United Airlines is following rival American Airlines, plus the likes of industrial giants Ford and General Motors in moving quickly, and brutally, to reshape its business mix to accommodate a permanently lift in oil prices to around current levels.

Other American companies are taking similar action as US business (and car consumers) react to the crisis.

In Australia only Qantas has moved to start reshaping itself to accommodate oil prices remaining at current levels.

Oil prices hit $US122.09 last night, down 10% or so from the peak of $US135.09 three weeks ago.

Since then Ford and GM have both revealed plans to cut the production of big petrol chewing cars and emphasise smaller, more fuel efficient cars.

US car buyers have caused this by slashing purchases of these cars in favour of smaller and cheaper to run models, such as the Ford Focus. Toyota will follow in the US.

American was the first major US airline to cut back, just as British Airways was revealing plans to trim its business by taking dozens of planes out of service. American is taking 85 planes out of service and cutting domestic capacity by 12%. Now United says it will take upwards of 100 out of service over the next few months.

For United, it’s the second such reshaping: the first in April involving 30 planes and some staff wasn’t enough; now that plan is being superseded and expanded. In addition to cutting domestic capacity 14% by the end of this year, up to 1,600 jobs will go, including the 500 who were to go under the first plan which called for the retirement of 30 Boeing 737 from operations.

UAL lost $537 million in the first quarter and has been in merger talks with rivals. But one of these fell over at the weekend as it walked away from US Airways.

United says it wants to retire all its 94 Boeing 737s if it can reach deals with lessors. It also will retire six Boeing 747 jumbos which are fuel inefficient these days. Qantas is retiring three or four.

On top of this year’s cuts, United says that it will further trim domestic capacity to around 17% to 18% next year and cut its entire seat capacity by 9% to 10%.

Part of the cuts will see United closing its low fare subsidiary called Ted which was started in 2004. That means it will join more than a dozen discount or business class airlines in the US, Asia and Europe to have gone bust in the last six months or so.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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