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UAL Corporation Reports First Quarter 2009 Results
United Reduces Costs, Improves Reliability, Builds Cash in Difficult Economy
- $579 Million 1Q09 Net Loss ex. Non-Cash Hedge and Other Charges; $382 Million GAAP Loss
- Consolidated 1Q09 PRASM Down 11.1% vs. 1Q08; at Top End of Guidance
- Mainline Non-Fuel CASM ex. Charges Down 1.1%; Total Mainline CASM Down 13.1%
- Improved Full Year 2009 Outlook for Non-Fuel Costs
- Raised Nearly $500 Million in Liquidity; Closed Quarter with Solid $2.5 Billion Unrestricted Cash
- Achieved #1 Rank In On-time Performance Among U.S. Network Carriers
CHICAGO, April, 21, 2009 - UAL Corporation (NASDAQ: UAUA), the holding company whose primary subsidiary is United Airlines, reported results for the first quarter ended March 31, 2009. The company:
- Reported a first quarter net loss of $579 million or $4.00 per share excluding non-cash, net mark-to-market hedge gains and certain accounting charges outlined in note 6 of the attached statement of consolidated operations. The company reported a GAAP loss of $382 million or $2.64 per share, including these items.
- Reported an 11.1% decline year-over-year in first quarter consolidated passenger unit revenue per available seat mile (PRASM), at the top end of the guidance range we provided in March.
- Maintained its momentum on cost control, with mainline non-fuel unit cost per available seat mile (CASM) for the quarter, excluding certain accounting charges, down 1.1% year-over-year despite a reduction in mainline capacity of 13.1% year-over-year. Mainline CASM including fuel and excluding non-cash, net mark-to-market fuel hedge gains and certain accounting charges was down 11.2% year-over-year. GAAP mainline unit cost, including these items, was down 13.1%.
- Reduced its full-year outlook for mainline non-fuel CASM, excluding profit sharing programs and certain accounting items, to an increase of only 1.0% to 2.0% year-over-year - a reduction of approximately $150 million from prior company guidance. The company also reduced its non-aircraft capital expenditure plan for 2009 by $100 million, from $450 million to $350 million.
- Saved $729 million, or 38.7%, in consolidated fuel costs year-over-year, including the impact of settled hedge losses reported in fuel expense. On a cash basis, including collateral returns on all settled hedges, the company saved $982 million in fuel expense.
- Raised nearly $500 million in new cash in the first quarter through various transactions, including aircraft and engine financings, airport facility relocations, equity issuances and asset sales.
- Closed the quarter with a solid unrestricted cash balance of $2.5 billion, restricted cash of $255 million, and total cash of $2.7 billion. In addition, fuel hedge collateral was $570 million.
- Achieved a No. 1 ranking in on-time performance among the five major U.S. network carriers for the quarter, with 80.5% of flights arriving within 14 minutes of scheduled arrival time. The company paid $265 in on-time incentive payments to each of more than 40,000 front-line employees during the quarter under its new on-time incentive program. The company's first quarter on-time ranking improved from fourth place last year to first place this year.
- Increased the performance of our key overall customer satisfaction measure by more than 10 percentage points, with improvements in satisfaction scores across the travel experience.
- Received tentative approval from the DOT to form a trans-Atlantic joint venture with Continental Airlines, Lufthansa and Air Canada. Continental Airlines has also received tentative approval to join the anti-trust immunized alliance of United and eight other Star Alliance carriers.
"This leadership team is making the right decisions and United's people are delivering solid results," said Glenn Tilton, United chairman, president and CEO. "Across our company, from finance to customer service, our employees are focused on fundamental improvement, from raising liquidity, to improving our costs, to what matters most to our customers - delivering great service and on-time performance."
Revenue Significantly Impacted by the Global Economic Recession
For the quarter, consolidated PRASM declined 11.1%, consolidated yield declined 9.2% and consolidated load factor declined 1.7 points year-over-year, as the decline in overall traffic, and in particular premium and business demand, impacted the company's passenger revenues domestically and internationally. Growth in certain ancillary revenues, including bag fees and ticket change fees, improved consolidated PRASM by 2 percentage points year-over-year.
