8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 23, 2015

 

 

UNITED CONTINENTAL HOLDINGS, INC.

UNITED AIRLINES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-06033   36-2675207
Delaware   001-10323   74-2099724
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (IRS Employer
Identification Number)

 

233 S. Wacker Drive, Chicago, IL   60606
233 S. Wacker Drive, Chicago, IL   60606
(Address of principal executive offices)   (Zip Code)

(872) 825-4000

(872) 825-4000

Registrant’s telephone number, including area code 

 

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition

On July 23, 2015, United Continental Holdings, Inc. (“UAL”), the holding company whose primary subsidiary is United Airlines, Inc. (“United,” and together with UAL, the “Company”), issued a press release announcing the financial results of the Company for second quarter 2015. The press release is attached as Exhibit 99.1 and is incorporated herein by reference.

The information in this Item 2.02, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section and shall not be deemed incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

Item 7.01 Regulation FD Disclosure

On July 23, 2015, UAL will provide an investor update related to the financial and operational outlook for the Company for third quarter and full year 2015. A copy of the investor update is attached as Exhibit 99.2 and is incorporated herein by reference.

The information in this Item 7.01, including Exhibit 99.2, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section and shall not be deemed incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01 Financial Statements and Exhibits.

 

Exhibit

No.

  

Description

99.1*    Press Release issued by United Continental Holdings, Inc. dated July 23, 2015
99.2*    Investor Update issued by United Continental Holdings, Inc. dated July 23, 2015

 

* Furnished herewith electronically.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

UNITED CONTINENTAL HOLDINGS, INC.
UNITED AIRLINES, INC.
By:  

/s/ Chris Kenny

Name:   Chris Kenny
Title:   Vice President and Controller

Date: July 23, 2015


EXHIBIT INDEX

 

Exhibit

No.

  

Description

99.1*    Press Release issued by United Continental Holdings, Inc. dated July 23, 2015
99.2*    Investor Update issued by United Continental Holdings, Inc. dated July 23, 2015

 

* Furnished herewith electronically.
EX-99.1

Exhibit 99.1

 

News Release LOGO
United Airlines
Worldwide Media Relations
872.825.8640
media.relations@united.com

United Announces Highest-Ever

Quarterly Profit

UAL Reports $1.3 Billion Second-Quarter 2015 Profit Excluding Special Items;

$1.2 Billion Profit Including Special Items

Company Announces Additional $3 Billion Share Repurchase Program

CHICAGO, July 23, 2015 – United Airlines (UAL) today reported second-quarter 2015 net income of $1.3 billion, or $3.31 per diluted share, excluding $67 million of special items. Including special items, UAL reported second-quarter net income of $1.2 billion, or $3.14 per diluted share. These results are a record quarterly profit for the company.

 

    The company’s Board of Directors authorized an additional $3 billion share repurchase program, which the company expects to complete by the end of 2017.

 

    In the quarter, UAL prepaid approximately $800 million of debt, contributed approximately $620 million to its pension plans and returned approximately $250 million to shareholders as part of its existing $1 billion share buyback program.

 

    UAL earned an 18.2 percent return on invested capital for the 12 months ended June 30, 2015.

“This quarter’s record results reflect the progress we’re making on our long-term plan, and I’d like to thank the United team for their great work,” said Jeff Smisek, UAL’s chairman, president and chief executive officer. “The $3 billion share repurchase program we announced today demonstrates the confidence we have in our future. We will continue to invest in our customers, assets and our people, and remain committed to improving our balance sheet, expanding our margins and improving our return on invested capital, and expect our third quarter pre-tax margin to be between 13.5 and 15.5 percent, excluding special items.”

Second-Quarter Revenue and Capacity

For the second quarter of 2015, total revenue was $9.9 billion, a decrease of 4 percent year-over-year. Second-quarter consolidated passenger revenue decreased 3.4 percent to $8.7 billion, compared to the same period in 2014. Ancillary revenue per passenger in the second quarter increased 6.7 percent year-over-year. Second-quarter cargo revenue decreased 1.3 percent year-over-year to $229 million. Other revenue in the second quarter decreased 9.6 percent year-over-year, mostly due to the reduction in sales of fuel to a third party. The corresponding expense decline from this reduction appears in third-party business expense.

 

LOGO


 

UAL Announces Second-Quarter 2015 Profit / Page 2

Consolidated revenue passenger miles increased 0.7 percent and consolidated available seat miles increased 2.3 percent year-over-year for the second quarter, resulting in a second-quarter consolidated load factor of 83.9 percent.

Second-quarter 2015 consolidated PRASM decreased 5.6 percent and consolidated yield decreased 4.1 percent compared to the second quarter of 2014.

“This quarter, we continued to build and refine our route network, including announcing the move of p.s. transcontinental service to our global gateway hub at Newark Liberty Airport and forming a long-term partnership with Azul Brazilian Airlines. These decisions will enhance our network and provide our customers with more choice and convenience,” said Jim Compton, UAL’s vice chairman and chief revenue officer. “We will continue to improve our leading network by focusing on our strengths, while investing in our people, fleet and products to increase revenue and deliver a flyer-friendly customer experience.”

Passenger revenue for the second quarter of 2015 and period-to-period comparisons of related statistics for UAL’s mainline and regional operations are as follows:

 

     2Q 2015
Passenger
Revenue
(millions)
     Passenger
Revenue vs.
2Q 2014
    PRASM vs.
2Q 2014
    Yield vs.
2Q 2014
    Available
Seat Miles
vs. 2Q 2014
 

Domestic

   $ 3,523        0.2     (3.4 %)      (2.3 %)      3.7

Atlantic

     1,635        (4.4 %)      (6.4 %)      (1.7 %)      2.1

Pacific

     1,108        (6.9 %)      (8.8 %)      (9.6 %)      2.2

Latin America

     695        (4.9 %)      (10.9 %)      (8.8 %)      6.7
  

 

 

          

International

     3,438        (5.3 %)      (8.1 %)      (6.0 %)      3.1

Mainline

     6,961        (2.6 %)      (5.8 %)      (4.2 %)      3.4

Regional

     1,715        (6.4 %)      (1.7 %)      (1.1 %)      (4.8 %) 
  

 

 

          

Consolidated

   $ 8,676        (3.4 %)      (5.6 %)      (4.1 %)      2.3
  

 

 

          

Second-Quarter Costs

Second-quarter consolidated CASM, excluding special charges, third-party business expense, fuel and profit sharing, increased 0.3 percent compared to the second quarter of 2014, primarily due to the company’s Project Quality efficiency and quality initiative. Second-quarter consolidated CASM including those items decreased 12.2 percent, largely due to reduced fuel costs.

