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	Merrill Lynch Global Transportation Conference Presentation
 

Merrill Lynch Global Transportation Conference Presentation

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    	Merrill Lynch Global Transportation Conference Presentation Merrill Lynch Global Transportation Conference Presentation Presentation Transcript

    • Merrill Lynch Global Transportation Conference Jake Brace Jake Brace EVP & Chief Financial Officer EVP & Chief Financial Officer United Airlines United Airlines June 13, 2007 June 13, 2007
    • Safe Harbor Statement And Non-GAAP Reconciliation The information included in this presentation contains certain statements that are “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of assumptions, risks and uncertainties related to the Company’s operations and the business environment in which it operates. Actual results may differ materially from any future results expressed or implied in such Forward-Looking Statements due to 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 subsequent Company reports filed with the United States Securities and Exchange Commission. Persons reviewing this presentation are cautioned that the Forward-Looking Statements speak only as of the date made and are not guarantees of future performance. The Company undertakes no obligation to update any Forward-Looking Statements. Information regarding reconciliation of certain non-GAAP financial measures contained in this presentation is available on the Company's web site at www.united.com/ir
    • Our Performance Agenda • Our customer-driven strategy will drive margin leadership • We are optimizing revenue and successfully controlling costs • Revitalizing the workforce • Continuous improvement is increasing efficiency and enhancing the customer experience Customers, employees and investors will benefit as we execute against our performance agenda
    • Our Progress Is Reflected In Unit Earnings Mainline Unit Earnings excluding Fuel Costs (RASM minus CASM ex Fuel) Twelve Months Ended 3/31/2007 3.96 4.03 3.94 3.82 3.31 3.61 ¢/ASM AMR UAUA LCC CAL LUV TME 1Q07 B/(W) 25% 23% 27% 16% 25% than TME 1Q06 United Adjusted United Unadjusted Sources: Company press releases. All results also exclude special items and regional affiliates. UAUA adjusted results also exclude severance expense and non-cash fresh-start and exit-related impacts
    • We Are Developing And Implementing New Cost-Effective Initiatives To Drive Premium Traffic Airport Check-in Security lines Boarding Pre and Post Flight Upgrades and fees Contact center Trip protection We are rolling out key initiatives over the course of 2007
    • Engaging, Enabling And Aligning Employees Tools And Equipment Training • Business Education • Refreshed airport IT equipment • Customer Service – Ticket printers • Leadership/Performance – Bag scanners Management Shared Success • Success Sharing – rewards performance against reliability, customer and financial goals • Profit Sharing – 15% of adjusted pre-tax earnings Profit sharing pays out when annual adjusted pre-tax earnings exceed a threshold of $10 million
    • Our Strategy Will Continue To Improve Unit Revenue Mainline RASM Twelve Months Ended 3/31/2007 11.65 11.56 11.37 11.28 9.83 11.23 ¢/ASM AMR LCC UAUA CAL LUV TME 1Q07 B/(W) 8.3% 9.9% 6.7% 6.8% 7.7% than TME 1Q06 United Adjusted United Unadjusted Sources: Company press releases. All results exclude regional affiliates. UAUA results exclude UAFC . UAUA adjusted results exclude non-cash fresh start revenue impacts
    • Fresh Start Items Like Deferred Revenue Accounting Have A Significant Non-Cash Impact • Similar to Air Canada’s Aéroplan, United adopted conservative accounting 1Q 2007 Deferred Revenue B/(W) Before After Effect on Revenue Than 1Q 2007 Incremental Cost Portion of ticket Ticket Total amount revenue Revenue recognized deferred until • Lowers current Recognition when flown mileage recognition redemption • Increased $(107) million Sale of Miles Straight-line Seasonality When miles (Pax Revenue over three redeemed Recognition) years Mileage ~$170 million one-time 36 months 18 months Expiration benefit in 2007 Increases Revenue Volatility with Ongoing Competitive Comparison Disadvantages
    • Mitigating Inflation By Realizing $400 Million Of Cost Savings Through 2007 Reducing purchased Increasing operational service costs efficiencies • New flight planning system • Facilities rent • New flight planning system • Facilities rent • Vendor contract management • Block time reduction • Vendor contract management • Block time reduction • Ground handling • Ground handling • Standard work implementation • Standard work implementation • Telecom contracts • Telecom contracts • Outside legal services • Outside legal services Eliminating General and Trimming advertising and Administrative expense marketing expenses • Annualization of benefit from • Full effect of reduced brand • Annualization of benefit from • Full effect of reduced brand 1,000+ headcount reduction advertising media buys, agency 1,000+ headcount reduction advertising media buys, agency and production and production • Centralized crew desks • Centralized crew desks • Welfare program compliance • Welfare program compliance • Centralized absence management • Centralized absence management $135M of the $400M Goal Accomplished in 2006
    • CASM Is Competitive Mainline Cost per Available Seat Mile (CASM) Excluding Fuel Twelve Months Ended 3/31/2007 7.62 7.62 7.62 7.47 6.52 7.41 ¢/ASM LUV UAUA CAL AMR LCC TME 1Q07 B/(W) (0.7)% 0.5% (2.5)% (1.2)% (2.8)% than TME 1Q06 United Adjusted United Unadjusted Sources: Company press releases. All results also exclude regional affiliates and special items; UAUA results also excludes UAFC. UAUA adjusted results exclude non-cash fresh-start and exit-related impacts and severance expense.
