They Can Only Raise Fares So Much

In what may prove to be the first of many such announcements from major US airlines, an executive with United Airlines said Wednesday the carrier could be forced to ground up to 100 planes, if customer demand falls off due to soaring fuel prices.

Speaking before a conference of Goldman Sachs investors, United CFO Jake Brace said there's no evidence so far passengers are buying fewer tickets in the wake of recent fare increases to offset higher prices for Jet-A.

Faced with the imminent cresting of the $100 mark for a barrel of crude oil, however, he does believe a day of reckoning may be in the offing.

"Either the industry passes on the higher fuel prices or we're going to have to lower capacity, but you have to make the equation work," Brace told the conference, reports The Associated Press.

The 100 aircraft Brace spoke of are planes United owns outright, which means the airline wouldn't have to answer to creditors if those aircraft were grounded.

That number represents about one-fifth of United's total mainline fleet, and includes 50 Boeing 737s -- planes "we could ground whenever we needed to if the demand environment were such that it didn't make sense to fly those planes," Brace said.

Fourteen more aircraft -- 13 narrowbodies and one Boeing 757 -- are also coming off lease in 2008, giving United additional options to reduce the size of its fleet.

"We can adjust the domestic fleet by putting planes on the ground," Brace said.

Back in the 'good-old days,' when oil prices were closer to $80 per barrel, United had predicted its 2008 capacity would be relatively flat, with decreases in domestic seats available offset by increases in international travel.

That plan may not work in a $100-per-barrel world, though... and Brace says the answer lies in increased fares, or fewer planes.

"We're taking it under advisement right now," he said. "It's hard to tell what's going to happen to fuel prices from here. But we're getting ready to react to it."

FMI: www.united.com