Calyon Securities US Airline Conference 2007

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Calyon Securities US Airline Conference 2007

  1. 1. United Air Lines Inc. Calyon Securities Calyon Securities 2007 Airline Conference 2007 Airline Conference December 4, 2007 December 4, 2007
  2. 2. Safe Harbor Statement And Non-GAAP Reconciliation The information included in this presentation contains certain statements The information included in this presentation contains certain statements that are “Forward-Looking Statements” within the meaning of the Private that are “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to Securities Litigation Reform Act of 1995. These statements are subject to a number of assumptions, risks and uncertainties related to the a number of assumptions, risks and uncertainties related to the Company’s operations and the business environment in which it Company’s operations and the business environment in which it operates. Actual results may differ materially from any future results operates. Actual results may differ materially from any future results expressed or implied in such Forward-Looking Statements due to expressed or implied in such Forward-Looking Statements due to numerous factors, many of which are beyond the Company’s control, numerous factors, many of which are beyond the Company’s control, including factors set forth in the Company’s Form 10-K for 2006 and other including factors set forth in the Company’s Form 10-K for 2006 and other subsequent Company reports filed with the United States Securities and subsequent Company reports filed with the United States Securities and Exchange Commission. Persons reviewing this presentation are Exchange Commission. Persons reviewing this presentation are cautioned that the Forward-Looking Statements speak only as of the date cautioned that the Forward-Looking Statements speak only as of the date made and are not guarantees of future performance. The Company made and are not guarantees of future performance. The Company undertakes no obligation to update any Forward-Looking Statements. undertakes no obligation to update any Forward-Looking Statements. Information regarding reconciliation of certain non-GAAP financial Information regarding reconciliation of certain non-GAAP financial measures is available on the company’s website at www.united.com/ir. measures is available on the company’s website at www.united.com/ir. 2
  3. 3. We Are Driving Shareholder Value… Core business is performing well United’s financial results are fully competitive Well positioned to compete in a changing global marketplace – Best network – Best network – Star Alliance – Star Alliance – Leading international premium product – Leading international premium product Disaggregating businesses – Clear line of sight to core airline business – Clear line of sight to core airline business – Eliminate cross subsidies and unlock value – Eliminate cross subsidies and unlock value ..By Thinking And Working Differently 3
  4. 4. The Core Business Is Performing Well Performance Highlights - Year to Date September 30, 2007 Strong revenue performance driven by capacity and pricing discipline, Strong revenue performance driven by capacity and pricing discipline, network optimization and introduction of new products and services network optimization and introduction of new products and services – Mainline PRASM up 5.1% year over year – Mainline PRASM up 5.1% year over year – Consolidated PRASM up 4.6% year over year – Consolidated PRASM up 4.6% year over year Continued focus on controlling costs through continuous Continued focus on controlling costs through continuous improvement regimen improvement regimen – Consolidated CASM, excluding fuel, up only 1.1% year over year – Consolidated CASM, excluding fuel, up only 1.1% year over year Pre-tax earnings of $700 million Pre-tax earnings of $700 million – Pre-tax margin - 4.7%; nearly 15 times higher than YTD 9/30/2006 – Pre-tax margin - 4.7%; nearly 15 times higher than YTD 9/30/2006 Generated operating cash flow of $2 billion Generated operating cash flow of $2 billion – Free cash flow of $1.6 billion, up 55% from YTD 9/30/2006 – Free cash flow of $1.6 billion, up 55% from YTD 9/30/2006 Note: Pre-tax earnings, PRASM and CASM numbers exclude special items and severance. 4
  5. 5. Operating Discipline Is Key To Recouping Higher Fuel Costs Cents Billion ASMs Mainline RASM* Vs. Mainline Capacity • Capacity • Capacity Twelve Months Ended – First carrier to begin process of – First carrier to begin process of moving capacity to int’l markets in moving capacity to int’l markets in 2004 2004 Cents Billion ASMs – Quick to take additional action this – Quick to take additional action this year year – Expect 2008 mainline domestic – Expect 2008 mainline domestic capacity to be down 3% -4% capacity to be down 3% -4% • Pricing • Pricing – Led 5 system wide fare increases in – Led 5 system wide fare increases in the last 6 months the last 6 months – Have initiated over 50 other tactical – Have initiated over 50 other tactical domestic increases in the same time domestic increases in the same time period period • Results • Results – Continuing trend of strong quarterly – Continuing trend of strong quarterly PRASM growth PRASM growth *Excludes UAFC and Special items 5
