form425.htm
Filed
by Continental Airlines, Inc.
Pursuant
to Rule 425 under the Securities Act of 1933
and
deemed filed pursuant to Rule 14a-12
under
the Securities Exchange Act of 1934
Subject
Company: Continental Airlines, Inc.
Commission
File No.: 1-10323
Important
Information For Investors And Stockholders
This
communication does not constitute an offer to sell or the solicitation of an
offer to buy any securities or a solicitation of any vote or approval. The
proposed merger of equals transaction between UAL Corporation (“UAL”) and
Continental Airlines, Inc. (“Continental”) will be submitted to the respective
stockholders of UAL and Continental for their consideration. UAL will
file with the Securities and Exchange Commission (“SEC”) a registration
statement on Form S-4 that will include a joint proxy statement of Continental
and UAL that also constitutes a prospectus of UAL. UAL and
Continental also plan to file other documents with the SEC regarding the
proposed transaction. INVESTORS AND SECURITY HOLDERS OF CONTINENTAL
ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT
DOCUMENTS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN
THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
PROPOSED TRANSACTION. Investors and stockholders will be able to
obtain free copies of the joint proxy statement/prospectus and other documents
containing important information about UAL and Continental, once such documents
are filed with the SEC, through the website maintained by the SEC at http://www.sec.gov.
Copies of the documents filed with the SEC by UAL will be available free of
charge on UAL’s website at www.united.com under
the tab “Investor Relations” or by contacting UAL’s Investor Relations
Department at (312) 997-8610. Copies of the documents filed with the
SEC by Continental will be available free of charge on Continental’s website at
www.continental.com
under the tab “About Continental” and then under the tab “Investor Relations” or
by contacting Continental’s Investor Relations Department at (713)
324-5152.
UAL,
Continental and certain of their respective directors and executive officers may
be deemed to be participants in the solicitation of proxies from the
stockholders of Continental in connection with the proposed
transaction. Information about the directors and executive officers
of Continental is set forth in its proxy statement for its 2010 annual meeting
of stockholders, which was filed with the SEC on April 23,
2010. Information about the directors and executive officers of UAL
is set forth in its proxy statement for its 2010 annual meeting of stockholders,
which was filed with the SEC on April 30, 2010. These documents can
be obtained free of charge from the sources indicated above. Other
information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or
otherwise, will be contained in the joint proxy statement/prospectus and other
relevant materials to be filed with the SEC when they become
available.
Cautionary
Statement Regarding Forward-Looking Statements
This
communication contains “forward-looking statements” within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
that are not limited to historical facts, but reflect Continental’s and UAL’s
current beliefs, expectations or intentions regarding future
events. Words such as “may,” “will,”
“could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,”
“believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,”
and similar expressions are intended to identify such forward-looking
statements. These forward-looking statements include, without
limitation, Continental’s and UAL’s expectations with respect to the synergies,
costs and other anticipated financial impacts of the proposed transaction;
future financial and operating results of the combined company; the combined
company’s plans, objectives, expectations and intentions with respect to future
operations and services; approval of the proposed transaction by stockholders
and by governmental regulatory authorities; the satisfaction of the closing
conditions to the proposed transaction; and the timing of the completion of the
proposed transaction.
All
forward-looking statements involve significant risks and uncertainties that
could cause actual results to differ materially from those in the
forward-looking statements, many of which are generally outside the control of
Continental and UAL and are difficult to predict. Examples of such
risks and uncertainties include, but are not limited to, (1) the possibility
that the proposed transaction is delayed or does not close, including due to the
failure to receive required stockholder or regulatory approvals, the taking of
governmental action (including the passage of legislation) to block the
transaction, or the failure of other closing conditions, and (2) the possibility
that the expected synergies will not be realized, or will not be realized within
the expected time period, because of, among other things, significant volatility
in the cost of aircraft fuel, the high leverage and other significant capital
commitments of Continental and UAL, the ability to obtain financing and to
refinance the combined company’s debt, the ability of Continental and UAL to
maintain and utilize their respective net operating losses, the impact of labor
relations, global economic conditions, fluctuations in exchange rates,
competitive actions taken by other airlines, terrorist attacks, natural
disasters, difficulties in integrating the two airlines, the willingness of
customers to travel by air, actions taken or conditions imposed by the U.S. and
foreign governments or other regulatory matters, excessive taxation, further
industry consolidation and changes in airlines alliances, the availability and
cost of insurance and public health threats.
UAL and
Continental caution that the foregoing list of factors is not exclusive.
Additional information concerning these and other risk factors is contained in
Continental’s and UAL’s most recently filed Annual Reports on Form 10-K,
subsequent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K,
and other SEC filings. All subsequent written and oral
forward-looking statements concerning Continental, UAL, the proposed transaction
or other matters and attributable to Continental or UAL or any person acting on
their behalf are expressly qualified in their entirety by the cautionary
statements above. Neither Continental nor UAL undertakes any
obligation to publicly update any of these forward-looking statements to reflect
events or circumstances that may arise after the date hereof.
_____________________________________________________________________________________
The
following is a transcript of a conference call between United, Continental and
certain analysts and other media dated as of May 03, 2010 / 12:30PM
GMT
Final
Transcript
|
|
Conference
Call Transcript
UAUA
- United and Continental Announce Merger of Equals to Create World-Class
Global
Event
Date/Time: May 03, 2010 / 12:30PM GMT
|
CORPORATE
PARTICIPANTS
Glenn
Tilton
UAL
Corporation - Chairman, President, CEO
Jeff
Smisek
Continental
Airlines, Inc. - Chairman, President, CEO
CONFERENCE
CALL PARTICIPANTS
Hunter
Keay
Stifel
Nicolaus - Analyst
Bill
Greene
Morgan
Stanley - Analyst
Jamie
Baker
JPMorgan
- - Analyst
Justine
Fisher
Goldman
Sachs - Analyst
Gary
Chase
Barclays
Capital - Analyst
Kevin
Crissey
UBS
- - Analyst
Dan
McKenzie
Hudson
Securities - Analyst
Doug
Cameron
Dow
Jones - Media
Robert
Lindsay
The
Times - Media
Aaron
Smith
CNNMoney
- - Media
Richard
Newman
The
Record - Media
Christopher
Hinton
MarketWatch
- - Media
Ted
Reed
TheStreet.com
- - Media
Jeremy
Desel
KHOU-TV,
Inc. - Media
PRESENTATION
Operator
Good
morning and welcome to Continental/United merger conference call. Participating
on the call this morning are Glenn Tilton, Chairman, President and CEO of UAL
Corporation, and Jeff Smisek, President, Chairman, and CEO of Continental
Airlines.
Following
the prepared remarks, we will open the call for questions. Analyst questions
will follow the executive comments, and then they will begin a question and
answer session for the media. The media will be in listen-only mode until that
time.
A copy of
the slide presentation is available at the following website,
UnitedContinentalmerger.com, United.com, and Continental.com. An audio archive
of this call will also be available on the websites later today.
The
discussion today may contain forward-looking statements that are not limited to
historical facts but reflect current beliefs, expectations, and intentions
regarding future events. All forward-looking statements involve risk and
uncertainties that could cause actual results to differ materially. Examples of
such risk and uncertainties include, without limitation -- one, the possibility
that the proposed transaction is delayed or does not close, including due to the
failure to receive required regulatory approval, the taking of governmental
action, including the passage of legislation to block the transaction, or the
failure of other closing conditions; and, two, the possibility that the expected
synergies will not be realized, or will not be realized within the expected time
period because of, among other things, ability to obtain financing and to
refinance the combined Company's debt, ability to maintain and utilize
respective net operating losses, difficulties in integrating the two airlines,
and actions taken or conditions imposed by the US and foreign governments or
other regulatory matters.
