carriers like United are not hedged on fuel, leaving them without protection from volatile price jumps. The broader industry has already responded with fare increases and fuel surcharge to claw back some of the elevated costs.
The messaging from Kirby to staff sought to outline his plan to ride out escalating costs that risk pushing some airlines to the edge of financial survival, and to deploy a tactical playbook to respond.
“We’re ready, we have a plan and we’re going to continue executing that plan,” Kirby said.
United, the largest airline in the world by capacity, said it is forecasting oil to stay above $100 a barrel until the end of 2027.
To rein in costs, the airline is canceling 3 percentage points of flying in off-peaks such as overnight, mid-week, and weekend flying in the second and third quarters, in what Kirby described as “tactically pruning” of the network. The war-related pause of the airline’s Tel Aviv and Dubai services amounts to another 1 point of capacity, and United will also take out one point from O’Hare airport in Chicago, he said.
The company will eventually restore the now-reduced capacity later this year, Kirby said.
The surge in expenses is being offset for now by travelers flocking to airlines to lock in cheaper tickets before fares invariably go up. United said it had the 10 biggest booked revenue weeks in its history in the past 10 weeks.