  6. 6. Our Progress Is Reflected In Our Competitive Unit Earnings Performance… Mainline Unit Earnings excluding Fuel Costs (RASM minus CASM ex Fuel) Twelve Months Ended 9/30/2007 ¢/ASM 4.45 4.24 4.17 4.13 4.10 3.91 3.32 4.43 4.23 3.94 NWA DAL UAUA AMR LCC CAL LUV TME 3Q07 B/(W) 19.4% 28.4% 13.0% 8.7% 12.8% 6.6% 4.3% than TME 3Q06 UAUA Fresh Start Adjusted OA Fresh Start Adjusted UAUA Unadjusted OA Unadjusted Sources: Company press releases. All results also exclude special items, regional affiliates and any applicable non-cash fresh-start and exit-related impacts. YOY results reflect Fresh-Start adjustments, where applicable. 6
  7. 7. … As Well As Our Competitive Margin Performance Pre-Tax Margin* (%) Twelve Months Ended 9/30/2007 8.1% 6.9% 5.6% 4.7% 3.7% 2.8% 2.7% 3.7% LUV NWA LCC UAUA CAL AMR DAL Sources: Company press releases. *All results also exclude special items and any applicable non-cash fresh-start impacts. 7
  8. 8. Free Cash Flow Metrics Are Not Obscured By Exit Accounting; United Leads Peers Twelve Months Ended 9/30/2007 Free Cash Flow/Consolidated ASMs Free Cash Flow/Total Revenue $/1,000 ASMs 8.9% 8.9% $11.08 $11.08 6.4% 6.4% $7.96 $7.96 5.8% $6.98 5.8% $6.98 5.6% 5.6% $5.70 $5.70 $5.07 $5.07 3.8% 3.8% $1.86 $1.86 1.2% $0.30 1.2% $0.30 0.2% UAUA AMR LUV CAL NWA LCC DAL UAUA AMR CAL LUV NWA LCC DAL UAUA AMR LUV CAL NWA LCC DAL UAUA AMR CAL LUV NWA LCC DAL Sources: Company press releases. FCF or Free Cash Flow defined as cash flows from operations less capital expenditures. UAUA revenue includes fresh start revenue adjustment. 8
  9. 9. Our Strategic Plan Is A 5-Year Roadmap To Create Value For All Stakeholders We will be the global airline of choice for premium customers, employees and investors Investors Customers Employees Safety Safety Balancing the needs of all stakeholders and strengthening the core business 9
  10. 10. We Are Charting Our Own Course To Create Value For Shareholders • Strengthen the core airline – Consistently delivering superior service – Delivering differentiated products and services – Building employees’ connection and 5 Year commitment to United Plan – Developing new sources of revenue and controlling costs • Disaggregating business units • Participate in consolidation given the right opportunity 10
  11. 11. Our Safety Roadmap: Increase Focus On Standard Work, Lost-Time Injuries and Aircraft Damage Safety • Safety will always be our No. 1 priority. United is committed to ensuring the safety of our customers and employees and to maintaining our leadership position in the industry. • Will improve performance to keep employees safe and reduce aircraft damage – Investing in additional training – Using standard work practices 11
  12. 12. Our Customer Roadmap: Build Lifelong Relationships Through Commitment to Products, Service and Action Customers • Attracting distinctive customer segments by providing unique, differentiated products and services • Consistently delivering superior service means excelling on the basics 12
  13. 13. Our Employee Roadmap: Provide Resources, Support To Enable Employees and Rebuild Commitment Employees • Providing the resources, work environment and training for employees to be successful 13
  14. 14. Our Investor Roadmap: To Deliver Returns To Shareholders Investors • Strengthening core business • Driving revenue premiums by – Strengthening network while exercising capacity and pricing discipline − Providing unique differentiated products and services − Improving customer service − Unbundling products and services, allowing customer to tailor their experience • Leveraging continuous improvement across the company to improve processes, efficiency, and control costs – Transforming Strategic Sourcing to drive cost savings from vendor relationships – Continuing to shift toward lower cost distribution channels • Disaggregating business units • Participate in consolidation given the right opportunity 14
  15. 15. Going Forward, We Will Continue to Focus on Generating Value for All Our Stakeholders Modest capex helps fuel strong free cash flow Modest capex helps fuel strong free cash flow – Non-aircraft capex of $550MM in 2007 and $650M in 2008 focused – Non-aircraft capex of $550MM in 2007 and $650M in 2008 focused on customer, infrastructure and IT needs on customer, infrastructure and IT needs – No planned capital expenditure for new aircraft – No planned capital expenditure for new aircraft Limited fixed obligations results in strong cash position Limited fixed obligations results in strong cash position – Limited debt maturities; approximately $700M in 2008 – Limited debt maturities; approximately $700M in 2008 – No material defined benefit pension funding – No material defined benefit pension funding Primary use of free cash flow is to pay down debt Primary use of free cash flow is to pay down debt Considering using portion of free cash flow for shareholder Considering using portion of free cash flow for shareholder initiatives initiatives – Currently seeking amendment to credit agreement to create flexibility – Currently seeking amendment to credit agreement to create flexibility for dividends // stock repurchases for dividends stock repurchases – Convertibles also an option – Convertibles also an option 15