For other
examples of such risk and uncertainties, please see the risk factors set forth
in each of the Companies' 2009 Form 10-K and their other security
filings.
In
addition, the discussed today references some GAAP to non-GAAP financial
measures such as EBITDAR, excluding special items; and reconciliation of the
GAAP and non-GAAP financial measures can be found in the appendix section of
today's presentation.
Finally,
I would like to introduce Mr. Glenn Tilton. Please go ahead, sir.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Thank
you very much, and thank you all for joining us today. Jeff and I are very proud
to introduce to you today our new airline. This is the right deal for our two
companies, for our employees, our customers, the communities we serve, and --
importantly -- our shareholders.
Together
we create the world's most comprehensive network. Our networks quite literally
complete each other's with little overlap and with strategically located hubs
that provide gateways to the Pacific, the Atlantic, Latin America, the Middle
East, Hawaii, and Micronesia.
United
has been and will continue to be the business travelers' airline. And a combined
Company will leverage our partnership with Continental forged through our
alliance relationship.
This
merger joins two premier brands who share a commitment to customer service and
operational excellence. This is the right time.
As we
have discussed for several years now, we believe consolidation is one of the key
components to getting to, achieving sustained profitability within our
industry.
The
competitive landscape is fundamentally different than it was 10 years ago.
Consolidation both here in the United States and in the international market has
created global carriers that are better able to compete in a dynamic airline
industry. At the same time, competition has grown, as low-cost carriers now
provide service to 80% of all domestic passengers.
The
landscape has changed even within the last two years when our Companies first
contemplated this transaction. Today we enter this agreement from positions of
strength.
United
reported industry-leading revenue improvement in the first quarter, and we have
limited fixed obligations. United and Continental lead the industry in
unrestricted liquidity, and we believe that we are well positioned to continue
to maintain our financial momentum as the economy continues to
recover.
This
merger, much like our new logo, brings together the best of both United and
Continental. Our route network is unmatched, and together we will serve 370
destinations around the world and around the corner.
We will
maintain service to all the communities we serve today and will create new
market opportunities. We are bringing together world-class customer service with
industry-leading on-time performance.
Our
employees and our shareholders alike have suffered through industry downturns.
Combining our two Companies makes us stronger, better able to compete in a
global market, and, importantly, able to provide more stability and career
opportunity for our people.
At the
same time, our investors benefit from the net annual synergies of some $1
billion to $1.2 billion we expect to realize as a result of this
merger.
I should
mention this is all incremental to the work both our Companies have done to
rationalize our cost structures, a discipline that we will maintain. It is also
incremental to revenue and cost synergies we expect to attain from our already
approved immunized alliance across the Atlantic and our alliance across the
Pacific which we expect to be approved soon.
Today,
Jeff and I announce a true merger of equals. As has been very well reported,
this is an all-stock transaction with a combined equity value of some $8
billion. Continental shareholders received 1.05 United shares for each
Continental share. United shareholders will own approximately 55% of the equity
of the combined Company; and Continental shareholders would own approximately
45%.
I will
serve as Nonexecutive Chairman for two years, and Jeff will serve as our new
Company CEO. Our Board will include six independent Directors from each company,
two labor representatives, and addition to Jeff and myself, who will both be
Directors of the Board.
The
holding company name will be United Continental, and our corporate and
operational headquarters will be in Chicago. With that, I would like you hand it
over to my partner, Jeff, who will walk you through most of the benefits that we
expect to deliver.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Thanks,
Glenn. It's a pleasure to finally be able to discuss with you what has been all
over the news for the last couple of weeks. The amount of interest in this
merger has demonstrated just how significant this announcement is.
We are
taking the best of two leading airlines and combining them in an extraordinarily
complementary way to create a world-class global carrier that will be the
world's leading airline. Combining these two Companies is the best way to
position ourselves to succeed and thrive in the changing and very competitive
airline industry.
This is a
merger of equals, and our new livery reflects that. We will be combining the
Continental livery, logo, and colors with the United name, just as you see it
here on this triple-seven. Looks pretty good, doesn't it?
Our new
world-class global airline will deliver significant benefits to our customers,
coworkers, shareholders, and the communities we serve. Let me take you through
what this merger will mean for each of our stakeholders.
For our
customers it will mean global, seamless and a superior product and service. For
the communities we serve, it will mean enhanced service, new destinations, and
the economic growth and jobs that come from great air service.
For our
coworkers, this combination provides improved, long-term career opportunities
and enhanced stability by being part of a larger, financially stronger, and more
geographically diverse carrier. And for our shareholders this transaction
creates a platform for greater opportunities for increased profitability and
sustainable long-term value.
This
combination will vastly improve our scope and scale. But one thing that will not
change is our shared commitment to providing clean, safe, and reliable air
transportation and great service.
With this
merger we will have a world-class global network with broad (technical
difficulty) coverage in Asia, Europe, Latin America, and the Middle East. As
Glenn said, this combination brings together the best of both of our networks to
provide global reach to our customers.
We will
combine Continental's strength in New York and Latin America with United's
strength on the West Coast and across the Pacific. Put simply, Continental is
strong where United is weak; and United is strong where Continental is weak.
From a network perspective, putting these two carriers together -- it's a match
made in heaven.
We have
no international route overlaps. Across the Pacific and the Atlantic as well as
in Latin America and the Caribbean, we will offer customers increased access to
a greater number of destinations, countries served, and daily
departures.
Now, this
complicated looking spiderweb is our combined domestic network, which will be
anchored by eight hubs in the Continental US, providing convenient
single-carrier access to nearly all US travelers. We will have hubs in the four
largest cities in the United States; and Houston will remain the airline's
largest hub. Importantly, we will offer enhanced service to small and
medium-sized communities and will continue to serve all the communities each
carrier currently serves.
As I have
said before, running an airline is a tough business. We all know how intensely
competitive this industry is. We believe this combination improves our
competitive position, yet it is profoundly pro-competitive. Our airline will
serve a broader group of customers by offering a greater choice of
destinations.
In
addition, this combination will enable new online destinations and connections
and will position us to compete in new communities and for new
routes.
Our
domestic networks are incredibly complementary. So our route overlaps are very
minor. From an antitrust perspective the merger should readily pass muster. And
I should note all of our hubs and the limited number of domestic hub-to-hub
routes where we overlap are subject to strong competition.
All in
all, this combination is well balanced both domestically and internationally,
with 57% of our capacity domestic, 20% across the Atlantic, 15% in the Pacific,
and 8% in Latin America.
We are
excited to merge the industry-leading products and services of both Companies.
Together, we'll serve more than 144 million passengers per year as they fly to
370 destinations in 59 countries. We are each keenly focused on operational
excellence. We will continue to provide our customers with the superior onboard
product that they associate with our two great brands.
We also
know that we are in a service business. As a combined Company, we will be
committed to delivering high-quality service to our customers.
We also
share a focus on generating new sources of revenue. We believe the combination
will provide our Company the increased financial strength to invest in products,
technology, and fleet upgrades to help drive revenue synergies. I will come back
to this in a moment.