Second-quarter total operating expenses, excluding special charges, decreased $840 million, or 9.1 percent, year-over-year. Including special charges, total operating expenses decreased $954 million, or 10.1 percent, in the second quarter versus the same period in 2014.


 

UAL Announces Second-Quarter 2015 Profit / Page 3

Liquidity and Cash Flow

In the second quarter, UAL generated $1.8 billion in operating cash flow, $474 million in free cash flow, and ended the quarter with $6.3 billion in unrestricted liquidity, including $1.35 billion of undrawn commitments under its revolving credit facility. During the second quarter, the company had gross capital expenditures of approximately $1.26 billion, excluding fully reimbursable projects. The company contributed approximately $620 million to its pension plans and made debt and capital lease principal payments of approximately $1 billion in the second quarter, including approximately $800 million of debt prepayments.

In the second quarter, the company invested $100 million, through a wholly-owned subsidiary, to acquire an approximate 5 percent stake in Azul Brazilian Airlines, and invested $30 million to acquire an equity stake in Fulcrum BioEnergy, an alternative fuels company.

For the 12 months ended June 30, 2015, the company’s return on invested capital was 18.2 percent.

As part of UAL’s $1 billion share buyback program, the company spent approximately $250 million in share repurchases in the second quarter. Through the second quarter, UAL has returned a total of approximately $770 million to shareholders under the program, and expects to complete the program in the third quarter of this year.

UAL’s Board of Directors authorized an additional $3 billion share repurchase program which the company expects to complete by 2017. This amount represents approximately 14 percent of the company’s market capitalization as of the closing stock price on July 22, 2015.

“Our record profit in the quarter is the result of the great work of all of our employees, as demonstrated by our seventh consecutive quarter of good cost performance,” said John Rainey, UAL’s executive vice president and chief financial officer. “We are pleased to announce an additional $3 billion share repurchase program which supports our goals of returning cash to shareholders while investing in our business and improving our capital structure.”

UAL may repurchase shares through the open market, privately negotiated transactions, block trades, or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL will repurchase shares of common stock subject to prevailing market conditions and may discontinue such repurchases at any time.

For more information on UAL’s third-quarter 2015 guidance, please visit ir.united.com for the company’s investor update.

About United

United Airlines and United Express operate an average of nearly 5,000 flights a day to 362 airports across six continents. In 2014, United and United Express operated nearly two million flights carrying 138 million customers. United is proud to have the world’s most comprehensive route network, including U.S. mainland hubs in Chicago, Denver, Houston, Los


 

UAL Announces Second-Quarter 2015 Profit / Page 4

 

Angeles, New York/Newark, San Francisco and Washington, D.C. United operates nearly 700 mainline aircraft, and this year, the airline anticipates taking delivery of 34 new Boeing aircraft, including the 787-9 and the 737-900ER. United is also welcoming 49 new Embraer E175 aircraft to United Express. The airline is a founding member of Star Alliance, which provides service to 192 countries via 28 member airlines. More than 84,000 United employees reside in every U.S. state and in countries around the world. For more information, visit united.com, follow @United on Twitter or connect on Facebook. The common stock of United’s parent, United Continental Holdings, Inc., is traded on the NYSE under the symbol UAL.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain statements included in this release 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, except as required by applicable law. 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 various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to execute our operational plans, including optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; our ability to utilize our net operating losses; our ability to attract and retain customers; demand for transportation in the markets in which we operate; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact that global economic conditions have on customer travel patterns; excessive taxation and the inability to offset future taxable income; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); our ability to cost-effectively hedge against increases in the price of aircraft 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 aviation and other insurance; industry consolidation or changes in airline alliances; competitive pressures on pricing and on demand; our capacity decisions and the capacity decisions of our competitors; U.S. or foreign governmental legislation, regulation and other actions (including open skies agreements and environmental regulations); the impact of regulatory, investigative and legal proceedings and legal compliance risks; labor costs; our ability to maintain satisfactory labor relations and the results of the collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; weather conditions; and other risks and uncertainties set forth under Item 1A., Risk Factors, of UAL’s Annual Report on Form 10-K, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.

-tables attached-


 

UAL Announces Second-Quarter 2015 Profit / Page 5

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

 

     Three Months Ended
June 30,
    %
Increase/
(Decrease)
    Six Months Ended
June 30,
    %
Increase/
(Decrease)
 
(In millions, except per share data)    2015     2014       2015     2014    

Operating revenue:

            

Passenger:

            

Mainline

   $ 6,961      $ 7,148        (2.6   $ 12,899      $ 12,996        (0.7

Regional

     1,715        1,833        (6.4     3,197        3,369        (5.1
  

 

 

   

 

 

     

 

 

   

 

 

   

Total passenger revenue

     8,676        8,981        (3.4     16,096        16,365        (1.6

Cargo

     229        232        (1.3     471        441        6.8   

Other operating revenue

     1,009        1,116        (9.6     1,955        2,219        (11.9
  

 

 

   

 

 

     

 

 

   

 

 

   

Total operating revenue

     9,914        10,329        (4.0     18,522        19,025        (2.6
  

 

 

   

 

 

     

 

 

   

 

 

   

Operating expense:

            

Salaries and related costs

     2,454        2,187        12.2        4,755        4,340        9.6   

Aircraft fuel (A)

     2,106        3,101        (32.1     3,970        6,018        (34.0

Regional capacity purchase

     583        591        (1.4     1,153        1,150        0.3   

Landing fees and other rent

     553        567        (2.5     1,096        1,139        (3.8

Depreciation and amortization

     445        417        6.7        874        826        5.8   

Aircraft maintenance materials and outside repairs

     431        471        (8.5     828        929        (10.9

Distribution expenses

     348        346        0.6        660        664        (0.6

Aircraft rent

     194        222        (12.6     395        446        (11.4

Special charges (B)

     55        169        NM        119        221        NM   

Other operating expenses

     1,300        1,352        (3.8     2,486        2,735        (9.1
  

 

 

   

 

 

     

 

 

   

 

 

