UAL Corporation (UAUA)

Q2 2010 Earnings Conference Call

July 20, 2010 2:00 PM ET


Tyler Reddien – Managing Director, IR

Glenn Tilton – Chairman, President & CEO

Kathryn Mikells – EVP & CFO

John Tague – EVP

Doug McKeen – SVP, Labor Relations


Dan McKenzie – Next Generation Equity Research

Gary Chase – Barclays Capital

Kevin Christy – UBS Research

Hunter Keay – Stifel Nicolaus

Bill Greene – Morgan Stanley

Michael Linenberg – Deutsche Bank

Glenn Engel – Merrill Lynch

Bob McAdoo – Avondale Partners

James Higgins – Soleil Securities

Helane Becker – Jesup & Lamont

Bill Mastoris – Broadpoint Gleacher

Mary Jane Credeur – Bloomberg News

Josh Freed – The Associated Press



Good afternoon and welcome to UAL Corporation's earnings conference call for the second quarter of 2010. My name is (Sean) 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.

Tyler Reddien

Thank you, Sean. Welcome to UAL's second quarter 2010 earnings conference call. Our earnings release and separate investor update were issued this morning and are available on our website at Let me point out that information in the press release and the remarks made during this conference call may contain forward-looking statements, which represents 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-K 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 the numbers for the quarter we will be excluding impairment charges, certain other accounting charges, merger related expenses and fuel hedge, non-cash, net mark-to-market gains and losses. These items are detailed in the table in Note 4 on page 12 at the end of our earnings release.

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

Glenn Tilton

Thank you, 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, John Tague, President of United Airlines, and Peter McDonald, our Chief Administrative Officer who is heading up our integration planning with Continental.

United, as we've often said we have a great sense of performance urgency across virtually every significant metric we continue to deliver solid results against our objectives, driving improvement in our revenue, cost, operational performance, customer service and very importantly, our profitability.

We reported a second quarter profit of $430 million, an increase of more than $750 million over last year and an amount equal to Delta's improvement. This is our largest second quarter profit since 1999 and reflects the positive momentum driven by systemic improvement across our company. Significantly these results move us closer to our stated goal of industry margin leadership. We led our peers in net margin in the first quarter and we expect to again be at or near the top of the five major US carriers this quarter.

At United we continued to differentiate our results versus our peers in financial performance and across our scoreboard. We expect our unit revenue growth of nearly 27% to also be industry leading, reflecting the decisions we've made regarding capacity, fleet configuration and the exceptional work of our revenue management team. As a result we are better able to leverage the encouraging increases that we are certainly seeing in travel demand to the company's benefits.

Nowhere are those results more evident today than in Asia where our unit revenue is up from 52% more than 15 points higher than our largest competitor in the Pacific. In Latin America, a smaller market for us, unit revenue is up from 56%. It's worth noting that these numbers represent a significant improvement over our performance in 2008 as well as last year.

We are also encouraged to see premium cabin bookings up more than 46% for the Pacific and nearly 38% for the Atlantic. As I've said we remained fully committed to capacity discipline and while some of our competitors have suggested increases in their forward guidance, we continued to believe that capacity constraint is essential for margin improvement and our guidance is effectively unchanged from October of last year. As we continue our work on revenue leadership we are equally mindful of the need to control our costs.

Our consolidated CASM excluding fuel and profit sharing was up from 1.9% year-over-year on a capacity increase of about 1%, which is about a point and a half better than the guidance we issued in June. We enjoy the industry's best cash position, closing the second quarter with $4.9 billion in unrestricted cash, up nearly $2 billion from the end of 2009 and in addition we have one of the industry's strongest fuel hedge books.

We are delivering strong operational performance despite significant challenges from the weather during the quarter. We continue to hold the top spot among the five largest US carriers for on-time performance year-to-date. Building on our number one position for 2009, our customer satisfaction scores are up significantly aided by the work we are doing to improve the cleanliness and the workability of our aircrafts.

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