Let me
assure you we will work together to earn your business. We will do this in part
by ensuring that the 91 million customers in our combined and industry-leading
loyalty programs received improved benefits. We will continue to offer
industry-leading elite status benefits, unmatched redemption options, and new
opportunities to both earn and redeem miles.
We have
extraordinary people at both carriers, and we are bringing together two
exceptional workforces. I am a big believer in the importance of working
together culture. It is our culture and our people who have make Continental
great. Once combined with United, we will work together and treat each other and
our customers like you yourself want to be treated -- with dignity and
respect.
We will
have open, honest, and direct communication with each other and with our
customers.
For our
coworkers, both at Continental and United, let me be clear. This merger will
give us a platform to grow and prosper as a strong competitor, which will
provide improved long-term career opportunities and enhanced job stability as
part of a larger, financially stronger, and more geographically diverse
carrier.
This
merger will help us break the cycle of instability. This merger will help us
provide careers, not just jobs.
As you
have heard me say many times before, our coworkers are the key to our success.
Working together, our teams -- many of whom already know and respect each other
through our alliance partnership -- will join as one set of coworkers to deliver
great service to our customers around the globe.
This
merger enables us to create opportunities to grow beyond what each stand-alone
Company or an alliance would be able to deliver. We estimate revenue synergies
in the range of $800 million to $900 million a year. This is incremental to our
alliance and our proposed trans-Atlantic and trans-Pacific joint
ventures.
We
estimate net cost synergies in the range of $200 million to $300 million per
year. So our estimate of net annual revenue and cost synergies totals between $1
billion and $1.2 billion by 2013.
We expect
revenue synergies to come from increasing our scope and scale. We are well
positioned with the largest and most balanced network of any US
carrier.
We will
have 10 hubs, including hubs in the nation's four largest cities and at seven of
the 15 largest airports. Our combined fleets gives us greater ability to match
capacity with demand, improve aircraft utilization, and optimize
connectivity.
Our
significantly expanded network presence and connecting opportunities position us
well to drive incremental traffic and revenue. We will improve access from
Continental's hubs to United's Asia network and expand connecting opportunities
from United's hubs to Continental's Latin America and European
networks.
As you
all know, a single-carrier network is very attractive to high-yield corporate
customers. By being more efficient we will be even more competitive. Both of our
companies have already done a good job becoming more efficient, and we believe
the merger will help us capture cost synergies that will improve our unit cost
performance.
We expect
net cost synergies will be achieved principally by streamlining corporate
overhead functions, eliminating duplicative marketing, sales, and advertising
expenses, and streamlining our IT functions.
We expect
transition costs of $1.2 billion over the next three years. These costs will
cover IT transition, operational transition, severance, corporate, and other
costs.
Our
combined fleets provide the variety of aircraft size and range to meet our
expanded network's scope. Having the ability to use the right size aircraft in
the right markets to meet market demand will maximize both revenue and fuel
efficiency.
We will
have the youngest fleet of the major US network carriers, with an average age,
using the current combined fleet, of just 11.5 years. Youngest also means more
fuel-efficient; and combined, we will have one of the most fuel-efficient fleets
among our network peers. On a cabin mix adjusted basis, we will have the most
fuel-efficient fleet among our major US network competitors.
The lease
term and age profile of our combined fleets, along with the combined best new
aircraft order book among our network competitors, provides us with significant
flexibility as we evaluate future retirement of less fuel-efficient aircraft. It
also gives the combined Company great flexibility to respond to changing
economic conditions.
As you
can see here, there is a wide range between our possible minimum and maximum
fleet counts. So that our estimated fleet size could be anywhere from just under
550 aircraft to over 750 aircraft just over the next four years. This
flexibility will allow us to optimize our fleet to match changes in the economic
environment.
Together
we'll have industry-leading unit revenue on a length of haul adjusted basis.
This shows the attractiveness of our combined network.
Together,
we also have an industry-leading margin performance. And together we also have
industry-leading liquidity, with our recently reported combined unrestricted
cash balance of over $7 billion.
We will
proceed quickly in filing with the US Department of Justice and the Department
of Transportation as well as foreign regulatory bodies such as the European
Commission. At the same time, we will begin our integration
planning.
We worked
together to make Continental's transition to Star Alliance successful and
seamless; and we plan to do the same as we work together to combine our two
great Companies. We'll seek shareholder approvals in September and expect to
close by year-end.
As Glenn
said, our merger of equals combines the best of both airlines, to benefit all
our stakeholders -- our customers, our coworkers, our shareholders, and the
communities we serve.
So Let's
Fly Together.
With
that, Glenn and I are happy to take questions from investors first and then the
media.
Unidentified
Company Representative
Alicia,
with that, we are ready to begin the question-and-answer session for the
analysts.
QUESTION AND
ANSWER
Hunter
Keay, Stifel Nicolaus.
Hunter
Keay - Stifel Nicolaus -
Analyst
Guys,
good morning. Congratulations.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Thank
you very much, Hunter.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Thanks,
Hunter.
Hunter
Keay - Stifel Nicolaus -
Analyst
Absolutely.
Jeff, probably a question for you. I'm curious to get your outlook on how you
view this combined entity looking at long-term growth. Because I think at this
point you have got two very interesting perspectives here.
United --
nobody has cut more than United has recently. Continental -- you guys I think
have said in the past you view yourselves growing at 5% to 6% steady-state. But
that was really when -- under Larry.
So, Jeff,
how do you view in a steady-state economy environment this combined entity
growing?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
Hunter, we are always going to be responsive to market demand. As the slide that
we showed earlier, we have tremendous fleet flexibility with combining the two
fleets, both for flexing down if we need to and flexing up if the market demand
is there. So we will be responsive.
This, I
think, gives us a tremendous opportunity to grow, because we will be more
competitive; we will be able to generate additional revenues. We believe no one
will be -- we'll be very attractive to corporate customers. But I think that
attractiveness is going to be sticky because we're going to provide the best
scope and scale, the best network, and the best product in the
industry.
Hunter
Keay - Stifel Nicolaus -
Analyst
Okay.
Do the net cost synergies include any labor dissynergy headwinds? Maybe if not
- -- it's probably early, but any kind of ballpark of maybe quantifying that at
this point in time?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Hunter,
the cost synergies are net of all dissynergies that we anticipate.
Hunter
Keay - Stifel Nicolaus -
Analyst
Any
- -- would you care to maybe quantifying what you're assuming for cost headwinds
on the labor side?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Not
a chance.
Hunter
Keay - Stifel Nicolaus -
Analyst
All
right, great. Lastly the synergy number, does that -- what would the synergy
number have been had you included A++ and P++?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
We
are not going to talk about that. I will tell you from Continental's
perspective, the Star Alliance has outperformed our expectations. But I am not
going to give forward guidance on A++ or P++.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Hey,
Hunter, it would have been more.
Hunter
Keay - Stifel Nicolaus -
Analyst
Oh,
sure.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
You
can bet on that.
Hunter
Keay - Stifel Nicolaus -
Analyst
Very
good. All right. Thanks a lot for the time. Appreciate it.
Bill
Greene, Morgan Stanley.
Bill
Greene - Morgan Stanley -
Analyst
Hi,
congrats.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Thank
you.
