EX-99.2 3 d34201dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

 

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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.


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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.

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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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