 Cowen and
Company 8th Annual Global
Transportation Conference
United Continental Holdings, Inc.
Gerry Laderman – Senior Vice President Finance and Acting Chief Financial Officer Jim Compton – Vice Chairman and Chief Revenue Officer September 9, 2015 Exhibit 99.1 |
 Safe Harbor
Statement 1
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 and revenue-generating
initiatives, 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); economic and political instability
and other risks of doing business globally; 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; disruptions to our regional network; 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 Part I, 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.
|
 Improving
long-term shareholder value 2
Grow CASM less than inflation
Balance cash flow allocation
Maintain capacity discipline
Execute on revenue initiatives |
 Several
initiatives in place to improve revenue performance Enhance revenue
management
Improve reliability Optimize the network Expand ancillary revenue Upgauge & simplify Express operation 3 Expect PRASM to be down 5% - 7% for third-quarter 2015 |
 Several
initiatives in place to improve revenue performance Enhance revenue
management
Improve reliability Optimize the network Expand ancillary revenue Upgauge & simplify Express operation 3 Expect PRASM to be down 5% - 7% for third-quarter 2015 |
 Making
progress towards becoming the most reliable carrier in our hubs
4 Other major carriers 94.4% UAL 95.1% YTD Consolidated Completion Factor at Major Hubs 1,2 Chicago Houston/Dallas New York City 2015 97.1 2014 95.3 YTD consolidated completion factor 1 1 2 Other major carriers 96.5% UAL 96.8% 97.2% Other major carriers UAL 98.3% Weighted average of major carriers. Major carriers defined as UAL, AAL, DAL, LUV. Airports include - New York City: EWR, LGA,
JFK; Chicago: ORD, MDW; Houston/Dallas: IAH, HOU, DFW, DAL
Year-to-date (YTD) January – August 2015 |
 Current
network priorities 5
Keep total capacity in line
with demand Re-allocate assets across network to address market level demand changes Consolidate frequencies, increasing gauge while decreasing departures Utilize flexible fleet plan to address regional pilot shortage |
 Jan 1.5% - 2.5% Apr Jul 1.0% - 1.5% 1.0% - 2.0% 2.0% - 3.0% Jan Apr 2.7% - 3.7% Jul 2.0% - 2.5% Strong U.S. dollar puts pressure on international markets, especially during off-peak months Decreased demand in oil-centric markets Lower international surcharges in Pacific Source: SEC filings Jul Apr Jan 0.2% - 1.2% 0.5% - 1.5% 0.25% - 0.75% 6 We have taken steps to adjust capacity to match current revenue environment… 2015 Capacity Guidance Consolidated Domestic International |
 Consolidated 0.5% - 1.5% International 0.0% - 1.0% Domestic 1.0% - 2.0% Source: SEC filings 7 …and will continue to do so going forward… 4Q15 capacity Year-over-year change |
 Consolidated 0.5% - 1.5% International 0.0% - 1.0% Domestic 1.0% - 2.0% Source: SEC filings 7 …and will continue to do so going forward… 4Q15 capacity Year-over-year change 1Q16 capacity Year-over-year change Consolidated capacity 2.0% - 3.0% 2016 H/(L) vs. 2014 2.1% - 3.1% 2016 H/(L) vs. 2013 1.8% - 2.8% 2016 H/(L) vs. 2012 (2.2%) – (3.2%) 1% - 2% growth excluding leap year |
 Consolidated 0.5% - 1.5% International 0.0% - 1.0% Domestic 1.0% - 2.0% Source: SEC filings 7 …and will continue to do so going forward… 4Q15 capacity Year-over-year change 1Q16 capacity Year-over-year change Consolidated capacity 2.0% - 3.0% 1% - 2% growth excluding leap year 2016 H/(L) vs. 2014 2.1% - 3.1% 2016 H/(L) vs. 2013 1.8% - 2.8% 2016 H/(L) vs. 2012 (2.2%) – (3.2%) |
 …while
consolidating frequencies and increasing gauge 8
~6.0% (~5.5%) Gauge Capacity Departures 1.0% - 1.5% FY15 frequency consolidation Year-over-year change ~5.0% (~3.0%) 2.0% - 3.0% 1Q16 frequency consolidation Year-over-year change Gauge Departures Capacity |
 Fleet
upgauging results in a larger mainline fleet
9 United fleet mix ~60% ~20% ~20%
70/76 seat Mainline 50 seat & below YE 2015E 14% YE 2012 30% 56% Seats per departure 95 103 Upgauging benefits: More cost efficient Improved reliability Additional ancillary revenue opportunities |
 Improving
long-term shareholder value Grow CASM less than inflation
Balance cash flow allocation
Maintain capacity discipline
Execute on revenue initiatives
10 |
 Demonstrating strong cost performance; on track to achieve
$1B in non-fuel annual savings by 2016
FY14 1.3% 0.0% - 0.5% FY15E Non-fuel CASM Year-over-year change 1 Excluding special charges, fuel, third-party business and profit sharing expense. 2015E as of July 23, 2015 Investor Update. For a GAAP
to Non-GAAP reconciliation, see Appendix A.