Bill
Greene - Morgan Stanley -
Analyst
Jeff,
in the past that you had mentioned that you thought that if you saw Continental,
even with a joint venture and a codeshare relationship domestically with United,
losing corporate market share that you would reconsider this. So if that kind of
what was the motivation here?
You just
felt that this would give you the platform to compete better with Delta? Or what
is the big change that occurred from a couple years ago?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
let me take you back to 2008, Bill. In 2008, when we had these earlier
discussions, the economy was at the cusp of the greatest recession since the
global depression. Fuel prices were screaming to unprecedented highs and
subsequently went even higher. The capital markets were distressed and there was
limited access for airlines to the capital markets. And our liquidity position
of both carriers was a bit stressed as well.
Now fast
forward to today, where we have the economy improving, we have got business
travel returning, we have got fuel prices -- although high, they are manageable.
We have access to the capital markets and our liquidity is better than we have
had in many, many years.
So the
stars have aligned for what is a great strategic move. I have been keeping my
eye on Delta. They are a serious competitor of ours in New York and Latin
America. They are claiming to have significant synergy results from their
combination.
But what
happened here is very simple. I found out through the news media that Glenn was
looking at a potential other combination. I recognized that United is the best
possible partner for Continental. I am very interested in providing a foundation
of profitability and sustainable profitability for both our shareholders and our
coworkers.
It's also
very important for communities we serve, because as Glenn was mentioning this
cyclicality and fragility of this industry has got to stop. And this is our
opportunity at Continental to provide a very secure base for our coworkers and a
bright future for all of our constituents.
And so I
didn't want him to marry the ugly girl, I wanted him to marry the pretty one.
And I am much prettier.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Bill,
actually, and that includes the fact that we had two years to work on him,
too.
Bill
Greene - Morgan Stanley -
Analyst
Yes,
exactly, exactly. Glenn, I am wondering, can you comment at all? How did you
arrive at the 1.05? What is the math that gets you there?
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
You
know, I would tell you that there is an elegance to the 1.05. If you go back and
look at the exchange ratio exactly when we talked last, and you bring it forward
to when Jeff and I met to agree to this exchange ratio, they are sitting almost
right on top of each other.
Bill
Greene - Morgan Stanley -
Analyst
Then
just one last question. Can you give us any timeline for how soon do you need a
labor agreement in order to get the synergies you have outlined? Thank
you.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Sure,
Bill. This is Jeff. You know, this transaction has moved very swiftly. It has
moved more swiftly than our collective bargaining units can move, because of the
nature of the very process that they have.
We will
work closely with all of our coworkers, whether they are represented or not, to
reach agreements that are fair to them and fair to the combined
Company.
We have
done that historically. We have no expectations we would do that other than as
we have done historically.
And I am
confident that we will reach agreements, recognizing that this transaction
produces synergies and we intend to share an appropriate amount of those
synergies with all of our coworkers.
Bill
Greene - Morgan Stanley -
Analyst
All
right. Thank you and congrats again.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Thanks,
Bill. Appreciate it.
Jamie
Baker, JPMorgan.
Jamie
Baker - JPMorgan -
Analyst
Hey,
good morning, Glenn and everybody. Congratulations on putting what I am sure was
a very hectic several weeks behind you.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Hectic
indeed. I tell you, they were more hectic for Jeff and his team than they were
for Glenn and his.
Jamie
Baker - JPMorgan -
Analyst
Well,
and it was actually a little bit unnerving to find out that you were in Times
Square over the weekend.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Actually
the distraction wasn't intended.
Jamie
Baker - JPMorgan -
Analyst
Oh,
no, I wasn't implying that it was. A question on the revenue synergies. Given
that it is an end-to-end network combination I have got to believe some of those
synergies are actually share shift from existing airlines, existing
alliances.
Can you
give any color? Of the total number, how much might be share shift? How much do
you think on a percentage basis is the improved corporate share? That sort of
thing.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
I don't think we're breaking that out, Jamie. I'm sure there is a degree of
share shift, of course.
But
recognize that putting the right aircraft in the right markets and providing the
connectivity and the scope and scale is very attractive to corporate customers,
provides a lot of schedule utility and the loyalty program as well. We think we
will attract a lot of passengers.
And in
many areas we will be able to serve communities better than we can. Because, for
example, right now we are limited to 50-seat RJs and United is not. So that will
be very beneficial to us as well.
So I
think we're going to generate new sources of revenue. But there will be some
component of share shift, without question.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Hey,
Jamie, I will tell you. Without getting into the specific component of the
synergies that is represented by share shift, you would not be wrong to think
that the two happiest groups of employees in the two Companies today are
corporate sales organizations.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Wouldn't
you like to be making those sales calls today?
Jamie
Baker - JPMorgan -
Analyst
Good
observation, indeed. A question that Mark and I had on the aircraft size, you
indicated flexibility between 550 and 750 shells, I believe. Can you tell us
what fleet size is baked into the $1 billion to $1.2 billion synergy
figure?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Right
now, what we have done is we have just -- we have overlaid the existing fleets
of both carriers.
Jamie
Baker - JPMorgan -
Analyst
Okay.
Lastly, just a follow-up, I guess to Hunter's question on the labor cost
dissynergy. Obviously you don't want to comment on what figure you baked
in.
But what
is your thinking on -- particularly for pilots -- where the market is right now?
Do you define the market simply by the most recently-achieved contract, or is it
something more complicated? Would it include cargo airlines, for
example?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
I will tell you from our perspective; you can take a look at the most recent
offer we had on the table to our pilots, prior to the announcement of this
transaction, which was the Delta contract plus $1 an hour. And that was the
wholesale Delta contract; that means all of the terms and conditions of the
Delta contract.
We
believe that is an appropriate market contract, and that is from my perspective
where the market is today.
Jamie
Baker - JPMorgan -
Analyst
Okay.
Big help. Thank you very much, everybody.
Operator
Justine
Fisher, Goldman Sachs.
Justine
Fisher - Goldman Sachs -
Analyst
Morning.
Can you talk about the relationship with your regional carriers and how the
Continental ExpressJet and United Express may be affected by this? Are there any
required changes? How do you deal with each of those going into a merged
Company?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
we will take a look at all of our fine Express partners. They do a very good job
for us. This provides the combined Company, I think, with a lot of flexibility
of different feed, different partners, different expirations of contracts. That
kind of flexibility is good from a competitive perspective, from a service
perspective.
So we
think this is actually beneficial to the mainline carrier in its business
relationships with Express carriers. But they are very important.
From our
perspective, Continental Express does a superb job for us. They have operational
excellence. We are very proud to have them as a partner.
But this
will give us a broader portfolio of Express carriers to service what I believe
will be the growing needs of this combined carrier.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
would take you back, Justine, to the answer to the question or two ago about the
optimization of the fleet, of the mainline fleet. I think we get an opportunity
here to optimize the Express fleet.
Both of
us have been doing that for our own accounts for quite some while. We at United
are really very pleased with the performance of our Express partners. They are
doing a very good job for us.
As Jeff
said a moment ago, in some instances, frankly, the flexibilities that we have
there have been transformative for us. So we will just take the opportunity now
to look at this in a combined context when we get that opportunity.
Justine
Fisher - Goldman Sachs -
Analyst
Okay,
great. Thanks very much.
Gary
Chase, Barclays Capital.
Gary
Chase - Barclays Capital -
Analyst
Congratulations,
everybody.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Thank
you, Gary.
