Always the other side of the story...
UAL Corporation Reports Third-Quarter 2005 Results [FONT=arial, helvetica, sans-serif][SIZE=-1]- Third-Quarter Operating Earnings of $165 Million, a $245 Million Improvement
Year-Over-Year Despite Higher Fuel Prices Negatively Impacting Fuel Expenses
[/SIZE][/FONT] By $405 Million - $68 Million Net Income, Excluding Restructuring Charges- Predominantly Non-Cash Bankruptcy Related Charges of $1.8 Billion Result in Net Quarterly Loss of $1.8 Billion - Mainline Passenger Unit Revenue up 11 percent- Mainline Unit Costs Up 5 percent on 5 percent Lower Capacity Excluding Fuel, Mainline Unit Costs Down 5 percent[FONT=arial, helvetica, sans-serif][SIZE=-1]CHICAGO, Oct. 31 /PRNewswire-FirstCall/ -- UAL Corporation (OTC Bulletin Board: UALAQ), the holding company whose primary subsidiary is United Airlines, today reported its third-quarter 2005 financial results.
UAL reported third-quarter operating earnings of $165 million, $245 million better than the same quarter last year, despite higher fuel prices for the mainline and regional affiliates negatively impacting fuel expense by $405 million year-over-year. UAL reported a net loss of $1.8 billion, or a loss per basic share of $15.26, which includes $1.8 billion in reorganization items. The company believes the best indicator of United's post-reorganization financial performance is provided by reviewing operating and net earnings excluding restructuring charges. Excluding the reorganization items, UAL earned a net profit for the third quarter totaling $68 million.
Reorganization items were primarily driven by $1.7 billion in non-cash aircraft rejection charges. It is common for the results of operations of companies progressing through Chapter 11 to be impacted by non-cash charges related to their reorganization, especially as restructuring work nears completion. Charges based on the claims of our creditors are recorded at the amount expected to be allowed by the court. However, as shown in our Plan of Reorganization, these claims are expected to be settled at exit for a minor fraction of the amount of the charges recorded. Looking forward, the company is expected to record a large gain at exit in 2006 when these claims are settled for less than the amounts originally recorded. It is important to note that this is a matter of accurate accounting, and that neither the aircraft rejection charges recorded at this time nor the gain expected to be recorded at exit in 2006 have any significant impact on the company's cash position.
"United is a fundamentally better company today with sustainable improvements across the business and solid operational performance. The results we are reporting make it clear that we have done well this quarter in overall cost control, especially given the significant reduction in capacity," said Glenn Tilton, United's chairman, CEO and president. "There is more work to do -- and opportunity to be gained -- as United becomes even more vigorously competitive in generating revenue and reducing costs."
United's Restructuring Builds Momentum towards Exit
In the third quarter of 2005, United achieved significant milestones in its restructuring activities. As part of the recent restructuring efforts, United:
[/SIZE][/FONT] -- Filed the Plan of Reorganization detailing the company's new structure and business plan; -- Set a schedule, agreed by the Creditors' Committee and the Court, which results in an exit from bankruptcy in February, 2006; -- Finalized a commitment for $3 billion in all-debt exit financing with JP Morgan and Citibank; and -- Received Disclosure Statement approval by the Court allowing the plan solicitation process to begin.[FONT=arial, helvetica, sans-serif][SIZE=-1]"This quarter, United has accomplished a great deal and our restructuring is largely complete. This success demonstrates that we have become adept at meeting the challenges of a changing industry," said Jake Brace, United's executive vice president and chief financial officer. "Third quarter results are strong, despite a $405 million impact from higher fuel prices year-over-year."
Mainline Revenue Results
During the quarter, mainline passenger unit revenue increased 11 percent and yield increased 9 percent, compared to third quarter last year. System load factor increased 2 points to 84 percent. Results for the third quarter of 2005 reflect a 3 percent reduction in traffic on a 5 percent reduction in system capacity compared with the same period last year. United achieved one of the highest system length-of-haul adjusted passenger unit revenues in the industry.
During the third quarter, reallocation of aircraft capacity to international markets and further optimization of United's domestic schedule contributed to an increase in fleet utilization of 4 percent compared to the same period last year. As a result, year-over-year the company reduced the number of aircraft in its fleet by 10 percent, while reducing system available seat miles by only 5 percent.
During the quarter the company introduced its new explus United Express flights, featuring United First Class, Economy Plus and United Economy seating on 70-seat regional jets and expanded the scope of the company's unparalleled route network. Customer-focused initiatives include:
[/SIZE][/FONT] -- United's Business 1 program which will make travel more convenient for business customers traveling in and out of Chicago O'Hare International Airport, including the convenience of dedicated and close-in departure gates and an on-time arrival guarantee on all Business 1 flights; -- Expanded redemption choices for customers' travel awards through the company's Mileage Plus loyalty program; and -- Completed code share agreements with new Star Alliance members TAP and South African Airways.[FONT=arial, helvetica, sans-serif][SIZE=-1]"Third quarter results show that our revenue continues to improve faster than the industry, and performance trends are encouraging," said John Tague, executive vice president -- marketing, sales and revenue. "However, they do not fully reflect United's potential and we see additional opportunities to improve revenue generation, as industry domestic capacity continues to decline, and our own international growth moderates."
United continues to be committed to enhancing the customer experience with industry-leading products, including United Economy Plus service, the introduction of explus premium service on 70-seat regional jets for United Express, and the success of United's p.s., premium transcontinental service between New York and Los Angeles or San Francisco. United also continues to transform and optimize all areas of revenue execution, including its business-to-business sales efforts, loyalty programs, revenue management and all areas of network optimization.
"These efforts clearly place us on a course to make United the leader in revenue performance," Tague said.
Mainline Operating Expenses
Mainline operating expense per available seat mile was up only 5 percent from the year-ago quarter, despite a 5 percent decrease in capacity and a 46 percent increase in mainline fuel price. Salaries and related costs were down 21 percent, or $270 million, primarily reflecting recent labor and management cost reductions and an 8 percent reduction in manpower.
Mainline fuel expense was $301 million higher than in the third quarter 2004. Fuel expense is now the company's single largest expense item, surpassing salaries and related expenses. Average mainline fuel price for the quarter was $1.90 per gallon (including taxes). Excluding fuel, mainline operating expenses per available seat mile decreased 5 percent.
The company had an effective tax rate of zero for all periods presented, which makes UAL's pre-tax loss the same as its net loss.
Cash
The company ended the quarter with an unrestricted cash balance of $1.7 billion, and a restricted cash balance of $954 million, for a total cash balance of $2.7 billion. The unrestricted cash balance increased by $35 million during the quarter.
Operations
In the most recent data available from the U.S. Department of Transportation, United was ranked Number 1 for the last 12 months in on-time performance and ranked second in the least mishandled baggage among the six major network carriers. In addition, employee productivity (available seat miles divided by employee equivalents) was up 2 percent for the quarter compared to the same period in 2004.
"United's employees continue to earn some of the highest customer satisfaction ratings in company history and are outpacing the industry in on-time performance," said Pete McDonald, United's chief operating officer. "We will focus on consistent delivery of quality service, as we continue to optimize our resources, shortening aircraft turn times and increasing facility utilization."
Fuel costs remain a concern for the industry as a whole, but because of United's self-supply strategy, the company has insulated itself from supply shocks resulting from problems along the supply chain. United experienced no fuel related supply or operational problems due to either hurricane Katrina or Rita.
Outlook
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