By Kyle Peterson

UAL, parent of United Airlines, said it would cut 1,000 salaried and management positions from its payrolls this year, while AMR, parent of American Airlines, said it would trim capacity more than expected.

AMR and UAL are the first two major carriers to report their fourth-quarter earnings, and their statements muddied the outlook for the entire industry as it grapples with volatile fuel prices and the potential for sagging travel demand.

"It's going to be weak, no doubt about it," said Ray Neidl, analyst at Calyon Securities. "The question is can the airlines, with capacity cuts, keep up with the decrease in demand in a weak economy?"

AMR shares fell more than 21 percent to $8.24 on the New York Stock Exchange. UAL shares shed more than 7 percent to $10.70 on Nasdaq.

The airline industry, including AMR and UAL, slashed capacity last year to offset their high fuel bills and bolster fares as the economic recession eroded travel budgets.

A jaw-dropping 75 percent decline in oil prices in the second half of 2008 greatly eased the fuel price burden for airlines. But it also lessened the value of airline fuel hedging programs, creating a new problem for the embattled industry.

AMR RESULTS

AMR said its quarterly net loss widened as the price it paid for fuel rose 8 percent in the quarter from a year before.

The company said its fourth-quarter net loss was $340 million, or $1.22 per share, compared with $69 million, or 28 cents per share, a year earlier.

Excluding one-time items, AMR said it lost $214 million, or 77 cents per share, compared with Wall Street forecasts for a loss of 73 cents, according to Reuters Estimates.

Special items included a $23 million charge related to aircraft groundings and capacity cuts as well as a noncash pension settlement charge of $103 million.

The airline industry, including AMR, made hefty capacity cuts in the fourth quarter to offset volatile fuel prices and to bolster fares as demand sagged in a weak economy.

The company said it expects its mainline capacity to decrease more than 8.5 percent in the first quarter amid economic uncertainty. AMR said its 2009 mainline capacity will decline by more than one percentage point beyond a previous forecast provided in October.

"We intend to continue managing our business -- from capacity and fleet planning to balance sheet repair, fuel hedging and revenue initiatives -- conservatively and with discipline," AMR Chief Executive Gerard Arpey said in a statement.

AMR reported revenue of $5.47 billion, down 3.8 percent. The company said it ended the quarter with $3.6 billion in cash and short-tern investments.

AMR said the company now expects to receive 29 Boeing Co 737-800 aircraft in 2009 as a result of Boeing's delivery delays, compared with 36 expected previously.

UAL RESULTS

UAL said its quarterly net loss widened on erosion in the value of its fuel hedge program, as oil prices plummeted.

The company said its net loss amounted to $1.3 billion, or $9.91 per share, compared with $53 million a year earlier, or 47 cents per share.

Excluding one-time items, the airline said it lost $4.22 per share compared with Wall Street forecasts for $4.42, according to Reuters Estimates.

UAL reported a $370 million cash loss on fuel hedges that settled in the quarter, due to the recent fall in fuel prices. The company also suffered noncash, net mark-to-market losses on its fuel hedges of $566 million.

The company, which cut about 7,000 jobs in 2008, said it would cut another 1,000 salaried and management positions in 2009.

UAL said its revenue was $4.55 billion in the quarter, down 9.6 percent. The company said it ended the quarter with an unrestricted cash balance of $2 billion.

(Additional reporting by Bill Rigby in New York; editing by Patrick Fitzgibbons and Gerald E. McCormick)