   

Total operating expense

     8,469        9,423        (10.1     16,336        18,468        (11.5
  

 

 

   

 

 

     

 

 

   

 

 

   

Operating income

     1,445        906        59.5        2,186        557        292.5   

Nonoperating income (expense):

            

Interest expense

     (167     (186     (10.2     (340     (373     (8.8

Interest capitalized

     13        13        —          25        27        (7.4

Interest income

     6        4        50.0        11        9        22.2   

Miscellaneous, net (B)

     (100     54        NM        (174     (35     397.1   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total nonoperating expense

     (248     (115     115.7        (478     (372     28.5   
  

 

 

   

 

 

     

 

 

   

 

 

   

Income before income taxes

     1,197        791        51.3        1,708        185        NM   

Income tax expense (C)

     4        2        100.0        7        5        40.0   
  

 

 

   

 

 

     

 

 

   

 

 

   

Net income

   $ 1,193      $ 789        51.2      $ 1,701      $ 180        NM   
  

 

 

   

 

 

     

 

 

   

 

 

   

Earnings per share, basic

   $ 3.14      $ 2.12        48.1      $ 4.46      $ 0.48        NM   
  

 

 

   

 

 

     

 

 

   

 

 

   

Earnings per share, diluted

   $ 3.14      $ 2.01        56.2      $ 4.45      $ 0.47        NM   
  

 

 

   

 

 

     

 

 

   

 

 

   

Weighted average shares, basic

     380        373        1.9        381        371        2.7   

Weighted average shares, diluted

     380        396        (4.0     382        392        (2.6

NM Not meaningful


 

UAL Announces Second-Quarter 2015 Profit / Page 6

 

UNITED CONTINENTAL HOLDINGS, INC.

NOTES (UNAUDITED)

 

(A) UAL’s results of operations include fuel expense for both mainline and regional operations.

 

     Three Months Ended
June 30,
    %
Increase/
(Decrease)
    Six Months Ended
June 30,
    %
Increase/
(Decrease)
 
(In millions, except per gallon)    2015     2014       2015     2014    

Mainline fuel expense excluding hedge impacts

   $ 1,648      $ 2,527        (34.8   $ 3,044      $ 4,892        (37.8

Hedge losses reported in fuel expense (a)

     (118     (1     NM        (279     (4     NM   
  

 

 

   

 

 

     

 

 

   

 

 

   

Total mainline fuel expense

     1,766        2,528        (30.1     3,323        4,896        (32.1

Regional fuel expense

     340        573        (40.7     647        1,122        (42.3
  

 

 

   

 

 

     

 

 

   

 

 

   

Consolidated fuel expense

     2,106        3,101        (32.1     3,970        6,018        (34.0

Cash received (paid) on settled hedges that did not qualify for hedge accounting (b)

     (75     5        NM        (114     12        NM   
  

 

 

   

 

 

     

 

 

   

 

 

   

Fuel expense including all gains (losses) from settled hedges

   $ 2,181      $ 3,096        (29.6   $ 4,084      $ 6,006        (32.0
  

 

 

   

 

 

     

 

 

   

 

 

   

Mainline fuel consumption (gallons)

     833        822        1.3        1,570        1,568        0.1   

Mainline average aircraft fuel price per gallon excluding hedge losses recorded in fuel expense

   $ 1.98      $ 3.07        (35.5   $ 1.94      $ 3.12        (37.8

Mainline average aircraft fuel price per gallon

   $ 2.12      $ 3.08        (31.2   $ 2.12      $ 3.12        (32.1

Mainline average aircraft fuel price per gallon including cash received (paid) on settled hedges that did not qualify for hedge accounting

   $ 2.21      $ 3.07        (28.0   $ 2.19      $ 3.11        (29.6

Regional fuel consumption (gallons)

     171        182        (6.0     330        352        (6.3

Regional average aircraft fuel price per gallon

   $ 1.99      $ 3.15        (36.8   $ 1.96      $ 3.19        (38.6

Consolidated fuel consumption (gallons)

     1,004        1,004        —          1,900        1,920        (1.0

Consolidated average aircraft fuel price per gallon excluding hedge losses recorded in fuel expense

   $ 1.98      $ 3.09        (35.9   $ 1.94      $ 3.13        (38.0

Consolidated average aircraft fuel price per gallon

   $ 2.10      $ 3.09        (32.0   $ 2.09      $ 3.13        (33.2

Consolidated average aircraft fuel price per gallon including cash received (paid) on settled hedges that did not qualify for hedge accounting

   $ 2.17      $ 3.08        (29.5   $ 2.15      $ 3.13        (31.3

 

(a) Includes losses from settled hedges that were designated for hedge accounting. UAL allocates 100 percent of hedge accounting gains (losses) to mainline fuel expense.
(b) Includes ineffectiveness gains (losses) on settled hedges and gains (losses) on settled hedges that were not designated for hedge accounting. Ineffectiveness gains (losses) and gains (losses) on hedges that do not qualify for hedge accounting are recorded in Nonoperating income (expense): Miscellaneous, net.


 

UAL Announces Second-Quarter 2015 Profit / Page 7

 

UNITED CONTINENTAL HOLDINGS, INC.

NOTES (UNAUDITED)

 

(B) Special items include the following:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
(In millions)    2015      2014      2015      2014  

Operating:

           

Severance and benefits

   $ 25       $ 38       $ 75       $ 52   

Integration-related costs

     14         17         32         51   

Costs associated with permanently grounding Embraer ERJ 135 aircraft

     —           66         —           66   

(Gains) losses on sale of assets and other special charges

     16         48         12         52   
  

 

 

    

 

 

    

 

 

    

 

 

 

Special charges

   $ 55       $ 169       $ 119       $ 221   

Nonoperating:

           

Loss on extinguishment of debt and other, net

   $ 128       $ 0       $ 134       $ 21   

Income tax benefit

     —           —           —           (1
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating and nonoperating special charges, net of income taxes

   $ 183       $ 169       $ 253       $ 241   

Mark-to-market (MTM) gains from fuel derivative contracts settling in future periods

   $ (26    $ (46    $ (7    $ (33

Prior period gains (losses) on fuel derivative contracts settled in the current period

     (90      7         (105      42   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total special items, net of income taxes

   $ 67       $ 130       $ 141       $ 250   
  

 

 

    

 

 

    

 

 

    

 

 

 

2015 - Special items

Severance and benefits: During the three and six months ended June 30, 2015, the company recorded $25 million and $75 million, respectively, of severance and benefits primarily related to a voluntary early-out program for its flight attendants. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2015. The company will record approximately $25 million of additional expense through the remainder of 2015 associated with this program over the remaining required service periods.

