UPDATE 2-UAL posts loss on fuel, ramps up downsizing effort

(Rewrites first paragraph, adds details on downsizing, background, share price, CEO quote)

CHICAGO, July 22 (Reuters) - UAL Corp UAUA.O on Tuesday posted a steep quarterly loss on soaring fuel prices and said it would eliminate nearly 13 percent of its work force as part of a major downsizing, sending shares of the United Airlines parent soaring more than 16 percent.

The job cuts as well as a new target for capacity reductions are consistent with a trend among U.S. airlines to shrink their businesses in hopes of offsetting their fuel bills. Jet fuel prices have risen alongside crude oil, which touched a record high above $147 a barrel this month.

"Our industry is challenged as never before by the unrelenting price of oil, and United is taking aggressive action to offset unprecedented fuel costs and to strengthen the competitiveness of our business," Glenn Tilton, UAL chief executive, said in a statement.

UAL said it will reduce is fourth-quarter mainline domestic capacity by up to 16.5 percent, retire its entire Boeing 737 fleet and six Boeing 747s, and reduce its work force by 7,000 jobs by the end of 2009. All the top U.S. airlines have unveiled similar capacity cuts.

UAL said its second-quarter net loss amounted to $2.73 billion, or $21.47 per share, compared with profit of $274 million, or $1.83 per share, a year earlier.

Excluding one-time charges, UAL lost $1.19 per share. On that basis, the company had been expected to lose $2.06 per share, according to Reuters Estimates.

UAL took a $2.6 billion charge against second-quarter earnings, including a $2.3 billion write-down for the impairment of goodwill. Other airlines, like US Airways Group (LCC.N), also have taken hefty charges related to the writing off of goodwill.

UAL said operating revenue increased by 3 percent in the quarter to $5.37 billion. The company paid $1.85 billion for fuel, an increase of 53.2 percent.

The company ended the quarter with an unrestricted cash balance of $2.9 billion and a restricted cash balance of $655 million.

Shares of UAL were up 16.6 percent, or 83 cents, at $5.82 on Nasdaq. Airline shares were broadly higher on Tuesday, with the Amex airline index up 2.76 percent as the price of Nymex crude fell $2.19 to $128.85. (Reporting by Kyle Peterson, editing by Mark Porter and Gerald E. McCormick)