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United Airlines Reports Third-Quarter 2017 Performance

For the third quarter of 2017, revenue was $9.9 billion, roughly flat year-over-year including an estimated $210 millionloss of revenue from severe weather during the quarter. Third-quarter 2017 consolidated passenger revenue per available seat mile (PRASM) was down 3.7 percent compared to the third quarter of 2016.

 United Airlines (UAL) today announced its third-quarter 2017 financial results. 

“I could not be prouder of how our employees are raising the bar both in terms of serving our customers, as well as delivering record-setting operational performance. Not only did they manage to keep our operation moving through back-to-back natural disasters, but the United family banded together to help one another take part in one of the largest relief efforts in our airline’s history,” said Oscar Munoz, chief executive officer of United Airlines. “Even with the challenging environment in the third quarter, we continue to set the stage for United’s long-term success and investing in the right strategy for our future.”

During the quarter, the company cancelled approximately 8,300 flights as a result of severe weather in southeast Texas, Florida and parts of the Caribbean. The operational disruption reduced third-quarter pre-tax income by an estimated $185 million. 

“Our employees continued to run a great operation and set new company records during the third quarter despite a challenging operational environment with an unprecedented series of storms. Our team set new records for on-time performance this quarter and had the fewest maintenance delays in over five years,” said Scott Kirby, president of United Airlines. “Our company took part in relief efforts by operating 46 relief flights, delivering more than 1.7 million pounds of relief supplies and together with our customers and employees, raising and contributing more than $9 million to community and employee assistance. And thanks to a remarkable effort by the people of United, our Houston hub returned to full operations quicker than expected following Harvey.”

Third-Quarter Revenue

For the third quarter of 2017, revenue was $9.9 billion, roughly flat year-over-year including an estimated $210 millionloss of revenue from severe weather during the quarter. Third-quarter 2017 consolidated passenger revenue per available seat mile (PRASM) was down 3.7 percent compared to the third quarter of 2016. Cargo revenue was $257 million in the third quarter of 2017, an increase of 14.7 percent year-over-year primarily due to higher international freight volume.

Third-Quarter Costs

Operating expense was $8.8 billion in the third quarter, up 6.0 percent year-over-year. Consolidated unit cost per available seat mile (CASM) increased 3.0 percent compared to the third quarter of 2016 due largely to higher fuel and labor expense. Third-quarter consolidated CASM, excluding special charges, third-party business expenses, fuel and profit sharing, increased 2.6 percent year-over-year, driven mainly by higher labor expense. 

Liquidity and Capital Allocation

UAL generated $577 million in operating cash flow and ended the quarter with $6.3 billion in unrestricted liquidity, including $2.0 billion of undrawn commitments under its revolving credit facility. Capital expenditures were $1.1 billionin the third quarter. 

In the third quarter of 2017, UAL raised $400 million of unsecured debt with an interest rate of 4.25 percent. The company contributed $160 million to its pension plans and made debt and capital lease principal payments of $222 million. In the quarter, UAL purchased $556 million of its common shares at an average price of $67.08 per share. As of Sept. 30, 2017, the company had approximately $553 million remaining under its existing share repurchase authority.

For the 12 months ended Sept. 30, 2017, the company’s pre-tax income was $3.3 billion and return on invested capital (ROIC) was 14.9 percent. 

“As we balance United’s customer, employee and shareholder priorities going forward, a key focus remains returning cash to shareholders and we continued this during the third quarter, repurchasing $556 million of stock, which brings our year-to-date repurchase total to $1.3 billion,” said Andrew Levy, executive vice president and chief financial officer of United Airlines. “Our balance sheet remains strong as evidenced by the 4.25 interest percent rate on the $400 million of unsecured debt raised during the quarter.” 

For more information on UAL’s fourth-quarter 2017 guidance, please visit ir.united.com for the company’s investor update.