| Geographic Area |
|
1Q 2009 Passenger Revenue
(millions) |
|
Passenger Revenue % Increase / (Decrease) |
PRASM % Increase / (Decrease) |
ASM1 % Increase / (Decrease) |
| |
|
|
|
|
|
|
| Domestic |
|
$1,620 |
|
(21.6%) |
(10.1%) |
(12.8%) |
| |
|
|
|
|
|
|
| Pacific |
|
540 |
|
(30.1%) |
(16.3%) |
(16.5%) |
| Atlantic |
|
436 |
|
(20.6%) |
(13.4%) |
(8.3%) |
| Latin America |
|
105 |
|
(33.0%) |
(19.6%) |
(16.7%) |
| International |
|
$1,081 |
|
(26.9%) |
(15.4%) |
(13.6%) |
| |
|
|
|
|
|
|
| Mainline |
|
$2,701 |
|
(23.8%) |
(12.3%) |
(13.1%) |
| |
|
|
|
|
|
|
| Regional Affiliates |
|
659 |
|
(7.8%) |
(12.4%) |
5.2% |
| |
|
|
|
|
|
|
| Consolidated |
|
$3,360 |
|
(21.1%) |
(11.1%) |
(11.3%) |
| 1ASM: Available Seat Miles |
Cargo revenue for the quarter decreased 43.1% year-over-year as a result of lower demand, softer yields, lower fuel surcharges and reduced international capacity. Cargo revenues have been affected by United's exposure to trans-Pacific export markets, where industry cargo demand is down approximately 50% in Japan and approximately 25% in other Asian markets as a result of the global recession.
Strong Cost Performance Saves $1.1 Billion, Including Nearly $400 Million in Non-Fuel Expense
Total consolidated operating expense, including fuel, was down $1.1 billion for the quarter, excluding non-cash net mark-to-market hedge gains and certain accounting charges, while consolidated operating expense, excluding fuel and certain accounting charges, was down $387 million or 11.8%, as the company continued its efforts to reduce costs as capacity declined. Total GAAP consolidated operating expense including these items was down $1.2 billion for the quarter.
Mainline CASM, excluding fuel and certain accounting charges, decreased 1.1% in the first quarter, despite a 13.1% decline in mainline capacity. Consolidated CASM, excluding fuel and certain accounting charges, decreased 0.5%, despite an 11.3% decline in consolidated capacity. GAAP mainline and consolidated CASM, including these items, were down 13.1% and 13.0% respectively, compared to the year ago quarter, reflecting the impact of lower fuel prices.
Significant Fuel Cost Savings Partially Offset by Hedging Losses
First quarter consolidated fuel expense, excluding hedge impacts, was down 52%, or $983 million year-over-year. During the quarter, the company incurred settled hedge losses of $242 million reported in fuel expense, resulting in net consolidated fuel expense savings of $729 million, excluding net non-cash mark-to-market hedge gains. The company also incurred settled hedge losses of $81 million on settled hedge contracts in non-operating expense. On a cash basis, including collateral returns on settled hedges in operating and non-operating expense, the company saved $982 million in total fuel expense. The total impact of settled losses on the company's unrestricted cash balance was offset by the return of $395 million of cash collateral from fuel hedge counterparties during the quarter. The table below details hedge impacts for the quarter:
Fuel Hedge Impacts |
Three Months Ending March 31, 2009
(in millions) |
| |
Included in Fuel Expense |
|
Included in
Non-Operating Expense |
|
Total |
| Non-Cash Net Mark-to-Market Gain/(Loss) |
$191 |
$72 |
$263 |
| Cash net Gain/(Loss) on Settled Contracts |
(242) |
(81) |
(323) |
| Total Recorded Net Gain/(Loss) |
($51) |
($9) |
($60) |
| Return of Hedge Collateral |
|
|
$395 |
United Increases Unrestricted Cash Balance by Nearly $500 Million to a Solid $2.5 Billion
United closed several financing transactions during the first quarter. The company completed an aircraft sale-leaseback for $94 million and an engine financing transaction for $134 million. The company received $160 million from Chicago's O'Hare airport associated with the relocation of its cargo facility, and $35 million from Los Angeles International Airport as part of an agreement to vacate certain facilities. The company also raised $62 million from equity issuances in the quarter. Altogether the company raised nearly $500 million, ending the quarter with approximately $1.7 billion in unencumbered assets.
The company ended the quarter with an unrestricted cash balance of $2.5 billion, a restricted cash balance of $255 million and total cash of $2.7 billion. The company also had $570 million in cash deposits held by its fuel hedge counterparties. During the first quarter, the company generated $426 million of positive operating cash flow and $347 million of positive free cash flow, defined as operating cash flow less capital expenditures. Both operating cash flow and free cash flow for the quarter include $395 million in returns of hedge collateral and $160 million associated with the Chicago O'Hare cargo facility relocation. The company had scheduled debt and net capital lease payments of $264 million during the quarter and non-aircraft capital expenditures of $79 million.
"We have continued to demonstrate success raising cash, with $500 million in new liquidity in the first quarter - and with $1.7 billion in unencumbered assets, we have the ability to do more," said Kathryn Mikells, United senior vice president and chief financial officer. "We are dramatically reducing our costs, even as we make significant capacity reductions, saving over $1.1 billion in total expense this quarter compared to a year ago."