Integration-related costs: Integration-related costs include compensation costs related primarily to systems integration and training for employees.

(Gains) losses on sale of assets and other special charges: During the three and six months ended June 30, 2015, the company recorded $16 million and $12 million, respectively, for the impairment of assets and other special gains and losses.

Loss on extinguishment of debt and other, net: During the three and six months ended June 30, 2015, the company recorded $128 million and $134 million, respectively, of losses as part of Nonoperating income (expense): Miscellaneous, net due to the write-off of the unamortized non-cash debt discount related to the extinguishment of the 6% Notes due 2026 and 6% Notes due 2028.

MTM gains from fuel derivative contracts settling in future periods and prior period losses on fuel derivative contracts settled in the current period: The company uses certain combinations of derivative contracts that are economic hedges but do not qualify for hedge accounting under U.S. generally accepted accounting principles. Additionally, the company may enter into contracts at different times and later combine those contracts into structures designated for hedge accounting. As with derivatives that qualify for hedge accounting, the economic hedges and individual contracts are part of the company’s program to mitigate the adverse financial impact of potential increases in the price of fuel. The company records changes in the fair value of these various contracts that are not designated for hedge accounting to Nonoperating income (expense): Miscellaneous, net in the statements of consolidated operations. During the three and six months ended June 30, 2015, the company recorded $26 million and $7 million, respectively, in MTM gains on fuel derivative contracts that will settle in future periods. For fuel derivative contracts that settled in the three and six months ended June 30, 2015, the company recorded MTM losses of $90 million and $105 million, respectively, in prior periods. The figures above also include an insignificant amount of ineffectiveness on hedges that are designated for hedge accounting.

2014 - Special items

Severance and benefits: During the three and six months ended June 30, 2014, the company recorded $38 million and $52 million, respectively, of severance and benefits primarily related to reductions of management and front-line employees, including from Hopkins International Airport (Cleveland), as part of its cost savings initiatives. The company reduced its average daily departures from Cleveland by over 60 percent during the second quarter of 2014. The company is currently evaluating its options regarding its long-term contractual commitments at Cleveland. The capacity reductions at Cleveland may result in further special charges, which could be significant, related to our contractual commitments.

Integration-related costs: Integration-related costs included compensation costs related to systems integration and training and relocation for employees.

Costs associated with permanently grounding Embraer ERJ 135 aircraft: During the three months ended June 30, 2014, the company recorded


 

UAL Announces Second-Quarter 2015 Profit / Page 8

 

$66 million for the permanent grounding of 21 of the company’s Embraer ERJ 135 regional aircraft under lease through 2018, which included an accrual for remaining lease payments and an amount for maintenance return conditions. The company decided to permanently ground these 21 Embraer ERJ 135 aircraft as a result of new Embraer E175 regional jet deliveries, the impact of pilot shortages at regional carriers and fuel prices.

Losses on sale of assets and other special charges: During the six months ended June 30, 2014, the company recorded $33 million for charges related primarily to the impairment of its flight equipment held for disposal associated with its Boeing 737-300 and Boeing 737-500 fleets and incurred losses on sales of aircraft and other assets and other special losses totaling $19 million.

Venezuela local currency loss: The company recorded $21 million of losses due to exchange rate changes in Venezuela applicable to funds held in local currency.

MTM gains from fuel derivative contracts settling in future periods and prior period gains on fuel derivative contracts settled in the current period: The company utilizes certain derivative instruments that are economic hedges but do not qualify for hedge accounting under U.S. generally accepted accounting principles. The company records changes in the fair value of these economic hedges to Nonoperating income (expense): Miscellaneous, net in the statements of consolidated operations. During the three and six months ended June 30, 2014, the company recorded $46 million and $33 million, respectively, in MTM gains on economic hedges that will settle in future periods. For economic hedges that settled in the three and six months ended June 30, 2014, the company recorded MTM gains of $7 million and $42 million, respectively, in prior periods. The figures above also include an insignificant amount of ineffectiveness on hedges that are designated for hedge accounting.

 

(C) No federal income tax expense was recognized related to the company’s pretax income for the three and six months ended June 30, 2015, and 2014 due to the utilization of book net operating loss carry forwards for which no benefit has previously been recognized. The company is required to provide a valuation allowance for its deferred tax assets in excess of deferred tax liabilities because UAL concluded that it is more likely than not that such deferred tax assets will ultimately not be realized.


 

UAL Announces Second-Quarter 2015 Profit / Page 9

 

UNITED CONTINENTAL HOLDINGS, INC.

STATISTICS

 

    Three Months Ended
June 30,
    %
Increase/
(Decrease)
    Six Months Ended
June 30,
    %
Increase/
(Decrease)
 
    2015     2014       2015     2014    

Mainline:

           

Passengers (thousands)

    24,858        23,852        4.2        46,236        45,081        2.6   

Revenue passenger miles (millions)

    47,859        47,101        1.6        88,519        87,438        1.2   

Available seat miles (millions)

    57,048        55,192        3.4        107,173        104,989        2.1   

Cargo ton miles (millions)

    633        604        4.8        1,295        1,189        8.9   

Passenger load factor:

           

Mainline

    83.9     85.3     (1.4) pts.        82.6     83.3     (0.7) pts.   

Domestic

    86.6     87.6     (1.0) pt.        85.6     86.4     (0.8) pts.   

International

    81.3     83.2     (1.9) pts.        79.8     80.3     (0.5) pts.   