Third-Quarter Highlights
Customer Experience

Network and Fleet

Operations and Employees

About United

United Airlines and United Express operate approximately 4,500 flights a day to 337 airports across five continents. In 2016, United and United Express operated more than 1.6 million flights carrying more than 143 million customers. United is proud to have the world’s most comprehensive route network, including U.S. mainland hubs in Chicago, Denver, Houston, Los Angeles, Newark/New York, San Francisco and Washington, D.C. United operates 751 mainline aircraft and the airline’s United Express carriers operate 489 regional aircraft. The airline is a founding member of Star Alliance, which provides service to more than 190 countries via 28 member airlines. 

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

Three Months Ended
September 30,

%
Increase/
(Decrease)

Nine Months Ended
September 30,

%
Increase/
(Decrease)

(In millions, except per share data)

2017

2016

2017

2016

Operating revenue:

Passenger – Mainline

$

7,083

$

7,017

0.9

$

19,970

$

19,119

4.5

Passenger – Regional

1,445

1,586

(8.9)

4,354

4,577

(4.9)

Total passenger revenue (B)

8,528

8,603

(0.9)

24,324

23,696

2.7

Cargo

257

224

14.7

731

626

16.8

Other operating revenue

1,093

1,086

0.6

3,243

3,182

1.9

Total operating revenue

9,878

9,913

(0.4)

28,298

27,504

2.9

Operating expense:

Salaries and related costs

2,812

2,625

7.1

8,341

7,707

8.2

Aircraft fuel (C)

1,809

1,603

12.9

5,038

4,258

18.3

Landing fees and other rent

585

546

7.1

1,670

1,612

3.6

Regional capacity purchase

567

572

(0.9)

1,652

1,645

0.4

Depreciation and amortization

556

503

10.5

1,610

1,473

9.3

Aircraft maintenance materials and outside repairs

451

451

1,377

1,301

5.8

Distribution expenses

352

345

2.0

1,021

987

3.4

Aircraft rent

145

168

(13.7)

476

521

(8.6)

Special charges (D)

50

45

NM

145

669

NM

Other operating expenses

1,459

1,431

2.0

4,199

3,998

5.0

Total operating expense

8,786

8,289

6.0

25,529

24,171

5.6

Operating income

1,092

1,624

(32.8)

2,769

3,333

(16.9)

Operating margin

11.1

%

16.4

%

(5.3)

pts.

9.8

%

12.1

%

(2.3)

pts.

Operating margin, excluding special charges (A) (Non-GAAP)

11.6

%

16.8

%

(5.2)

pts.

10.3

%

14.6

%

(4.3)

pts.

Nonoperating income (expense):

Interest expense

(164)

(150)

9.3

(472)

(466)

1.3

Interest capitalized

20

20

64

48

33.3

Interest income

17

14

21.4

41

31

32.3

Miscellaneous, net (D)

15

2

NM

(3)

(11)

(72.7)

Total nonoperating expense

(112)

(114)

(1.8)

(370)

(398)

(7.0)

Income before income taxes

980

1,510

(35.1)

2,399

2,935

(18.3)

Pre-tax margin

9.9

%

15.2

%

(5.3)

pts.

8.5

%

10.7

%

(2.2)

pts.

Pre-tax margin, excluding special charges and reflecting hedge adjustments (A) (Non-GAAP)

10.4

%

15.7

%

(5.3)

pts.

9.0

%

13.1

%

(4.1)

pts.

Income tax expense (E)

343

545

(37.1)

848

1,069

(20.7)

Net income

$

637

$

965

(34.0)

$

1,551

$

1,866

(16.9)

Earnings per share, diluted

$

2.12

$

3.01

(29.6)

$

5.04

$

5.57

(9.5)

Weighted average shares, diluted

301

321

(6.2)

308

335

(8.1)

NM Not meaningful

 

UNITED CONTINENTAL HOLDINGS, INC.