  16. 16. We Are Driving Shareholder Value… Core business is performing well United’s financial results are fully competitive Well positioned to compete in a changing global marketplace – Best network – Best network – Star Alliance – Star Alliance – Leading international premium product – Leading international premium product Disaggregating businesses – Clear line of sight to core airline business – Clear line of sight to core airline business – Eliminate cross subsidies and unlock value – Eliminate cross subsidies and unlock value ..By Thinking And Working Differently 16
  17. 17. Non-GAAP To GAAP Reconciliation
  18. 18. Non-GAAP To GAAP Reconciliations The Company believes that the reported non-GAAP financial results provide management and investors a better perspective of the Company’s core business and on-going financial performance and trends by excluding special items, severance, fresh-start items and fuel for comparative purposes. 18
  19. 19. PRASM Nine months ended % September 30, (in millions, unless stated) Increase 2007 2006 (Decrease) Mainline Passenger - United Airlines $ 11,457 $ 10,978 4.4 Add: Income from special item 37 - - Mainline passenger revenue 4.7 $ 11,494 $ 10,978 Mainline available seat miles 106,941 107,780 (0.8) Adjusted Mainline PRASM (in cents) 10.71 10.19 5.1 Mainline PRASM (in cents) 10.75 10.19 5.5 Consolidated Consolidated passenger revenues $ 13,755 $ 13,181 4.4 Add: Income from special item 45 - - Consolidated passenger revenue 4.7 $ 13,800 $ 13,181 Consolidated available seat miles 119,243 119,547 (0.3) Adjusted Consolidated PRASM (in cents) 11.54 11.03 4.6 Consolidated PRASM (in cents) 11.57 11.03 4.9 19
  20. 20. Mainline Unit Earnings Mainline Unit Earnings Excl. Fuel & Special Twelve months ending September 30, % ($ and ASMs in Millions; Rates in cents) 2007 2006 Change $ 242 $ 1,124 Total operating earnings 128 (4) Less: Regional Affiliates Mainline operating earnings 996 $ 246 $ Fuel 4,710 4,851 (10) (9) UAFC (8) (87) Special items (a) Mainline operating earnings excl. fuel & special $ 5,609 $ 5,080 Available seat miles (ASM) 142,256 142,572 10.7% 3.94 3.56 Mainline Unit Earnings excl. fuel & special Mainline Unit Earnings Excl. Fuel, Special & Fresh-start $5,080 Mainline operating earnings excl. fuel & special $ 5,609 332 174 Adjusted for Fresh Start $ 5,254 $ 5,941 Adjusted mainline earnings 142,572 142,256 Adjusted available seat miles (ASM) 13.0% 4.17 3.69 Adjusted Mainline Unit Earnings (a) For TME 9/30/07, special items excludes the impact of $50 million in gains related to Airport Municipal bonds and other bankruptcy-related items. TME 9/30/06 adjusted CASM also excludes a $22 million charge for severance and a $30 million gain related to SFO Airport Municipal Bonds. 20
  21. 21. Free Cash Flow Metrics Twelve Months Ended, September 2007 ($ and ASM in millions) $ 2,295 Cash Flow from Operations 538 Less: Capital Expenditures $ 1,757 Free Cash Flow $19,699 Total Revenue 158,531 Consolidated ASM 8.9% FCF / Total Revenue 11.08 FCF / 1,000 ASM 21
  22. 22. Pre-Tax Income, Free Cash Flow, CASM ex Fuel Nine months Ended % (in millions) September 30, Increase Pre-tax income 2007 2006 (Decrease) Earnings before income taxes (96.6) $ 793 $ 22,988 (100.0) Less: Reorganization income, net - (22,934) Adjusted pre-tax income NM 793 54 - Less: Income from special revenue items (45) - 46.7 Less: Income from special expense items (44) (30) - Less: Gain from debt retirement (22) - Add: Severance (100.0) - 22 - Add: Credit facility amendment financing costs 23 - Adjusted pre-tax income NM $ 705 $ 46 $ 15,113 $ 14,721 Consolidated operating revenues 2.4 4.4 pt. Adjusted pre-tax margin (percent) 4.7 0.3 Free cash flow Operating cash flow $ 2,002 $ 1,269 57.8 Less: Capital Expenditures 428 252 69.8 Free Cash Flow $ 1,574 $ 1,017 54.8 Consolidated CASM excluding fuel Consolidated operating expenses $ 14,012 $ 14,330 (2.2) Less: Fuel and UAFC 4,258 4,614 (7.7) Adjusted consolidated operating expenses $ 9,754 $ 9,716 0.4 Consolidated available seat miles 119,243 119,547 (0.3) Adjusted consolidated CASM (in cents) 8.18 8.13 0.6 Consolidated operating expenses excluding fuel and UAFC $ 9,754 $ 9,716 0.4 Add: Income from special items 44 30 46.7 Less: Severance - (22) (100.0) Adjusted consolidated CASM (in cents) $ 9,798 $ 9,724 0.8 8.22 8.13 1.1 22
  23. 23. Pre-Tax Margin TME 3Q07 19,699 Total Revenue Less: Special Revenue (45) Plus: Fresh Start Adj. 186 19,840 Total Adjusted Revenue 18,575 Total Expenses Plus: Special Expenses 50 Less: Fresh Start Adj. (174) 18,451 Total Adjusted Expenses 1,389 Operating Earnings 430 Non-Operating Expenses Less: Special Non-Operating Gain 22 452 Total Adj. Non-Operating Expenses 937 Adjusted Pre-Tax Earnings 4.7% Pre-Tax Earning Margin 23

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