United Achieves #1 On-Time Performance Ranking - Customer Satisfaction Improves
The company's efforts to improve reliability and customer satisfaction are delivering results, with a first place on-time performance ranking among the five U.S. network carriers in the first quarter, and a more than 10 percentage point improvement on its key customer satisfaction measure. According to Department of Transportation statistics, 80.5% of United flights arrived within 14 minutes of their scheduled arrival time, representing a significant improvement from last year's fourth place ranking.
Approximately 40,000 United front line employees earned $265 each this quarter, as United's new Arrival :14 cash incentive program paid cash awards in all three months. Employees have the opportunity to earn as much as $1,200 per year under the program, which pays $100 each month United ranks first in on-time Arrival :14, and $65 each month United ranks second, or exceeds its internal Arrival :14 goal.
Substantial improvements were also achieved across the travel experience, with double-digit increases year-over-year in customer satisfaction for aircraft cleanliness and seat and entertainment product workability and a nearly eight percentage point improvement in employee courtesy.
Business Highlights
- United completed conversion of 40% of its international fleet to the new International Premium Travel Experience. Fully lie-flat first and business class seating, outstanding in-seat entertainment and an all-new dining experience are now available to customers flying to Europe, the Middle East, Latin America, Asia, and Australia.
- United launched its first-ever nonstop service from Washington, D.C., to Moscow on its newly reconfigured B767 with fully lie-flat seats in first and business class.
- United launched EasyPurchase, a worldwide service accepting major credit cards and debit cards for all in-flight purchases. As of April 20, all mainline flights worldwide accept credit cards, and all mainline domestic flights are cashless.
- United announced it will offer in-flight internet service on its p.s. transcontinental service between New York and California starting in the second half of 2009.
2009 Outlook
Mainline capacity is expected to be down 9.0% to 10.0% year-over-year for the full year 2009. Despite these large capacity reductions, the company expects mainline CASM, excluding fuel, profit sharing programs and certain accounting charges, for the full year 2009 to be up only 1.0% to 2.0% year-over-year, a reduction of approximately $150 million from prior company guidance, as United continues its progress on cost control.
As a part of the company's cash conservation efforts, the non-aircraft capital expenditure plan has been reduced by $100 million, from $450 million to $350 million for the full year 2009. The company expects scheduled debt and capital lease payments of $665 million for the remainder of 2009. Complete details on United's outlook can be found in the Investor Update, available at united.com/ir.
Questions & Answers
Additional information can be found in the Q&A section of this release.
About United
United Airlines (NASDAQ: UAUA) operates over 3,100* flights a day on United and United Express to more than 200 U.S. domestic and international destinations from its hubs in Los Angeles, San Francisco, Denver, Chicago and Washington, D.C. With key global air rights in the Asia-Pacific region, Europe and Latin America, United is one of the largest international carriers based in the United States. United also is a founding member of Star Alliance, which provides connections for our customers to 912 destinations in 159 countries worldwide. United's 48,500 employees reside in every U.S. state and in many countries around the world. News releases and other information about United can be found at the company's Web site at united.com.
*Based on United's forward-looking flight schedule for April 1, 2009 to April 1, 2010
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain statements included in this investor update are forward-looking and thus reflect our current expectations and beliefs with respect to certain current and future events and financial performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to our operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as "expects," "will," "plans," "anticipates," "indicates," "believes," "forecast," "guidance," "outlook" and similar expressions are intended to identify forward-looking statements. Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: our ability to comply with the terms of our Amended Credit Facility and other financing arrangements; the cost and availability of financing; our ability to maintain adequate liquidity; our ability to execute our operational plans; our ability to realize benefits from our resource optimization efforts and cost reduction initiatives; our ability to utilize our net operating losses; our ability to attract, motivate and/or retain key employees; our ability to attract and retain customers; demand for transportation in the markets in which we operate; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aviation fuel and refining capacity in relevant markets); our ability to cost-effectively hedge against increases in the price of aviation fuel; any potential realized or unrealized gains or losses related to fuel or currency hedging programs; the effects of any hostilities, act of war or terrorist attack; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aircraft insurance; the costs associated with security measures and practices; labor costs; industry consolidation; competitive pressures on pricing and on demand; capacity decisions of United and/or our competitors; U.S. or foreign governmental legislation, regulation and other actions (including open skies agreements); our ability to maintain satisfactory labor relations; any disruptions to operations due to any potential actions by our labor groups; weather conditions; and other risks and uncertainties set forth under the caption "Risk Factors" in Item 1A. of the 2008 Annual Report, as well as other risks and uncertainties set forth from time to time in the reports we file with U.S. Securities and Exchange Commission ("SEC"). Consequently, forward- looking statements should not be regarded as representations or warranties by UAL or United that such matters will be realized.
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