Passenger revenue per available seat mile (cents)

    12.20        12.95        (5.8     12.04        12.38        (2.7

Average yield per revenue passenger mile (cents)

    14.54        15.18        (4.2     14.57        14.86        (2.0

Average aircraft fuel price per gallon excluding hedge losses recorded in fuel expense (a)

  $ 1.98      $ 3.07        (35.5   $ 1.94      $ 3.12        (37.8

Average aircraft fuel price per gallon (a)

  $ 2.12      $ 3.08        (31.2   $ 2.12      $ 3.12        (32.1

Average aircraft fuel price per gallon including cash received (paid) on settled hedges that did not qualify for hedge accounting (a)

  $ 2.21      $ 3.07        (28.0   $ 2.19      $ 3.11        (29.6

Fuel gallons consumed (millions)

    833        822        1.3        1,570        1,568        0.1   

Aircraft in fleet at end of period

    708        701        1.0        708        701        1.0   

Average stage length (miles) (b)

    1,939        1,971        (1.6     1,928        1,946        (0.9

Average daily utilization of each aircraft (hours)

    10:54        10:44        1.6        10:25        10:21        0.6   

Regional:

           

Passengers (thousands)

    11,373        11,985        (5.1     21,517        22,656        (5.0

Revenue passenger miles (millions)

    6,430        6,799        (5.4     12,214        12,845        (4.9

Available seat miles (millions)

    7,637        8,022        (4.8     14,781        15,441        (4.3

Passenger load factor

    84.2     84.8     (0.6) pts.        82.6     83.2     (0.6) pts.   

Passenger revenue per available seat mile (cents)

    22.46        22.85        (1.7     21.63        21.82        (0.9

Average yield per revenue passenger mile (cents)

    26.67        26.96        (1.1     26.17        26.23        (0.2

Aircraft in fleet at end of period

    522        561        (7.0     522        561        (7.0

Average stage length (miles) (b)

    558        559        (0.2     560        556        0.7   


 

UAL Announces Second-Quarter 2015 Profit / Page 10

 

UNITED CONTINENTAL HOLDINGS, INC.

STATISTICS (Continued)

 

    Three Months Ended
June 30,
    %
Increase/
(Decrease)
    Six Months Ended
June 30,
    %
Increase/
(Decrease)
 
    2015     2014       2015     2014    

Consolidated (Mainline and Regional):

           

Passengers (thousands)

    36,231        35,837        1.1        67,753        67,737        —     

Revenue passenger miles (millions)

    54,289        53,900        0.7        100,733        100,283        0.4   

Available seat miles (millions)

    64,685        63,214        2.3        121,954        120,430        1.3   

Passenger load factor

    83.9     85.3     (1.4) pts.        82.6     83.3     (0.7) pts.   

Passenger revenue per available seat mile (cents)

    13.41        14.21        (5.6     13.20        13.59        (2.9

Total revenue per available seat mile (cents)

    15.33        16.34        (6.2     15.19        15.80        (3.9

Average yield per revenue passenger mile (cents)

    15.98        16.66        (4.1     15.98        16.32        (2.1

Average aircraft fuel price per gallon excluding hedge losses recorded in fuel expense (a)

  $ 1.98      $ 3.09        (35.9   $ 1.94      $ 3.13        (38.0

Average aircraft fuel price per gallon (a)

  $ 2.10      $ 3.09        (32.0   $ 2.09      $ 3.13        (33.2

Average aircraft fuel price per gallon including cash received (paid) on settled hedges that did not qualify for hedge accounting (a)

  $ 2.17      $ 3.08        (29.5   $ 2.15      $ 3.13        (31.3

Fuel gallons consumed (millions)

    1,004        1,004        —          1,900        1,920        (1.0

Average full-time equivalent employees (thousands)

    82.3        82.0        0.4        82.0        82.6        (0.7

 

(a) Fuel price per gallon includes aircraft fuel and related taxes.
(b) Average stage length equals the average distance a flight travels weighted for size of aircraft.


 

UAL Announces Second-Quarter 2015 Profit / Page 11

 

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION

UAL evaluates its financial performance utilizing various accounting principles generally accepted in the United States of America (GAAP) and Non-GAAP financial measures, including income (loss) before income taxes excluding special items, net income (loss) excluding special items, net earnings (loss) per share excluding special items, and CASM, among others. CASM is a common metric used in the airline industry to measure an airline’s cost structure and efficiency. Pursuant to SEC Regulation G, UAL has included the following reconciliation of reported Non-GAAP financial measures to comparable financial measures reported on a GAAP basis. UAL believes that adjusting for special items is useful to investors because special charges are non-recurring charges not indicative of UAL’s ongoing performance. In addition, the company believes that adjusting for MTM gains and losses from fuel derivative contracts settling in future periods and prior period gains and losses on fuel derivative contracts settled in the current period is useful because the adjustments allow investors to better understand the cash impact of settled fuel derivative contracts in a given period. UAL also believes that excluding third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel sales and non-air mileage redemptions, provides more meaningful disclosure because these expenses are not directly related to UAL’s core business. UAL also believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence. UAL excludes profit sharing because this exclusion allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.

 

(in millions)    Three Months Ended
June 30,
     $
Increase/
(Decrease)
    %
Increase/
(Decrease)
    Six Months Ended
June 30,
     $
Increase/
(Decrease)
    %
Increase/
(Decrease)
 
   2015      2014          2015      2014       

Operating expenses

   $ 8,469       $ 9,423       $ (954     (10.1   $ 16,336       $ 18,468       $ (2,132     (11.5

Less: Special charges (B)

     55         169         (114     NM        119         221         (102     NM   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

Operating expenses, excluding special charges

     8,414         9,254         (840     (9.1     16,217         18,247         (2,030     (11.1

Less: Third-party business expenses

     69         215         (146     (67.9     135         408         (273     (66.9

Less: Fuel expense

     2,106         3,101         (995     (32.1     3,970         6,018         (2,048     (34.0

Less: Profit sharing, including taxes

     198         53         145        273.6        268         53         215        405.7   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

Operating expenses, excluding fuel, profit sharing, special charges and third-party business expenses

   $ 6,041       $ 5,885       $ 156        2.7      $ 11,844       $ 11,768       $ 76        0.6   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

Income before income taxes

   $ 1,197       $ 791       $ 406        51.3      $ 1,708       $ 185       $ 1,523        NM   

Less: Special items before income tax benefit

     67         130         (63     NM        141         251         (110     NM   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

Income before income taxes and excluding special items

   $ 1,264       $ 921       $ 343        37.2      $ 1,849       $ 436       $ 1,413        324.1   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

Net income

   $ 1,193       $ 789       $ 404        51.2      $ 1,701       $ 180       $ 1,521        NM   

Less: Special items, net of tax (B)

     67         130         (63     NM        141         250         (109     NM   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

Net income, excluding special items

   $ 1,260       $ 919       $ 341        37.1      $ 1,842       $ 430       $ 1,412        328.4   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