Gary
Chase - Barclays Capital -
Analyst
Always
touching to see corporate romance bloom, Jeff. Maybe we'll get Jennifer Aniston
to play your role in the movie since you want to be the pretty
girl.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Oh,
I would really like that.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Hey,
hey, now we're talking. No disrespect to Jeff, but that would be
good.
Gary
Chase - Barclays Capital -
Analyst
Well,
if that happens, I will offer to play Glenn in the movie for free.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Hey,
you (multiple speakers) my part.
Gary
Chase - Barclays Capital -
Analyst
I
am curious, guys, if there are any labor contingencies that we should be aware
of. Any milestones that need to be met in the way the agreement is structured?
Or do you have everything in place, and this is just a function of antitrust
from here?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
No.
We are going to be talking to all of our labor groups, negotiating the
traditional fence agreements, resolving representation issues, negotiating joint
collective bargaining agreements and seniority integration.
Our
pilots and United's pilots have done a lot of work over the past two years. They
have talked a lot with each other. They have negotiated a process agreement as
they go forward for integrating their seniority.
But as I
said earlier, I expect that our labor negotiations will be no different from the
labor negotiations that we've had at Continental historically. I think that we
have consistently reached agreements that are fair to the Company and fair to
the coworkers.
We have
every interest in getting our contracts in a timely manner. We are committed to
that. As I said there are synergies here that we can share to help fund that. I
look forward to negotiations and I think we can get them done in a timely
way.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
You
know, I would echo that, but I tell you if you look at the expedited expectation
here for completion, clearly there is nothing much contingent. If our experience
here over the past three weeks and coming to a merger agreement that our
respective Boards approved last night -- unanimously, both -- we can work
together quite efficiently.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
But
if your question is a technical one, that -- is there a condition to closing
related to labor? Absolutely not.
Gary
Chase - Barclays Capital -
Analyst
Okay,
yes, that was the question. Are there any other technical conditions required
for a close? Any other milestones that we would need to see before you would
close, aside from --?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
You
can read the merger agreement, which is of course filed with the SEC. But I
would characterize the merger agreement as a fairly traditional, straightforward
MOE agreement with ordinary representations and warranties and ordinary
covenants and ordinary conditions to closing.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
But
this deal is built to close.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Absolutely.
It is built to close. There is no question about it.
Gary
Chase - Barclays Capital -
Analyst
Would
you guys be able to talk a little bit about how you think this creates sustained
profitability? I mean obviously you've got an incremental profitability
expectation that is built on the synergies.
I am
curious if there is another aspect of this where you think -- not only will we
be more profitable as a result, but we think our profitability will be more
stable.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
would go back to what Jeff said. I think that the stickiness of this deal, both
in the context of corporate clients, market access, the elegance of how the two
networks come together -- and things that don't get talked about much, which is
the tremendous combination of our two loyalty programs -- creates a continuum of
commitment to the new Company that I think is of dramatic importance to
sustained profitability and success in the commercial marketplace.
Gary
Chase - Barclays Capital -
Analyst
Okay.
Thanks very much, guys.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
You
bet. Thank you.
Kevin
Crissey, UBS.
Kevin
Crissey - UBS -
Analyst
Congrats.
Capacity -- you're not going to give us an idea of what is happening with
capacity on a go-forward basis?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
we will of course as we move forward give the traditional capacity guidance that
the carriers have given historically. But we're not talking about the pro forma
capacity that we have -- on the assumptions we have on the
synergies.
I will
tell you that we are very comfortable with the synergy number. Our teams have
worked very closely together, and we are confident that we can obtain these
synergies. And of course, as any good management team will do, we will try to
beat them.
But these
are synergies that we are highly confident we can bring home.
Kevin
Crissey - UBS -
Analyst
Maybe
we could just go back to the dissynergies. Obviously there is some pay, labor to
compensate for doing this deal or letting this deal go through more smoothly, if
you will. What other big dissynergy categories are there?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
I mean you know, there are going to be issues in general that deal with
technology, for example. That are going to be -- there is a certain degree of
cost involved in that. We should be able to have some cost savings in doing
that.
We have
obviously got the fees of the deal, things like that. But the principal cost to
this deal is our labor agreements, and there will be some degree of dissynergies
in having the fleet that is not as similar as the fleet that we currently have,
for example, at Continental.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
think that there are always startup costs.
Kevin
Crissey - UBS -
Analyst
Yes,
sure.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
think that what we have built into -- and I think it was on the slide -- is
there are going to be expenses associated with startup and decisions made
relative to -- and we keep coming back to IT. But I think it is probably the
most illustrative.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Yes,
but if you're talking about one-time cost versus dissynergies, clearly one-time
costs, there are significant one-time costs, about $1.2 billion. Those really
principally are around the technology transition, which is quite expensive; and
of course the fleet harmonization, which is quite expensive as
well.
But
again, that is basically one year's synergies as one-time costs. And then the
synergies are perpetual. So it's a pretty good trade.
Kevin
Crissey - UBS -
Analyst
Two
other quick ones, if I could. So you are going to get more corporate business.
I'm just wondering whether that is a good thing.
We have
seen the corporate business be extremely cyclical here the last two cycles. They
are displaying really strong ability to pull down demand very rapidly, much
faster than the airlines can handle it. So are the airlines -- and this is not
specific to just you. Seems to be a trend in the whole industry.
Is the
airline industry actually getting more cyclical due to their increased reliance
on corporate travel?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
I
don't think so. I think corporate travel is very important. It is the highest
yielding traffic. People will always travel. And businesses need to travel and
will continue to travel.
As I said
earlier, we have significant flexibility. In fact, this combination provides
great flexibility for the combined carrier and an ability to match in an
unparalleled way our capacity to demand.
Our
management teams -- and we've gotten to know United's management team very well.
They are nimble, they are responsive, and we will always be responsive to market
demand and we will be responsive in a very nimble and appropriate
fashion.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
think the right way to look at it is if you go back to what the two carriers
were saying on their first-quarter conference calls. The ambition of the new
Company is a mirror image of what both Jeff and I and our teams were saying on
the calls.
The
sustained relationship that we have with significant corporate presence either
on the East Coast, the Mid-Continent, or the West Coast, those companies --
whether it's Hewlett-Packard or it's Time Warner or financial services, which
was unique in this latest downturn, or Caterpillar -- they have to compete just
as we do in a global economy. We take them to the competitive
marketplace.
So I will
tell you, that is the core proposition. And I wouldn't worry about cyclicality
of that business.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Yes,
the one thing I would add in is, we're also going to be very attractive to
leisure passengers. And this combination will make us more competitive because
it will lower our unit costs. We have some cost synergies here. So we will be
more competitive than we are today and we will continue to be competitive
domestically with lower, low-cost competitors.
And the
strength and broadness of this network and the loyalty program -- there are many
leisure passengers who also enjoy the benefits of what will be the world's
leading loyalty program.
Kevin
Crissey - UBS -
Analyst
Okay.
I was going to guess -- I said I was going to have two and I was going to let it
go, but then you just bring up the world's leading loyalty program. What are the
thoughts on the spinoff of the FFP as way to -- I know that was something that
United had looked at; I'm not sure that Continental had ever
considered.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Well,
what we have done -- let me be really clear. What we have done is separated --
for the purposes of managing the program -- it away from -- within the Company,
it away from the management of the airline.