STATISTICS

Three Months Ended

September 30,

%

Increase/

(Decrease)

Nine Months Ended

September 30,

%

Increase/

(Decrease)

2017

2016

2017

2016

Mainline:

Passengers (thousands)

29,182

27,501

6.1

81,091

75,417

7.5

Revenue passenger miles (millions)

53,515

51,875

3.2

146,252

140,573

4.0

Available seat miles (millions)

63,183

60,635

4.2

176,710

169,252

4.4

Cargo ton miles (millions)

830

714

16.2

2,406

2,015

19.4

Passenger revenue per available seat mile (cents)

11.21

11.57

(3.1)

11.30

11.30

Average yield per revenue passenger mile (cents)

13.24

13.53

(2.1)

13.65

13.60

0.4

Aircraft in fleet at end of period

751

724

3.7

751

724

3.7

Average stage length (miles)

1,825

1,882

(3.0)

1,817

1,878

(3.2)

Average daily utilization of each aircraft (hours: minutes)

     10:58

     10:59

(0.2)

     10:30

      10:25

0.8

Regional:

Passengers (thousands)

10,120

11,150

(9.2)

29,563

31,737

(6.9)

Revenue passenger miles (millions)

5,630

6,297

(10.6)

16,860

18,198

(7.4)

Available seat miles (millions)

6,900

7,439

(7.2)

20,648

21,820

(5.4)

Passenger revenue per available seat mile (cents)

20.94

21.32

(1.8)

21.09

20.98

0.5

Average yield per revenue passenger mile (cents)

25.67

25.19

1.9

25.82

25.15

2.7

Aircraft in fleet at end of period

489

490

(0.2)

489

490

(0.2)

Average stage length (miles)

542

556

(2.5)

558

565

(1.2)

Consolidated (Mainline and Regional):

Passengers (thousands)

39,302

38,651

1.7

110,654

107,154

3.3

Revenue passenger miles (millions)

59,145

58,172

1.7

163,112

158,771

2.7

Available seat miles (millions)

70,083

68,074

3.0

197,358

191,072

3.3

Passenger load factor:

Consolidated

84.4

%

85.5

%

(1.1)

pts.

82.6

%

83.1

%

(0.5)

pts.

Domestic

85.3

%

86.4

%

(1.1)

pts.

85.2

%

85.4

%

(0.2)

pts.

International

83.3

%

84.3

%

(1.0)

pt.

79.5

%

80.4

%

(0.9)

pts.

Passenger revenue per available seat mile (cents)

12.17

12.64

(3.7)

12.32

12.40

(0.6)

Total revenue per available seat mile (cents)

14.09

14.56

(3.2)

14.34

14.39

(0.3)

Average yield per revenue passenger mile (cents)

14.42

14.79

(2.5)

14.91

14.92

(0.1)

Aircraft in fleet at end of period

1,240

1,214

2.1

1,240

1,214

2.1

Average stage length (miles)

1,480

1,493

(0.9)

1,470

1,484

(0.9)

Average full-time equivalent employees (thousands)

87.3

85.1

2.6

86.2

83.6

3.1

 

Note: See Part II, Item 6 Selected Financial Data of the company’s annual report on Form 10-K for the year ended December 31, 2016 for the definition of these statistics.

 

UNITED CONTINENTAL HOLDINGS, INC.

SUMMARY FINANCIAL METRICS (A)

Three Months Ended

September 30,

%

Increase/

(Decrease)

Nine Months Ended

September 30,

%

Increase/

(Decrease)

2017

2016

2017

2016

(In millions, except per share data)

Operating income

$

1,092

$

1,624

(32.8)

$

2,769

$

3,333

(16.9)

Operating margin

11.1

%

16.4

%

(5.3)

pts.

9.8

%

12.1

%

(2.3)

pts.

Operating income, excluding special charges (Non-GAAP)

1,142

1,669

(31.6)

2,914

4,002

(27.2)

Operating margin, excluding special charges (Non-GAAP)

11.6

%

16.8

%

(5.2)

pts.

10.3

%

14.6

%

(4.3)

pts.