$800 $380 FY15E FY14 Project Quality non-fuel savings ($M) Lowered full-year cost guidance despite lowering capacity expectations by ~0.75 points 11 1 |
 Improving
long-term shareholder value Grow CASM less than inflation
Balance cash flow allocation
Maintain capacity discipline
Execute on revenue initiatives
12 |
 Balanced
capital allocation Average
capital expenditures 1 of $2.7B - $2.9B through 2018 Invest in business Achieve ~$15B gross debt target and progress toward investment grade credit metrics Debt reduction Achieve well-funded pension plan status Pension funding Return $4B to shareholders by 2017 and continue to evolve shareholder compensation Shareholder compensation Maintain unrestricted liquidity balance of $5B - $6B, including revolver 13 1 Capital expenditures include net purchase deposits and exclude fully reimbursable capital projects and capital leases
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 Debt
reduction Pension funding
Shareholder compensation Investing in the business while maintaining capital discipline 14 1 Capital expenditures include net purchase deposits and exclude fully reimbursable capital projects and capital leases
Expect average capital expenditures¹ of $2.7B - $2.9B through 2018 Technology Aircraft acquisition Aircraft modifications Airport enhancements Invest in business |
 15 767-300ER interior improvements 2 class configuration with BusinessFirst More overhead storage, larger seat-back video screens and slimline seats |
 Process
electronic payments for onboard purchases
Replace printed safety and training
manuals Real-time reporting and improved follow- up on aircraft cabin issues and repairs 16 Flight attendant handheld devices |
 17 Airport enhancements Lobby design Gate furniture Technology |
 Through
end of 2Q15, have pre-paid $920M of debt and eliminated
all high interest prepayable debt Progressing toward investment grade credit metrics Continuing to pay down debt and de-risk the business Total debt outstanding 1 ($B) 1 Includes annualized aircraft rent capitalized at 7x 2 2010 data is pro-forma Source: SEC filings 2 ~$15B Debt reduction Pension funding Shareholder compensation Invest in business 18 Intermediate target 2Q15 YE14 $17.0 $18.3 YE10 $22.3
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 Funding
pension in excess of minimum required Source: SEC filings
Debt reduction Pension funding Shareholder compensation Invest in business 19 Through end of 2Q15, have funded approximately $800M, substantially all of which is in excess of minimum required Expect minimal contributions for remainder of 2015 Beyond 2015, expect to contribute ~$400 million annually |
 Continuing
to return cash to shareholders 2014 share repurchase authorization progress
($M) $230 $770 Through 2Q15 Remaining In July 2015, announced new $3B authorization to be completed by 2017 Expect to complete 2014 $1B authorization in 3Q15, almost 2 years ahead of schedule Debt reduction Invest in business Shareholder compensation Pension funding 20 Source: SEC filings |
 Return on
invested capital Pre-tax margin
12.9% 18.2% FY14 TME 2Q15 FY13 FY12 8.0% 10.0% FY12 2.6% 1.6% 5.1% 8.8% TME 2Q15 FY13 FY14 21 3.7% FY12 16.1% 5.8% FY13 TME 2Q15 FY14 10.5% Cash return on capital 1 United’s financial results continue to improve 5.2x 5.5x 6.4x 5.2x FY11 FY14 FY13 FY12 Debt / EBITDA 2 Note: For a GAAP to Non-GAAP reconciliation, see Appendix A 1 Twelve months ended cash flows from operations divided by average invested capital. Average invested capital is shown in Appendix A
2 Based on Moody’s airline credit rating methodology; includes Moody’s adjustments to credit metrics |