Now the
relationship between Mileage Plus and United Airlines is very symbiotic and
mutually supportive. But what we have discovered, and Jeff and I have had good
conversations about this, is that the competencies, the skills that are required
to really understand the opportunity that is embedded in the business of loyalty
are a little different from the skills that are requisite to run an
airline.
So we see
opportunity in many places across the spectrum of our portfolio that we
contribute to the new Company, and it is just unrealized opportunity now. We've
seen it -- certainly you have seen it manifest in the ancillary revenue numbers
that we have been posting for our own account. And the two Companies are really
excited about the mutual opportunity there.
Kevin
Crissey - UBS -
Analyst
Terrific.
Thanks and congrats.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
You
bet. Thank you.
Dan
McKenzie, Hudson Securities.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Dean,
how are you?
Dan
McKenzie - Hudson Securities -
Analyst
Yes,
well great. Thanks. Good morning and congratulations here.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Thank
you.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Thanks.
Dan
McKenzie - Hudson Securities -
Analyst
Of
course, Jeff, I would be remiss not to welcome you to Chicago, being from
Chicago.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
I
am looking forward to it, especially the winters.
Dan
McKenzie - Hudson Securities -
Analyst
Yes,
that's right, you may need a little warmer winter jacket. A couple questions
here.
Does the
synergy estimate reflect a bottoms-up analysis or a top-down estimate at this
point? I guess what I am getting at is if there are some synergies that you just
simply can't quantify accurately until you actually integrate
operations.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
I'll
tell you, the synergy numbers are extraordinarily well vetted. I would say
bottom-up and top-down. We went through an awful lot of this in 2008 in quite --
in great detail. We have also learned during the alliance integration process
itself, of synergies that we thought were attainable that are not and synergies
that we had not spotted that are.
So I
think we have a more accurate estimation of our synergies this go-around than we
had before. And as I said before, we are highly confident of our ability to
bring those home, and bring those home in the time frame that we talked
about.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
think the two-year experience has really been good for both companies to see
opportunities that what we hadn't previously imagined were there.
Dan
McKenzie - Hudson Securities -
Analyst
Understood.
I guess obviously there are a number of buckets that roll up to make up that
gross revenue synergy estimate. Hopefully you can focus for a moment on the
synergies factored in from connectivity or the harmonization of connecting
traffic.
In
particular, United and Continental have two major hubs on the East Coast today
that compete for north-south connecting traffic and east-west traffic that
connect through three hubs in the middle of the United States. I guess I am
wondering -- how much incremental revenue have you factored in from the
harmonization of that dynamic?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Again,
we are not breaking out by bucket, Dan. I will tell you that the analysis that
we have done of the revenue synergies is profoundly complex, and there are
opportunities beyond that. There is no question there are opportunities beyond
that. But again, we can bring all these synergies home.
Dan
McKenzie - Hudson Securities -
Analyst
Understood.
Okay. Well, maybe just a quicker and easier question here. Assuming DOJ
approval, can you break out how the revenue and cost synergies phase in from a
timing perspective?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Sure.
Well, I will give you the net synergies. We expect that we will achieve about
75% of them in the second year and 100% of them in the third year. So that --
think of 75% by 2012 and 100% by 2013.
Dan
McKenzie - Hudson Securities -
Analyst
Got
it. Then one final quick question here. I'm wondering if you can talk about the
preservation of NOLs from both carriers.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Sure.
The size of our combined NOLs is nothing we are particularly proud of. I believe
there are no trophies for that.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
If
there were we would get one.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
If
there were we would probably get one. As you know, United has a charter
provision that protects its NOLs when it came out of bankruptcy. This will
constitute a change of control from the perspective of Continental.
But there
are various ways that we can refresh those through built-in gains transactions.
We have analyzed this extensively as well, and we're comfortable with how it
comes out.
Dan
McKenzie - Hudson Securities -
Analyst
Okay.
That will do it for me. Thanks.
Unidentified
Company Representative
Alicia,
that concludes our time with the question-and-answer session for the analysts.
We are ready to begin the question-and-answer session for the
media.
(Operator
Instructions) Doug Cameron, Dow Jones.
Doug
Cameron - Dow Jones -
Media
Morning,
everybody. How are you doing? If Doug Parker wasn't pissed off enough about the
alleged leaks, he is going to be really happy being called the ugly girl in
this.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
I'm not cutting about Doug. I think he is a very handsome man.
Doug
Cameron - Dow Jones -
Media
I
am sure he will be very happy to hear that. A great consolation
prize.
Two
things come to mind. There are loose talks about -- I am paraphrasing here -- a
sort of equitable distribution or drawing of the senior management team from
both airlines. Is that just diplomacy? Or have the two of you have worked out at
least in your heads what the senior management ranks will look
like?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Let
me speak to that. This is, Doug, a merger of equals. And I am committed as the
new CEO to making this a successful merger.
The only
way to have a successful merger is to have a balanced and equitable senior
management team. We need people from Continental, we need people from
United.
What we
have found in our partnership with United for the past two years -- there are
very talented members of management of United. I am very proud to be able to
lead them, very proud to be their partner, their business partner. And this is
not diplomacy, this is reality.
This is a
true merger of equals in every sense. You see it in the livery, you see it in
the name, you see it throughout the transaction.
We are
very committed to this, and I believe that we are going to have not only a
world-class airline but, by combining the management teams, we're going to have
a world-class management team as well.
Doug
Cameron - Dow Jones -
Media
Say
you have mapped out in your head what it looks like?
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Doug,
just for process point, right? What we are going to do is Jeff and I are going
to co-chair an integration planning council. It will begin
immediately.
So the
first order of business is to get a picture for the new CEO, working together
with myself, as to what the structure of the new management team is going to
look like. So until you have got the structure, populating it is probably a
little premature.
Doug
Cameron - Dow Jones -
Media
That's
absolutely fair. One quick one. Does the fleet plan outline with its one draft
going one way and the other line going the other way, does it include the A-350s
on firm order?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
recognize that that fleet plan goes out just to -- that graph goes to (multiple
speakers)
Doug
Cameron - Dow Jones -
Media
Oh,
it doesn't go out far enough?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
2014, so
no, it does not.
Doug
Cameron - Dow Jones -
Media
Okay,
thanks very much.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
So,
Doug, we would simply say the A-350's utility isn't changed by the fact that we
have become one Company.
Doug
Cameron - Dow Jones -
Media
Yes,
that's perfect. Thank you very much.
Robert
Lindsay, The Times.
Robert
Lindsay - The Times -
Media
Hello.
Yes, just a quick one on market share and your prospects with antitrust, because
there are some thoughts that domestic in the US you would have 21%, making you
by far and away the dominant airline. Is that not going to be a major concern
for the regulators?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Absolutely
not a major concern. Recognize that antitrust analysis is done on relative
markets. It is not done on such an aggregate statistic as market share across a
geography the size of the United States. So absolutely not.
The DOJ
does a market-by-market analysis and we are highly confident that there are no
material antitrust concerns with this transaction. And this transaction will
close.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
So,
you know, just to add on to that, Jeff spoke to the rigor that has gone into the
identification of synergies. I can assure you the same rigor has gone into the
antitrust proposal we will put forward.
Robert
Lindsay - The Times -
Media
Okay,
so you have made soundings with relevant people to make sure that there will be
no major hurdles?
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
We
know what the process is.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
We
know what the process is, we know what the law is, we know how the markets are
defined. We have done a very rigorous analysis. There are no two carriers that
you could put together in a more complementary way than United and Continental
Airlines.
