June 4 (Bloomberg) -- UAL Corp.'s United Airlines, the world's second-largest carrier, will shut its low-fare Ted airline, ground 70 planes and cut as many as 1,100 jobs to help counter record fuel costs.

United's second round of cutbacks in two months follows a 76 percent surge in jet fuel prices in the past year that will add $3 billion to its spending for fuel. AMR Corp.'s American Airlines, the world's biggest carrier, and Delta Air Lines Inc. also are paring their domestic seating capacity.

``These are very aggressive domestic capacity and cost cuts,'' Calyon Securities analyst Ray Neidl in New York said in an interview. ``If oil stays at $130 or $120 a barrel, I expect you'll see additional big cuts announced by airlines as we move through the year. Basically, you need over 20 percent of capacity taken out of the domestic market.''

United's reductions will take place this year and next, adding to the 30 planes taken out of service and 500 management job cuts announced in April. Chicago-based United said today in a statement that it's scaling back international flights, which have been profitable. United's main jet fleet has 460 planes.

Airlines' efforts to cover fuel costs with fare increases and new baggage-check fees have fallen short, leading JPMorgan Chase & Co. analyst Jamie Baker to estimate that the U.S. industry's losses will top $7.2 billion this year.

Worst 2008 Performer

UAL gained 42 cents, or 4.9 percent, to $8.95 at 10:26 a.m. New York time in Nasdaq Stock Market composite trading. The company has tumbled 76 percent this year, making it the worst performer among 14 carriers in the Bloomberg U.S. Airlines Index.

``United's move is a necessity in the face of high fuel costs and should significantly improve the company's pricing power and lower costs,'' said Douglas Runte, managing director at RBS Greenwich Capital in Greenwich, Connecticut.

Neidl rates UAL as ``neutral,'' and Runte doesn't cover the stock. Since leaving bankruptcy in February 2006, UAL has posted four quarterly losses, included deficits in the past two quarters.

The past year's 87 percent jump in crude oil, from which jet fuel is refined, is forcing similar cutbacks on the rest of the U.S. airline industry. Oil traded at $123.81 a barrel in New York today.

Delta Air Lines Inc. yesterday said it would further pare flying this year, expanding on domestic seating-capacity cutbacks announced earlier of as much as 11 percent. Atlanta- based Delta is grounding 90 planes and eliminating 3,000 jobs through buyouts. That represents about 5.5 percent of Delta's workforce.

An undetermined number of union front-line jobs also will be cut at United, in addition to 500 announced in April that the airline said would come from attrition, retirements and furloughs. The carrier has 52,500 employees.

`Difficult Decisions'

``While these are difficult decisions that will impact many of our employees, they nevertheless must be made if we are to assure United's long-term viability,'' Chief Operating Officer John Tague said in a message to employees.

United will take six Boeing Co. 747-400s out of service, reducing international capacity as much as 4.5 percent in this year's fourth quarter and as much as 5 percent next year. The older planes are among United's least fuel efficient.

The retirement of United's entire fleet of 94 Boeing 737s will help reduce U.S. capacity 17 percent by the end of 2009. Fifty-six Airbus SAS A320s flown by Ted will be moved back into United's main jet fleet for U.S. flying.

More Fuel

``The older 737s that United will retire consume up to 20 percent more fuel per seat on a typical domestic flight than the more modern A319s and A320s that the company operates,'' Runte said.

United owns half of the 737s, and can seek to sell them to other carriers or simply park the jets in storage. The airline will try to return leased 737s to the lessors.

The Ted unit was started to compete with discounters including Frontier Airlines Holdings Inc. and Southwest Airlines Co. Ted, which takes its name from the last three letters of United, flies from cities such as Denver and Chicago to leisure markets including Miami and Cancun, Mexico.

Ted's demise will expand the roster of low-cost operations within traditional airlines that eventually closed because they weren't profitable. Delta ended its low-fare Song unit in 2006 after about three years of flights.

Delta Express, United Shuttle and US Airways Group Inc.'s Metrojet all were closed after the Sept. 11 attacks reduced demand. Continental Airlines Inc. scrapped its Continental Lite short-haul, low-fare service after the unit lost as much as $120 million in 1994.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

Last Updated: June 4, 2008 10:27 EDT