 Improving long-term shareholder value
Grow CASM less than inflation
Balance cash flow allocation
Maintain capacity discipline
Execute on revenue initiatives
22 |
 |
 Appendix
A: reconciliation of GAAP to Non-GAAP financial (in millions, except
CASM amounts) Consolidated CASM
2014 2013 Percentage Change Operating expense $36,528 $37,030 (1.4) Special charges 443 520 NM Third-party business expenses 534 694 (23.1) Aircraft fuel and related taxes 11,675 12,345 (5.4) Profit sharing 235 190 23.7 Operating expense excluding above items $23,641 $23,281 1.5 ASMs – consolidated 246,021 245,354 0.3 CASM (cents) 14.85 15.09 (1.6) CASM, excluding special charges 14.67 14.88 (1.4) CASM, excluding special charges and third-party business expenses 14.45 14.60 (1.0) CASM, excluding special charges, third-party business expenses and fuel 9.70 9.57 1.4 CASM, excluding special charges, third-party business expenses, fuel and profit sharing
9.61 9.49 1.3 Source: Item 6 of UAL’s 2014 Form 10-K NM: not meaningful Pre-tax margin 2014 2013 2012 Income (loss) before income taxes $1,128 $539 ($724) Add: Special charges 517 520 1,323 Add: Economic Hedge Adjustments 327 (45) See Note 1 Adjusted income before income taxes 1,972 1,014 599 Operating Revenues $38,901 $38,279 $37,152 Adjusted pre-tax margin 5.1% 2.6% 1.6% Note 1: United began reporting earnings excluding Economic Hedge Adjustments in 2014 for the years ended 2014 and 2013.
24 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. UAL also believes that adjusting capital expenditures for fully reimbursable projects and capital leases is useful to investors in order to appropriately reflect the non-reimbursable funds spent on capital expenditures. UAL excludes
capital leases, as capital expenditures shown should only represent those
assets acquired through the issuance of debt. For additional information related to
special items, see Note 17 to the financial statements included in the 2014 Annual Report Form 10-K. Forward Looking Projections. UAL is unable to reconcile certain forward-looking projections to GAAP as the nature or amount of special items
cannot be estimated at this time. measures |
 Appendix
A: reconciliation of GAAP to Non-GAAP financial measures
(continued) Return on invested capital (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 Twelve Months Ended December 31, 2014 Twelve Months Ended December 31, 2013 (d) Twelve Months Ended December 31, 2012 Net Operating Profit After Cash Tax (NOPAT) Pre-tax income excluding special items (a) $3,385 $1,972 $1,059 $599 NOPAT adjustments (b) 1,195 1,265 1,439 1,453 NOPAT $4,580 $3,237 $2,498 $2,052 Effective tax rate 0.2% 0.3% (2.4%) 1.7% Invested Capital (five-quarter average) Total assets $38,454 $37,568 $37,198 $38,083 Invested capital adjustments (c) 13,270 12,495 12,302 12,592 Average invested capital $25,184 $25,073 $24,896 $25,491 ROIC 18.2% 12.9% 10.0% 8.0% Notes: (a) Non-GAAP Financial Reconciliation Twelve Months Ended June 30, 2015 Twelve Months Ended December 31, 2014 Twelve Months Ended December 31, 2013 Twelve Months Ended December 31, 2012 Pre-tax income (loss) $2,651 $1,128 $539 ($724) Add: Special items 734 844 520 1,323 Pre-tax income excluding special items $3,385 $1,972 $1,059 $599 25 (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. (d) The 2013 ROIC calculation agrees to the amounts presented in the fiscal year 2013
earnings release. In 2014, we modified the ROIC calculation to reflect economic hedge adjustments. If we presented 2013 ROIC using the 2014 methodology, 2013 ROIC would be 9.9%.
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