Robert
Lindsay - The Times -
Media
Okay.
I will accept that. Just on the actual figure that I have seen quoted at 21% for
domestic, when I look at the figures, the most latest figures for passenger
kilometers I think it is, and I add United and Continental as far as to January,
a year to January 2010 I get 18.3%.
Which one
should I -- which one is closer to the truth?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
To
tell you -- I don't pay attention to that at all because it is not relevant.
What is relevant is the carrier we are building. From an antitrust perspective
it is totally irrelevant.
What we
are building is this network that is incredibly attractive to our customers with
single-carrier opportunities to fly to 370 destinations in 59 countries. What
the aggregate share of ASMs or RPMs or anything else in the United States is
irrelevant.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Somewhere
between the two, probably.
Robert
Lindsay - The Times -
Media
Okay.
Thank you.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
You
bet.
Aaron
Smith, CNNMoney.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Hey,
Aaron, how are you?
Aaron
Smith - CNNMoney -
Media
Good.
Thank you. And congratulations on your deal.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
We
appreciate it very much.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Thank
you very much, Aaron.
Aaron
Smith - CNNMoney -
Media
I
just have really one question. I was wondering how this might affect the
consumer. Specifically, are you going to be able to charge more for airfares? Do
you have any other thoughts on how it is going to impact air
travel?
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
It
is going to be a huge benefit to the consumer because we are going to put
together a network, as Jeff just said a moment ago, that is going to provide
unparalleled connectivity for the consumer.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Aaron,
let me also mention that the synergy numbers that we talk about, what is driving
this transaction, there is not an airfare increase built into that assumption.
Absolutely no increase in fares in that assumption.
Aaron
Smith - CNNMoney -
Media
So
there is not an airfare increase built into -- the what?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Into
the synergies.
Aaron
Smith - CNNMoney -
Media
Okay.
All right. Because theoretically, you would probably be able to charge more
because you are basically reducing competition in the industry by one
company.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
No,
I disagree with that totally. We are not reducing competition. We are adding
competition.
This is a
global industry. We are a global carrier. We compete globally. We are not
reducing competition at all here.
What we
are doing is adding great utility. This is a huge consumer benefit. And we are
going to be responsive to market demand. That means if market demand increases,
we are going to add capacity appropriately; we're going to price our product
appropriately.
If demand
decreases, we will take out capacity and price our product appropriately. We
will always do that. We have done that before.
This is a
very pro-competitive transaction with more consumer choice, better consumer
choice than either one of our carriers could ever muster on its
own.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
think the key is to understand what we are trying to say here is we don't
overlap. If you think about that you'll understand why it is that nothing is
being removed. Because we don't overlap.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Aaron,
when I lay awake at night and I worry about my competitors, I never worry about
United. You know why? We don't really even compete with United.
And I
don't think they lay awake at night worrying about us. We worry about other
people. Now that we're together, I think we can bring such great benefits to all
the consumers across the globe.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
don't lay awake at night at all.
Aaron
Smith - CNNMoney -
Media
All
right, then just one last thing, just to back up for a second. When you were
saying there is not an airfare increase built into the synergies, are you saying
that there is not going to be an increase in airfare? Or what?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
No,
look. What the synergies permit us to do is to improve the mix of passengers.
You think of an airplane with a mix of leisure and business customers; the
schedule utility of the network will permit us to improve the mix.
Look,
airfares are not something we set. Trust me, if we could, it would be different.
But the world is not like that.
This is a
brutally, brutally competitive industry. There is no carrier in the world that
can set airfares. We couldn't set airfares before this. We can't set airfares
after this.
We are
responsive to demand. We are responsive to capacity.
This is
not a cost-driven business. This is a demand-driven business. This is a
capacity-driven business and a demand-driven business, and we don't set
airfares. We are responsive to market demand.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
The
marketplace -- the competitive marketplace sets fares.
Aaron
Smith - CNNMoney -
Media
Okay.
All right. Thank you very much.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Thank
you. You bet.
Richard
Newman, The Record.
Richard
Newman - The Record -
Media
As
you can imagine, I'm interested in Newark operations here. What changes to
service and jobs might we see at Newark as a result?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Richard,
Jeff. This combination with the fleet that we'll have, the 10 hubs that we will
have, and the ability to invest in our product that we will have, the stability
for our coworkers we will have, the better profitability and sustainable
profitability for our shareholders we will have -- this provides opportunities
for job growth throughout the country and internationally as well.
Look, New
York is very important to the combined Company. That was one of the very
attractive features why United was interested in marrying us, just as their West
Coast and Pacific presence is one of the reasons we wanted to marry
them.
New York
is an important market. It will remain an important market. It is a huge
business market. If you think of how we compete with the power of this network,
right now New York is a highly competitive market.
We
compete directly head-to-head with carriers at JFK and LaGuardia. It is one
market. It is interchangeable. And I will tell you, we focus on it
heavily.
And this
will permit us to be more competitive with both Delta and American over the very
important New York market.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Sounds
good from a United perspective.
Richard
Newman - The Record -
Media
Right.
So as far as -- might we see fewer frequencies though to places like Chicago,
Denver, San Francisco?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
I
think what you're going to see -- we believe that this will spark a considerable
amount of demand. There will be some degree of share shift. There will be
incremental demand. And we're always going to be responsive to that
demand.
Again, by
the nature of the fleet that we will have, which will be more flexible than the
fleet that either one of us has, we can be responsive to demand.
So to the
extent that we spark additional demand, which I believe we will, or to the
extent there is share shift, which I believe there will be, we will be able to
both up-gage the aircraft and add frequencies.
The
schedule utility we will have -- remember, we are very focused on all customers,
but principally on business customers who are our bread and butter, although
leisure customers are important to us. Schedule utility and frequency is very
important, and we will be keenly focused on that.
Richard
Newman - The Record -
Media
Thank
you.
Operator
Christopher
Hinton, MarketWatch.
Christopher
Hinton - MarketWatch -
Media
Good
morning.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
How
are you?
Christopher
Hinton - MarketWatch -
Media
Great,
thanks. A lot of my questions have been answered, but I am interested in whether
or not, with your focus on international, if there is not any opportunities for
you to team up with a low-cost carrier here in the US? Similar to what we saw
with American and JetBlue. Is that something you are considering?
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
You
know, the two networks that we've discussed with you today, the combination of
the mainline networks and the optimization opportunities we have with our
Express carriers is a complete network for us to optimize across the United
States.
Christopher
Hinton - MarketWatch -
Media
Okay.
It sounds like you're feeling pretty solid with where you stand.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
We
have exactly what we need.
Christopher
Hinton - MarketWatch -
Media
Okay.
Any chances you are going to be moving United operations in New York to
Newark?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
We're
not at the stage of discussing the integration of the network at this point.
There will be some changes that are responsive to market demand, but we are not
at the point of talking about those right now.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
think -- follow the marketplace, Christopher.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
That's
right.
Christopher
Hinton - MarketWatch -
Media
Okay.
All right, thank you.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
We
will go where the market opportunity is.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Precisely.
Christopher
Hinton - MarketWatch -
Media
All
right. Thank you.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
You
bet.
Ted
Reed, TheStreet.com.
Ted
Reed - TheStreet.com -
Media
I
have two things. First as I look at the map of the hubs, I don't see much of a
role for Cleveland there. Could you describe to me what Cleveland will do that
your other hubs don't do, or how it can survive?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
this is Jeff. Let me talk to that. When we close this transaction we are going
to have 10 hubs. One of them is Cleveland.
