• Thank you, John, for that kind introduction. I'd also like to thank Bruce Pickering, Executive Director of the Asia Society of Northern California, for hosting this event; Mark Mosher, Executive Director of the California Commission for Jobs and Economic Growth; Naomichi Terazaki, Vice President and General Manager of All Nippon Airways; Caroline Beteta, the Executive Director of the California Tourism Commission; the representatives here tonight from Cathay Pacific Airways; and other distinguished colleagues.

• Today I will keep my remarks brief so that we can spend more time in discussion and Q&A.

• Once a week, I record a telephone message for the 60,000 United employees. Last Friday, together with our vice president, Asia Pacific, who dialed in from Singapore , I discussed the subject I am here to talk to you about today: The opportunities and challenges for our company and industry in Asia .

• As I said to our employees, economic growth in Asia is phenomenal and it will continue, especially in developing markets such as China , Vietnam and India .

• According to the U.S. Department of Commerce, between 2002 and 2007 Japan's economy is forecast to grow by 8 percent, Australia/New Zealand by 19 percent, China by 33 percent and India by 49 percent.

• As a huge consumer of both resources and products and a manufacturing powerhouse, Asia has become the focal point of global commerce.

• Continued foreign direct investment will drive manufacturing, distribution sites and sales offices throughout the region, contributing to more travel between the U.S. and the Asia Pacific region.

• As the middle class continues to grow, disposable income and the natural desire to travel will increase. Travel originating in Asia is the fastest growing segment in the travel and tourism industry. With time, it is expected to surpass travel originating in the U.S.

• To accommodate the new airline passengers, new airports are opening all across the region and expansion of existing facilities is continuing at an unprecedented pace.

• United's historic role as a premier U.S. carrier in the Asia Pacific market and our continuing commitment to Asia gives us a unique perspective.

• Late last year, we established the first service to Vietnam by a U.S. carrier in 30 years. I was here in November for the inauguration reception at City Hall, as were many of you, including Bruce.

• Mayor Newsom was gracious to be our host and was a strong supporter of this historic event.

• United has a strong presence in Japan – with our Narita hub and alliance with ANA providing code share flights to Japanese destinations. We have also expanded our flying to Nagoya and Osaka .

• We have a long history and good brand awareness as the largest U.S. carrier in China and we are a major competitor in Hong Kong .

• Our service is even more complete due to our Star Alliance partnerships – including our good friends at ANA, along with Asiana , Singapore Airlines, Thai Airways, Air New Zealand – and our recent bi-lateral agreement with Air China .

• And . . . we continue to add new and more frequent service to manufacturing/business centers in China – Hong Kong , Shanghai , and many other destinations.

• Today, almost a quarter of our total capacity is working in the Asia Pacific arena.

• We know how to do business in Asia . And we think of ourselves as California 's “air bridge” to the region.

• We are a bridge that helps bring people face-to-face and facilitates the exchange of cultures, ideas and opportunities -- the Asia Society's core mission.

• California is, today, the U.S. gateway to the robust and growing markets of Asia . Nearly half of the entire U.S. - China travel market is concentrated in California .

• As Asia continues to increase its significance in terms of commerce and consumers, I would suggest that California not take that “gateway” for granted.

• To actively pursue a strategy for access, we must be prepared to invest in the infrastructure required to match the opportunity.

• We need a strong, competitive aviation environment at SFO and LAX.

• We need strong, competitive U.S.-based carriers to be your business partners and provide the services customers flying in and out of Asia will demand.

• At United, we are committed to continued expansion of our service and delivering the connections you need.

• Our interests are very much aligned in the desire to be vibrant participants in the Asia economy.

• At United, we know better than most that the airline industry also has a lot of work to do to consistently deliver the competitive travel products customers need and demand.

• United's challenges reflect the problems the major carriers in this country are facing, and I believe that the work we have done to make United competitive is at the forefront of the transformation that all network carriers must undergo, if they hope to take advantage of the new global market opportunities.

• Two years ago, we couldn't have said that.

• We knew that we needed to simultaneously do the work of restructuring while also transforming our business.

• We were confronted by:

• This in turn led to a decision-making process that was also impossible, leading to poor decisions and a failure to invest internally in that which would deliver lasting value to customers, to employees and ultimately to investors.

• We're changing that every day:

• Over the last two years, we have also made very tough decisions on:

• We have cut our costs substantially. We are on track to improve our cost structure by $7 billion annually.

• We are also well on our way to industry-leading revenue performance. Last year, we came in 2nd place, moving from 4th among the major carriers including Southwest.

• In fact, over a two-year period, we had the best margin improvement – 16 points – in the industry in the fourth quarter and the second best – 14 points – for all of 2004.

• We are also running a much better airline for our customers.

• Just yesterday, Wichita State University released its annual Airline Quality Review. United was the only major carrier to improve service in 2004. Anyone who has either experienced, or simply understands the complexity and the distractions of restructuring will know such an improvement is counterintuitive.

• On-time performance last year beat our goal and was our third best in company history.

• We reduced cycle times in maintenance and engineering.

• And cargo revenues that were up 12 percent from 2003.

• In short, we are committed to making the sound business decisions that will position this company to compete in the current, enormously difficult market environment…a market in which fuel prices remain at record highs …. $57 yesterday…and airfares near 10-year lows.

• We know now at United that our work will never be “done.” We must constantly continue our efforts to contain costs, improve performance and customer service and meet the competitive demands of the market, domestically and on a global scale.

• For example in Asia, strong Asian carriers deliver a good travel product and they are continuing to lower their costs as the international travel market mimics what we are seeing in the U.S. domestic market – fierce competition paired with record high fuel costs, driving down revenue and profitability.

• And there is an even greater challenge on the horizon for U.S. network carriers:

• There is the very high probability of the emergence of “super-carriers” in the Asia-Pacific market, and elsewhere around the world, to better serve the global economy – large multinational or sovereign airlines that will have the ability to be “super-competitors” as well.

• We are witnessing the beginning of this movement:

• First, there was the merger of Air France and KLM, which created the world's largest global airline in terms of revenue. Press reports speculate that the consolidation of Cathay Pacific, Dragon Air and Air China is a real possibility.

• Current U.S. regulations limit foreign investment in U.S. airlines to 25 percent and have historically blocked constructive consolidation in the U.S. domestic industry.

• It is particularly ironic to me that my former company, ChevronTexaco, has already moved to further consolidation with the announcement of its intent to acquire Unocal…little more than three years after the Chevron Texaco merger.

• As the global aviation industry is revolutionized around us, the U.S. and its major air carriers run the risk of being marginalized and left behind.

• At United we will continue the work we must do to be the strongest competitor we can be. Together – a competitive U.S. airline industry and an engaged and supportive business community – we will be able to attract and capitalize on the opportunities offered by the phenomenal growth in Asia today.

• But we must also look to the future and remove the regulatory restraints on consolidation and foreign investment that could limit a strong U.S. aviation presence in the global economy.

• Thank you. I'll be happy to take your questions.

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