Diluted earnings per share

   $ 3.14       $ 2.01       $ 1.13        56.2      $ 4.45       $ 0.47       $ 3.98        NM   

Add back: Special items, net of tax

     0.17         0.33         (0.16     NM        0.37         0.64         (0.27     NM   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   

Diluted earnings per share, excluding special items

   $ 3.31       $ 2.34       $ 0.97        41.5      $ 4.82       $ 1.11       $ 3.71        334.2   
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

   


 

UAL Announces Second-Quarter 2015 Profit / Page 12

 

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION (Continued)

 

     Three Months Ended
June 30,
     %
Increase/
(Decrease)
    Six Months Ended
June 30,
     %
Increase/
(Decrease)
 
     2015      2014        2015      2014     

CASM Mainline Operations (cents)

                

Cost per available seat mile (CASM)

     12.42         14.09         (11.9     12.69         14.47         (12.3

Less: Special charges (B)

     0.10         0.31         NM        0.12         0.21         NM   
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM, excluding special charges

     12.32         13.78         (10.6     12.57         14.26         (11.9

Less: Third-party business expenses

     0.12         0.39         (69.2     0.12         0.39         (69.2
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM, excluding special charges and third-party business expenses

     12.20         13.39         (8.9     12.45         13.87         (10.2

Less: Fuel expense

     3.10         4.58         (32.3     3.10         4.66         (33.5
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM, excluding special charges, third-party business expenses and fuel

     9.10         8.81         3.3        9.35         9.21         1.5   

Less: Profit sharing per available seat mile

     0.34         0.10         240.0        0.25         0.05         400.0   
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM, excluding special charges, third-party business expenses, fuel, and profit sharing

     8.76         8.71         0.6        9.10         9.16         (0.7
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM Consolidated Operations (cents)

                

Cost per available seat mile (CASM)

     13.09         14.91         (12.2     13.40         15.34         (12.6

Less: Special charges (B)

     0.08         0.27         NM        0.10         0.19         NM   
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM, excluding special charges

     13.01         14.64         (11.1     13.30         15.15         (12.2

Less: Third-party business expenses

     0.11         0.34         (67.6     0.11         0.34         (67.6
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM, excluding special charges and third-party business expenses

     12.90         14.30         (9.8     13.19         14.81         (10.9

Less: Fuel expense

     3.25         4.91         (33.8     3.26         4.99         (34.7
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM, excluding special charges, third-party business expenses and fuel

     9.65         9.39         2.8        9.93         9.82         1.1   

Less: Profit sharing per available seat mile

     0.31         0.08         287.5        0.22         0.05         340.0   
  

 

 

    

 

 

      

 

 

    

 

 

    

CASM, excluding special charges, third-party business expenses, fuel, and profit sharing

     9.34         9.31         0.3        9.71         9.77         (0.6
  

 

 

    

 

 

      

 

 

    

 

 

    


 

UAL Announces Second-Quarter 2015 Profit / Page 13

 

UNITED CONTINENTAL HOLDINGS, INC.

RETURN ON INVESTED CAPITAL (ROIC)

ROIC is a Non-GAAP financial measure that we believe provides useful supplemental information for management and investors by measuring the effectiveness of our operations’ use of invested capital to generate profits.

 

(in millions)    Twelve Months Ended
June 30, 2015
 

Net Operating Profit After Tax (NOPAT)

  

Pre-tax income excluding special items (a)

   $ 3,385   

NOPAT adjustments (b)

     1,195   
  

 

 

 

NOPAT

$ 4,580   
  

 

 

 

Effective tax rate

  0.2

Invested Capital (five-quarter average)

Total assets

$ 38,454   

Invested capital adjustments (c)

  13,270   
  

 

 

 

Average Invested Capital

$ 25,184   
  

 

 

 

Return on Invested Capital

  18.2
  

 

 

 

 

Notes:    Twelve Months Ended
June 30, 2015
 

(a) Non-GAAP Financial Reconciliation

  

Pre-tax income

   $ 2,651   

Add: Special items

     734   
  

 

 

 

Pre-tax income excluding special items

$ 3,385   
  

 

 

 

 

(b) NOPAT adjustments include: adding back (net of tax shield) interest expense, the interest component of capitalized aircraft rent, and net interest on pension while removing interest tax expense.
(c) Invested capital adjustments include: adding back capital aircraft rent (at 7.0X) and deferred income taxes, less advance ticket sales, frequent flyer deferred revenue, tax valuation allowance, and other non-interest bearing liabilities.

# # #

EX-99.2

Exhibit 99.2

 

LOGO

LOGO     

Investor Update

Issue Date: July 23, 2015

This investor update provides guidance and certain forward-looking statements about United Continental Holdings, Inc. (the “Company” or “UAL”). The information in this investor update contains the financial and operational outlook for the Company for third quarter and full-year 2015.

 

Third-Quarter and Full-Year 2015 Outlook

Estimated
3Q 2015
  Estimated
FY 2015
 

Consolidated Capacity Year-Over-Year Change Higher/(Lower)

  1.25   —        2.25   1.0   —        1.5

Pre-Tax Margin1

  13.5   —        15.5

Revenue

Consolidated PRASM (¢/ASM)

  13.54      —        13.25   

Year-Over-Year Change Higher/(Lower)

  (5.0 %)    —        (7.0 %) 

Cargo and Other Revenue ($B)

$ 1,200      —      $ 1,300   

Non-Fuel Operating Expense

Consolidated CASM Excluding Fuel, Profit Sharing & Third-Party Business Expenses1 (¢/ASM)

  9.15      —        9.25      9.61      —        9.66   

Year-Over-Year Change Higher/(Lower)

  (0.5 %)    —        0.5   0.0   —        0.5

Third-Party Business Expenses2 ($M)

$ 70      —      $ 80    $ 290      —      $ 310   

Aircraft Rent ($M)

$ 185      —      $ 190    $ 760      —      $ 770   

Depreciation and Amortization ($M)

$ 450      —      $ 455    $ 1,780      —      $ 1,790   

Consolidated Fuel Expense

Fuel Consumption (Million Gallons)

  ~1,045      ~3,895   

Fuel Price Excluding Hedges (Price per Gallon)3

$ 1.79      —      $ 1.84    $ 1.85      —      $ 1.90   

Operating Cash-Settled Hedge Loss (Price per Gallon)