We
understand how important good air service is to Cleveland. We understand the
importance of good air service to the local economy. Cleveland has always been
important to Continental. Cleveland will always be important to the combined
carrier.
That
said, we are always responsive to market demand. And as Glenn said earlier, you
need to take a look at where that demand is and the flows of that
traffic.
But it
would be premature to talk about Cleveland or any hub for that matter in terms
of how things will shake out over the next few years.
Ted
Reed - TheStreet.com -
Media
All
right. Thank you. Then I would like to ask about US Airways. Two
things.
First of
all, were they used -- there is some perception they were used as a stalking
horse in this. I know, Jeff, that you say you read about this in the paper. But
that doesn't speak to United's intent.
Secondly
I would like to ask if there is an enhanced role going forward for US Airways in
this combination through Star or through the ATIs or anything.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Ted,
it's Glenn. So, as we said earlier, when Jeff called me on the ninth of April --
which happened to be my birthday -- suffice it to say we were very serious about
work that we had underway at that time. Very serious indeed.
At the
end of the day, regardless of work that you may have underway, industrial logic
and the compelling proposition that we have presented to the marketplace today
trumps work that you may have underway. So, suffice it to say it was very
serious and sincere work; and we will leave it at that.
Ted
Reed - TheStreet.com -
Media
Is
there an enhanced role for USAirways going forward?
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
I
think that both of us have a respect for the role that Doug and his team play
within Star Alliance. I remember once when we were having the signing ceremony
here in New York for Continental joining Star Alliance, the question was put to
USAir -- what does this mean to USAir? And the answer that he gave I thought was
perfect.
He said
what is good for Star Alliance is good for USAir.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Yes,
and USAirways is a valued partner in Star Alliance and we would anticipate they
would continue to be a valued partner in Star Alliance.
Ted
Reed - TheStreet.com -
Media
Okay.
Last thing. You said there was $1.2 billion in added costs primarily from IT. If
there are added costs from labor, they are not included in that,
correct?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
No,
these are -- what I am talking about there, Ted, are the one-time costs of the
transaction. That is, money that (multiple speakers).
When
you're talking about labor agreements, built in to the net, the annual synergies
that we are talking about, the $1 billion to $1.2 billion, that is met of
whatever costs of increased labor agreements.
So you
have to distinguish between the ongoing net synergies and the one-time costs.
One-time costs, for example, migration of technology platforms, fleet
integration, that is -- professional fees, things like that.
Ted
Reed - TheStreet.com -
Media
All
right, I see. Also, Jeff, did you say you envision fences in the pilot
agreement?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
in any merger of carriers, there's two things that occur. One is the legal
merger, that is the thing that will close at the end of this year. And the other
is the operational merger where you bring the carriers together with a single
operating certificate.
And in
the period between the legal merger and the operational merger it is traditional
to have fence agreements before you have a joint collective bargaining
agreement. So that for example pilots operate the ex-Continental airplanes and
United pilots operate the ex-United airplanes until and pending the pendency or
the execution and ratification of the joint collective bargaining
agreement.
These are
traditional. We will negotiate them. It is in everyone's best interest to
achieve the synergies as promptly as possible. Those fence agreements help do
that, and we would anticipate doing that with each of our workgroups as
appropriate.
Ted
Reed - TheStreet.com -
Media
But
you're talking about temporary fence agreements, not long-term fence
agreements?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Of
course. No, those are just prior to the joint (multiple speakers) agreements.
Our full intention is to timely negotiate those and have those in place so that
when we do the operational merger and receive a single operating certificate we
can go forward as a combined Company.
Ted
Reed - TheStreet.com -
Media
Thank
you, both of you.
Glenn
Tilton - UAL Corporation -
Chairman, President, CEO
Thank
you, Ted. Appreciate it.
Jeremy
Desel, KHOU Television.
Jeremy
Desel - KHOU-TV, Inc. -
Media
Hey,
gentlemen. Maybe you can give -- shed some light on why the choice of Chicago
for the headquarters when, at least in Houston of course, there is this
perception of a better cost of living, better cost of doing
business.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Oh,
wait a while, wait a while. This is Jeff. Let me speak to that. This was a
merger of equals, and in a merger of equals there are various things that are
negotiated. This transaction would not have been done without a Chicago
headquarters, put very simply.
Secondly,
recognize that we need as a combined carrier to focus on the O'Hare hub. That is
a contested hub. It has a very good competitor in that contested hub. And there
is going to be a lot of focus on competition now.
And I
will tell -- those of you who know me know I am a very competitive person,
otherwise I wouldn't be in the airline business. So that is also important for
going forward.
Jeremy
Desel - KHOU-TV, Inc. -
Media
In
that case then, Jeff, define what significant presence means for those that are
on edge in Houston.
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Oh,
in Houston? Well, Houston, let me tell you, we're going to continue -- look,
Houston is going to have the largest hub of the world's largest airline. We are
going to continue with significant -- in fact, growing -- air service in
Houston, because of the power of this network and the new opportunities not only
in frequency, but destinations.
I believe
that Houston will have net job growth from this, because we are going to be able
to deliver to the city of Houston more air service than Continental could ever,
ever have done on its own, as part a combined enterprise of this size and scope
and scale. So Houston is going to do just fine here.
Jeremy
Desel - KHOU-TV, Inc. -
Media
What
does that mean, though, for say the folks in 1600 Smith as opposed to the people
up at Bush?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Sure.
Look, in any merger, there is going to be a certain sizing of the corporate --
of the administrative jobs and the corporate jobs. That is traditional in any
merger. That is part of the cost savings. No question.
There
will be people who will lose their jobs at 1600 Smith, just as there will be
people who lose their jobs in Chicago. The reality is we're going to have a --
you're obviously going to have an appropriately sized group. You don't have --
you eliminate duplicative function. That is part of the savings of a
merger.
We will
do at Continental in Houston what we have always done. We will try to manage the
process through attrition, through voluntary programs. We will provide
appropriate severance. We will provide people with the opportunity as well. We
will help them find other jobs in Houston.
And what
we're providing here is for all of our coworkers -- ultimately is a more stable
and growing Company. People who perhaps can lose their jobs either in Chicago or
in Houston with a growing carrier we will be hiring back. And we hope to be able
to do so as we grow the Company.
Jeremy
Desel - KHOU-TV, Inc. -
Media
It
is certainly not as if there won't be a presence with some of those types of
corporate types' jobs though, in Houston, right?
Jeff
Smisek - Continental Airlines,
Inc. - Chairman, President, CEO
Well,
look. We are going -- Glenn and I are going to be working through the
integration. And there will likely be functions that make no sense whatsoever to
move to Chicago, and there will be functions that do.
There
will be people who you are asked to move to Chicago who perhaps can't for family
reasons, not to. We intend to be very flexible with those people in terms of the
time of the move and assist them in every way we can.
We treat
people with dignity and respect at Continental. And we will treat people in the
combined Company the same way.
Jeremy
Desel - KHOU-TV, Inc. -
Media
Thanks,
guys.
This
concludes the Q&A session. Gentleman, do you have any closing
remarks?
Unidentified
Company Representative
Alicia,
we are ready to end the call. Thank you for joining us today.
This
concludes today's conference. You may now disconnect.
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