    • United’s EBITDAR Margin Appears Lower Than Our Peers EBITDAR Margin (%) Twelve Months Ended 3/31/2007 15.8 15.8 12.7 12.7 9.5 9.5 CAL AMR UAUA CAL AMR UAUA Sources: Company press releases. All results exclude special items. UAUA results also exclude severance expense.
    • Adjusting For Fresh Start And Regional Aircraft Accounting Reveals A Competitive EBITDAR Margin EBITDAR Margin (%) Twelve Months Ended 3/31/2007 16.3 16.3 13.2 13.2 13.1 13.1 2.0 2.0 United Adjusted for Regional Aircraft United Adjusted for Fresh Start and Exit-Related Charges 11.2 CAL UAUA AMR CAL UAUA AMR • United does not own any regional aircraft • United regional aircraft rental expense, which is expensed through the Regional Affiliate line, should be added back to EBITDAR Sources: Company press releases. All results exclude special items and FAS 123R expense. UAUA results also exclude severance expense, non-cash fresh-start and exit-related impacts and aircraft rent expense paid to regional affiliates.
    • Free Cash Flow Metrics Are Not Obscured By Exit Accounting And Are Comparable To Peers Twelve Months Ended 3/31/2007 Free Cash Flow/Consolidated ASMs Free Cash Flow/Total Revenue $/1,000 ASMs 7.2% 7.2% $8.78 $8.78 $7.74 $7.74 6.4% 6.4% $4.61 $4.61 3.9% 3.9% UAUA AMR CAL UAUA AMR CAL UAUA AMR CAL UAUA AMR CAL 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
    • At The Same Time We Have Significantly Lower Fixed Obligations • Limited non-aircraft capex of $550 million in 2007 focused on customer and core airline needs • United has been capitalizing on opportunities for balance sheet improvement – Limited debt maturities – No material defined benefit pension funding – No aircraft capex • Using excess cash to pay down debt – Reduced size of exit facility by $1 billion in February – Simultaneously freed up significant collateral • No current plans to raise capital
    • Our Performance Agenda • Our customer-driven strategy will drive margin leadership • We are optimizing revenue and successfully controlling costs • Revitalizing the workforce • Continuous improvement is increasing efficiency and enhancing the customer experience Customers, employees and investors will benefit as we execute against our performance agenda
    • APPENDIX
    • United Can Wait For the Next-Generation Of Narrowbody Aircraft Narrowbodies 25 Years and Older A/C (Cumulative) 300 32 28 250 20 4 67 55 50 41 36 200 29 21 5 150 97 97 95 93 91 88 88 88 74 100 47 24 30 30 30 30 30 30 30 30 30 13 3 5 50 64 64 64 64 64 64 64 64 64 64 64 51 38 15 0 3 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 B733 B735 B757 A320 A319
    • Our Replacement Needs For Widebodies Occurs Even Later Widebodies 25 Years and Older A/C (Cumulative) 100 90 40 80 32 70 29 60 25 50 33 30 13 40 7 4 25 30 21 21 21 21 21 20 13 30 29 4 22 10 19 14 12 12 11 11 10 6 2 0 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 B747 B767 B777
    • Non-GAAP To GAAP Reconciliation
    • Non-GAAP To GAAP Reconciliations • The Company believes that the reported non- GAAP financial results provide management and investors a better perspective of the Company’s core business and on-going financial performance and trends by excluding special items, severance, fresh-start items and fuel for comparative purposes.
