UAL Corporation Q1 2010 Earnings Call Transcript

UAL Corporation (UAUA)

Q1 2010 Earnings Call Transcript

April 27, 2010 2:00 pm ET

Executives

Tyler Reddien – Managing Director, IR

Glenn Tilton – Chairman, President & CEO

Kathryn Mikells – EVP & CFO

John Tague – EVP

Analysts

Hunter Keay – Stifel Nicolaus

Jamie Baker – JPMorgan

Gary Chase – Barclays Capital

Will Greene – Morgan Stanley

Kevin Christy – UBS Research

Dan McKenzie – Hudson [ph] Securities

Helane Becker – Jesup & Lamont

Bill Mastoris – Broadpoint Capital

Mary Jane Credeur – Bloomberg News

Julie Johnson – The Chicago Tribune

Jena Moreno – Houston Chronicle

Presentation

Operator

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Good afternoon and welcome to UAL Corporation's earnings conference call for the first quarter of 2010. My name is Devon and I will be your conference facilitator today. Following the prepared remarks from UAL's management we will open the lines for questions from analysts.

At the end of the analyst Q&A at approximately 3:00 pm Eastern Time, we will take questions from the media. (Operator Instructions) This call is being recorded and is copyrighted. Please note that no portion of the call maybe recorded, transcribed, or rebroadcast without UAL's permission. Your participation implies consent to our recording of this call. If you do not agree with these terms simply drop-off the line.

I would now like to turn the presentation over to your host for today's call Tyler Reddien. Please go ahead, sir.

Tyler Reddien

Thank you, Devon. Welcome to UAL's first quarter 2010 earnings conference call. Our earnings release and separate investor update were issued this morning and are available on our website at www.united.com/ir. Let me point out that information in the press release and the remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance.

All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our press release, Form 10-Q and other reports filed with the SEC for a more thorough description of these factors.

Also during the course of our call, we will be discussing several non-GAAP financial measures. For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release.

Unless otherwise noted, as we walk you through our numbers for the quarter we will be excluding impairment charges, certain other accounting charges, and fuel hedge, non-cash, net marked-to-market gains and losses. These items are detailed in the table in Note 4 at the end of our earnings release.

On Friday April 23rd, we issued an 8-K in which we disclosed that based on newly developed information and analysis, we now expect a larger number of mile issued under our frequent flyer program will expire.

We are therefore implementing a change in estimate for expired miles respectively for beginning in the first quarter of 2010. As we've been indicated in the past, we deferred significant portion of the revenue we receive from passenger ticket and sales of miles to third parties, and recognize this deferred revenue when the miles are redeemed.

As a result of this change in estimate of the number of miles expected to expire, we recognize approximately $64 million of passenger revenue for the quarter reducing the amount of frequent flyer revenue that we otherwise would have deferred the future period.

We expect that we will see a similar incremental impact in the remaining quarters of the revenue. By reducing the net revenue deferred in the future periods, we believe our results more closely aligned with those of our peers as we've historically deferred a higher percentage of the revenue we received compared to other U.S. global carriers.

And now I'd like to turn the call over to Glenn Tilton, UAL's Chairman, President and CEO.

Glenn Tilton

Thanks, Tyler, and good afternoon and welcome to everyone on the call. Joining me today in addition to Tyler and participating on the call are Kathryn Mikells, our Chief Financial Officer and John Tague, President of United Airlines. Peter McDonald is also with us and available for questions.

And what has been a traditionally weak quarter for United compared to our peers, we reported an operating profit for the first quarter our first since 2000. We narrowed our net loss by nearly $480 million over the first quarter of last year which reflects our work to drive systemic improvement delivering results across the country.

As we have consistently said, we are committed to developing margin leadership and with a key sense of urgency across the organization to do so. Our work-to-date puts us closer to that goal and then produces the best net margin of the five major U.S. carriers this quarter.

Our unit revenue growth was 11 point better than the industry average, and that did not simply happen. Our decisions on configuration, capacity, and revenue management as well as the great service our employees are delivering are generating return, enabling us to leverage in improving demand environment and produce results that are in short contrast to our peers.

Results that are evident in Asia where our unit revenues were up some 30 point, compared to the largest U.S. carrier they reported essentially flat results for the Pacific. We are encouraged to see early signs of recovery in business and premium demand in our own price and growing performance, which is industry leading.

As with our commitment to revenue improvement and capacity discipline, we also hold ourselves accountably united for controlling our cost. Our consolidated caption was up 4.8% year-over-year excluding fuel on a capacity reduction of about 3%, which is in line with the guidance we issued in January.

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