We are maintaining our Hold on UAL Corporation (UAUA) but reducing our target price to $6.50. UAL is expected to report second quarter results on July 22. We are slashing our estimates due to rising fuel costs -- our 2008 estimate drops to a loss of $12.00 per share from a loss of $6.00 per share and our 2009 estimate falls to a loss of $5.00 per share from $0.90 earnings per share.

Results should reflect moderate revenue growth, based upon higher domestic airfares, reduced domestic capacity and an increased international presence, offset by substantially higher fuel costs and larger materials, maintenance, and purchased services expense.

UAL's cost-reduction initiatives are expected to shave about $400 million from the company's cost structure in 2008. The company will lay off 950 of its pilots. It recently announced a 0.5% increase in international capacity. On June 19, United Airlines and Continental Airlines (CAL) announced an agreement to cooperate extensively, creating revenue opportunities, cost savings and other efficiencies.

However, competition remains brutal as air fares continue to be under pressure due to excess capacity and UAL's cost structure. The merger between Delta Airlines (DAL) and Northwest Airlines (NWA) could cause tougher competition. The company is also involved in several lawsuits, most of which relate to unresolved matters from bankruptcy.

At its current price, UAL shares are down 83.1% year to date compared to median declines of 59.3% for legacy carriers, 59.3% for the airline industry, and 10.5% for the S&P 500. Fuel is the largest single expense category on the income statement of airlines. Since we do not expect oil prices to drop significantly in the near term, we can only recommend a Hold on UAL shares.