    • Mainline RASM Twelve months ending March 31, % ($ and ASMs in Millions) 2007 2006 Change Consolidated operating revenues $ 19,248 $ 17,929 Less: Passenger - Regional Affiliates 2,907 2,574 Less: UAFC 271 394 Mainline operating revenues excl. UAFC $ 16,070 $ 14,961 Mainline available seat miles 143,142 140,529 Mainline RASM excl. UAFC (in cents) 11.23 10.65 5.4% Mainline operating revenues excl. UAFC $ 16,070 $ 14,961 17 Add: Fresh Start 206 Mainline operating revenues excl. UAFC & fresh start $ 16,276 $ 14,978 11.37 10.66 Mainline RASM excl. UAFC and fresh start (in cents) 6.7%
    • Mainline CASM And Unit Earnings Mainline CASM & Unit Earnings Excl. Fuel & Special Twelve months ending % March 31, ($ and ASMs in Millions; Rates in cents) 2007 2006 Change Mainline RASM excl. UAFC 11.23 10.65 Total operating expense $ 18,722 $ 18,069 Less: Regional Affiliates 2,820 2,797 Mainline operating expense $ 15,902 $ 15,272 Less: Fuel 4,798 4,294 Less: UAFC 260 387 Less: Special items (a) (58) 18 Mainline operating expense excl. fuel & special $ 10,902 $ 10,573 Available Seat Miles (ASM) 143,142 140,529 Mainline Cost per ASM (CASM) excl fuel & special 7.62 7.52 1.3% Mainline Unit Earnings excl. fuel & special 3.61 3.13 15% Mainline CASM & Unit Earnings Excl. Fuel, Special, Severance & Fresh-start Adjusted Mainline RASM 11.37 10.66 Mainline operating expense excl. fuel & special $ 10,902 $ 10,573 Less: Fresh Start Adjustments & severance (a) 301 99 Adjusted Mainline Expenses $ 10,601 $ 10,474 Available Seat Miles (ASM) 143,142 140,529 Adjusted Mainline CASM 7.41 7.45 -0.5% Adjusted Mainline Unit Earnings 3.96 3.21 23% (a) For TME 3/31/07, special items include the net impact of a $58 million benefit from reorg-related items. TME 3/31/07 adjusted CASM also excludes $22 million for severance. The $18 million special item for TME 3/31/07 relates to an asset impairment charge.
    • EBITDAR Margin Twelve months Adjusted Regional ending (excl. fresh Affiliates Reg. Affil. March 31, Fresh Start & start) TME Adjustments Normalized 2007 Special (1) 1Q07 (2) TME 1Q07 ($ in Millions) Net Income $ 96 96 $ 96 $ Interest Expense 793 793 793 Interest Income (273) (273) (273) (63) Taxes (63) (63) Depreciation and amortization 892 892 892 Aircraft Rent 410 410 410 (36) Special Items and Severance (36) (36) Regional affiliates – – 392 392 1,819 EBITDAR excluding special items & severance $ 1,819 $ $ 2,211 Stock Based Compensation – 105 105 105 266 266 Fresh Start, excl depr, amort, rent, interest – 266 – EBITDAR excluding special, severance & fresh-start $ 2,190 $ 2,582 Revenues $ 19,248 245 $ 19,493 $ 19,493 EBITDAR Margin (%) 9.5% 11.2% 13.2% (1) $266 million of fresh start expenses (credits) include $245 million to revenue for Mileage Plus; $(35) million to expense for Mileage Plus and $56 million for eliminated postretirement plan amortization. (2) Adjustment for aircraft rent to reflect regional affiliates on an quot;ownedquot; basis for comparison to our competitors
    • Free Cash Flow Metrics Twelve months ending March 31, 2007 ($ and ASMs in Millions) Cash from operations $ 1,735 Less: capital expenditures 338 Free cash flow $ 1,397 Operating revenues $ 19,248 Add: Fresh-start impact 245 Adjusted operating revenues $ 19,493 Free cash flow/total revenue 7.2% ASMs 159,077 Free cash flow/1,000 ASMs $ 8.78