$ 0.14    $ 0.15   

Fuel Price Including Operating Cash-Settled Hedges (Price per Gallon)3, 4

$ 1.93      —      $ 1.98    $ 2.00      —      $ 2.05   

Non-Operating Cash-Settled Hedge Loss (Price per Gallon)3,5

$ 0.08    $ 0.07   

Fuel Price Including All Cash-Settled Hedges (Price per Gallon)3,6

$ 2.01      —      $ 2.06    $ 2.07      —      $ 2.12   

Non-Operating Expense7 ($M)

$ 230      —      $ 260    $ 915      —      $ 965   

Effective Income Tax Rate

  0   0

Gross Capital Expenditures8 ($M)

$ 580      —      $ 600    $ 3,000      —      $ 3,200   

Debt and Capital Lease Payments ($M)

$ 235    $ 1,980   

Pension ($M)

Expense

~$ 210   

Cash contribution

~$ 800   

Diluted Share Count9 (M)

  378      380   

 

1. Excludes special charges, the nature and amount of which are not determinable at this time
2. Third-party business revenue associated with third-party business expenses are recorded in other revenue
3. Fuel price including taxes and fees
4. This price per gallon corresponds to fuel expense in the income statement
5. This price per gallon corresponds to the impact of non-operating hedges that appear in non-operating expense in the income statement
6. This price per gallon corresponds to the total economic cost of the Company’s fuel consumption including all cash-settled hedges but does not directly correspond to fuel expense in the income statement
7. The Company excludes the non-cash impact of fuel hedges from its non-operating expense guidance and Non-GAAP earnings
8. Capital expenditures include net purchase deposits and exclude fully reimbursable capital projects
9. Diluted share count is approximately equal to basic share count

Passenger Revenue: The Company expects the decline in third-quarter 2015 passenger revenue to be driven primarily by a strong U.S. dollar, lower international surcharges, travel reductions from energy dependent corporate customers and competitive pricing actions.

Fuel Expense: Estimates are based on the July 16, 2015 fuel forward curve. The Company expects a third quarter hedge loss of approximately $230 million, with approximately $145 million of operating and $85 million of non-operating hedge losses. This expense is included in the cash-settled hedge losses above, and will be included in the Company’s third-quarter 2015 Non-GAAP earnings. As of the July 16, 2015 fuel forward curve, the Company’s existing 2015 hedge positions for the fourth quarter are in a loss position of approximately $225 million, which includes approximately $140 million in operating and $85 million in non-operating cash-settled hedge losses.


LOGO

Non-Operating Expense: These estimates include cash-settled hedge losses of approximately $0.08 per gallon, or approximately $85 million, in the third quarter of 2015, based on the July 16, 2015 fuel forward curve. Using the same fuel forward curve, the Company’s remaining non-operating cash-settled hedge losses in the fourth quarter of 2015 are expected to be approximately $85 million.

Taxes: The Company will continue to evaluate future financial performance on a quarterly basis to determine whether such performance is both sustained and significant enough to provide sufficient evidence to support reversal of the Company’s valuation allowance. Regardless of the timing of the reversal, the effective tax rate for 2015 is expected to be approximately zero.

Profit Sharing: For 2015, the Company will pay approximately 10% of total adjusted earnings as profit sharing to employees for adjusted earnings up to a 6.9% adjusted pre-tax margin and approximately 14% for any adjusted earnings above that amount. Adjusted earnings for the purposes of profit sharing are calculated as GAAP pre-tax earnings, excluding special items, profit sharing expense and share-based compensation program expense. Share-based compensation expense for the purposes of the profit sharing calculation is estimated to be $49 million year-to-date through the third quarter and $93 million for full-year 2015.

(more)

 

2


LOGO

Third-Quarter and Full-Year 2015 Capacity

 

     Estimated 3Q
2015
   Year-Over-Year %
Change
Higher/(Lower)
   Estimated FY 2015    Year-Over-Year %
Change
Higher/(Lower)

Capacity (Million ASMs)

           

Mainline Capacity

           

Domestic

   28,696 - 28,976    2.5% - 3.5%      

Atlantic

   13,738 - 13,871    2.8% - 3.8%      

Pacific

   10,524 - 10,626    2.3% - 3.3%      

Latin America

   5,599 - 5,652    6.2% - 7.2%      

Total Mainline Capacity

   58,557 - 59,125    2.9% - 3.9%      

Regional

   7,640 - 7,726    (9.7%) - (8.7%)      

Consolidated Capacity

           

Domestic

   35,999 - 36,361    (0.5%) - 0.5%    136,492 - 137,173    0.25% - 0.75%

International

   30,198 - 30,490    3.4% - 4.4%    112,064 - 112,614    2.0% - 2.5%

Total Consolidated Capacity

   66,197 - 66,851    1.25% - 2.25%    248,556 - 249,787    1.0% - 1.5%

Fuel Price Sensitivity

As of July 16, 2015, the Company had hedged its projected fuel requirements as follows: 21% for third-quarter 2015 and 23% for fourth-quarter 2015. The Company uses a combination of swaps, three-way and four-way collars on aircraft fuel and Brent crude oil.

The table below outlines the Company’s estimated cash hedge impacts at various price points based on the July 16, 2015 fuel forward curve, where Brent spot price was $57.51 per barrel and rest of year average forward price is $57.72 per barrel. With the current portfolio, hedge gains/losses are recognized in both Fuel Expense and Non-Operating Expense.

 

Fuel Scenarios*    Cash Hedge Impact    3Q15     4Q15  
          forecast     forecast  

+$40 /Barrel

   Commodity Price Increase/(decrease)** ($/gal)    $ 0.95      $ 0.95   
   Hedge Gain/(Loss) ($/gal)      (0.06     (0.03

+$30 / Barrel

   Commodity Price Increase/(decrease)** ($/gal)    $ 0.71      $ 0.71   
   Hedge Gain/(Loss) ($/gal)      (0.10     (0.07

+$20 / Barrel

   Commodity Price Increase/(decrease)** ($/gal)    $ 0.48      $ 0.48   
   Hedge Gain/(Loss) ($/gal)      (0.14     (0.13

+$10 / Barrel

   Commodity Price Increase/(decrease)** ($/gal)    $ 0.24      $ 0.24   
   Hedge Gain/(Loss) ($/gal)      (0.18     (0.18

Current forward

   Commodity Price Increase/(decrease)** ($/gal)    $ 0.00      $ 0.00   

curve

   Hedge Gain/(Loss) ($/gal)      (0.22     (0.24

($10) / Barrel

   Commodity Price Increase/(decrease)** ($/gal)    ($ 0.24   ($ 0.24
   Hedge Gain/(Loss) ($/gal)      (0.26     (0.29

($20) / Barrel

   Commodity Price Increase/(decrease)** ($/gal)    ($ 0.48   ($ 0.48
   Hedge Gain/(Loss) ($/gal)      (0.30     (0.35

($30) / Barrel

   Commodity Price Increase/(decrease)** ($/gal)    ($ 0.71   ($ 0.71
   Hedge Gain/(Loss) ($/gal)      (0.34     (0.40

($40) / Barrel

   Commodity Price Increase/(decrease)** ($/gal)    ($ 0.95   ($ 0.95
   Hedge Gain/(Loss) ($/gal)      (0.39     (0.45

 

* Projected fuel scenarios represent hypothetical fuel forward curves parallel to the baseline July 16, 2015 fuel forward curve and are meant to illustrate the behavior of our fuel hedge portfolio at different commodity price points, assuming equal magnitude change across all hedged commodities
** Change in United’s realized fuel price is not equal to the change in commodity prices due to timing and purchasing patterns

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Company Outlook

Fleet Plan

As of July 23, 2015, the Company’s fleet plan was as follows:

 

     YE 2014      YE 2015      FY D  

B747-400

     23         21         (2

B777-200

     74         74         —     

B787-8/9

     14         25         11   

B767-300/400

     51         51         —     

B757-200/300

     94         81         (13

B737-700/800/900

     283         310         27   

A319/A320

     152         152         —     
  

 

 

    

 

 

    

 

 

 

Total Mainline Aircraft

  691      714      23   
     YE 2014      YE 2015      FY D  

Q400

     28         20         (8

Q300

     5         5         —     

Q200

     16         16         —     

Embraer ERJ 145

     245         196         (49

Embraer ERJ 135

     9         5         (4

CRJ200

     68         50         (18

CRJ700

     115         109         (6

Embraer EMB 120

     9         —           (9

Embraer 170

     38         38         —     

Embraer E175

     33         82         49   
  

 

 

    

 

 

    

 

 

 

Total Regional Aircraft

  566      521      (45

GAAP to Non-GAAP Reconciliations

UAL evaluates its financial performance utilizing various accounting principles generally accepted in the United States of America (“GAAP”) and Non-GAAP financial measures, including net income/loss, net earnings/loss per share and CASM, among others. Non-GAAP financial measures are presented because they provide management and investors the ability to measure and monitor UAL’s performance on a consistent basis. CASM is a common metric used in the airline industry to measure an airline’s cost structure and efficiency. Pursuant to SEC Regulation G, UAL has included the following reconciliation of reported Non-GAAP financial measures to comparable financial measures reported on a GAAP basis. UAL believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence. UAL believes that adjusting for special charges is useful to investors because they are non-recurring charges not indicative of UAL’s ongoing performance. UAL also believes that excluding third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel sales and non-air mileage redemptions, provides more meaningful disclosure because these expenses are not directly related to UAL’s core business. UAL also believes excluding profit sharing allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry. In addition, UAL believes that excluding non-cash (gains)/losses on fuel derivative contracts from non-operating expense is useful because it allows investors to better understand the impact of settled fuel derivative contracts on a given period’s results.

 

    Estimated 3Q
2015
    Estimated FY
2015
 
    Low     High     Low     High  

Consolidated Unit Cost (¢/ASM)

       

Consolidated CASM Excluding Profit Sharing & Special Charges (a) (b)

    12.27        12.37        12.85        12.90   

Less: Third-Party Business Expenses

    0.10        0.10        0.12        0.12   
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated CASM Excluding Profit Sharing, Third-Party Business Expenses & Special Charges (b)

  12.17      12.27      12.73      12.78   

Less: Fuel Expense (c)

  3.02      3.02      3.12      3.12   
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated CASM Excluding Profit Sharing, Third-Party Business Expenses, Fuel & Special Charges (b)

  9.15      9.25      9.61      9.66   
    Low     High     Low     High  

Non-operating Expense ($M)

       

Non-operating expense

  $ 194      $ 224      $ 815      $ 865   

Exclude: hedge program adjustments (d)

    (49     (49     (247     (247

Exclude: other special items

    13        13        147        147   
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating expense, adjusted (b)

$ 230    $ 260    $ 915    $ 965   

 

(a) Operating expense per ASM – CASM excludes special charges and profit sharing, the impact of certain primarily non-cash impairment, severance and other similar accounting charges. While the Company anticipates that it will record such special charges throughout the year and may record profit sharing, at this time the Company is unable to provide an estimate of these charges with reasonable certainty.
(b) These financial measures provide management and investors the ability to measure and monitor the Company’s performance on a consistent basis.
(c) Both the cost and availability of fuel are subject to many economic and political factors and are therefore beyond the Company’s control.
(d) Hedge program adjustments consist of excluding MTM gains and losses from fuel derivative contracts settling in future periods and adding back prior period gains and losses on fuel contracts settled in the current period. The purpose of hedge program adjustments is to adjust GAAP fuel derivative contract gains (losses) to a cash-settled amount.

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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, except as required by applicable law. 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 various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to execute our operational plans, including optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; our ability to utilize our net operating losses; our ability to attract and retain customers; demand for transportation in the markets in which we operate; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact that global economic conditions have on customer travel patterns; excessive taxation and the inability to offset future taxable income; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); our ability to cost-effectively hedge against increases in the price of aircraft 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 aviation and other insurance; industry consolidation or changes in airline alliances; competitive pressures on pricing and on demand; our capacity decisions and the capacity decisions of our competitors; U.S. or foreign governmental legislation, regulation and other actions (including open skies agreements and environmental regulations); the impact of regulatory, investigative and legal proceedings and legal compliance risks; labor costs; our ability to maintain satisfactory labor relations and the results of the collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; weather conditions; and other risks and uncertainties set forth under Item 1A., Risk Factors, of UAL’s Annual Report on Form 10-K, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.

For further questions, contact Investor Relations at (872) 825-8610 or investorrelations@united.com.

 

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