Adjusted EBITDA, excluding special charges and reflecting hedge adjustments (a) (Non-GAAP)

$

1,713

$

2,177

(21.3)

$

4,521

$

5,465

(17.3)

Adjusted EBITDA margin, excluding special charges and reflecting hedge adjustments (a) (Non-GAAP)

17.3

%

22.0

%

(4.7)

pts.

16.0

%

19.9

%

(3.9)

pts.

Pre-tax income

$

980

$

1,510

(35.1)

$

2,399

$

2,935

(18.3)

Pre-tax margin

9.9

%

15.2

%

(5.3)

pts.

8.5

%

10.7

%

(2.2)

pts.

Pre-tax income, excluding special charges and reflecting hedge adjustments (a) (Non-GAAP)

1,030

1,558

(33.9)

2,544

3,605

(29.4)

Pre-tax margin, excluding special charges and reflecting hedge adjustments (a) (Non-GAAP)

10.4

%

15.7

%

(5.3)

pts.

9.0

%

13.1

%

(4.1)

pts.

Net income

$

637

$

965

(34.0)

$

1,551

$

1,866

(16.9)

Net income, excluding special charges and reflecting hedge adjustments (a) (Non-GAAP)

669

997

(32.9)

1,644

2,295

(28.4)

Diluted earnings per share

$

2.12

$

3.01

(29.6)

$

5.04

$

5.57

(9.5)

Diluted earnings per share, excluding special charges and reflecting hedge adjustments (a) (Non-GAAP)

2.22

3.11

(28.6)

5.35

6.85

(21.9)

Net cash provided by operating activities

$

577

$

1,138

(49.3)

$

2,685

$

4,884

(45.0)

Capital expenditures

$

1,120

$

689

62.6

$

2,900

$

2,343

23.8

Adjusted capital expenditures (Non-GAAP)

1,082

679

59.4

3,683

2,269

62.3

Free cash flow, net of financings (Non-GAAP)

$

(543)

$

449

NM

$

(215)

$

2,541

NM

Free cash flow (Non-GAAP)

(505)

459

NM

(998)

2,615

NM

 

(a)

 Hedge adjustments include prior period gains (losses) on fuel derivative contracts settled in the current period. See note D for further information.

 

UNITED CONTINENTAL HOLDINGS, INC.

RETURN ON INVESTED CAPITAL (ROIC) – non-GAAP

ROIC – Non-GAAP is a 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
September 30, 2017

NOPAT

Pre-tax income

$

3,283

Special charges and hedge adjustments (D):

  Severance and benefit costs

111

  Labor agreement costs and related items

(60)

  Impairment of assets

15

  (Gains) losses on sale of assets and other special charges

48

   Hedge adjustments

4

Pre-tax income excluding special charges and reflecting hedge adjustments – non-GAAP

3,401

add: Interest expense (net of income tax benefit) (a)

617

add: Interest component of capitalized aircraft rent (net of income tax benefit) (a)

310

add: Net interest on pension (net of income tax benefit) (a)

46

less: Income taxes paid

(18)

NOPAT – Non-GAAP

$

4,356

Invested Capital (five-quarter average)

Total assets

$

41,357

add: Capitalized aircraft operating leases (b)

4,689

less: Non-interest bearing liabilities (c)

(16,734)

Average invested capital – Non-GAAP

$

29,312

Return on invested capital – Non-GAAP

14.9

%

 

(a)

Income tax benefit measured based on the effective cash tax rate. The effective cash tax rate is calculated by dividing cash taxes paid by pre-tax income excluding special charges and reflecting hedge adjustments. For the twelve months ended September 30, 2017, the effective cash tax rate was 0.5%.

(b)

The purpose of this adjustment is to capitalize the impact of aircraft operating leases. The company uses a multiple of seven times its annual aircraft rent expense to estimate the potential capitalized value and related liability of its aircraft. This is a simplified method used by many rating agencies and financial analysts to assist with the impact of operating leases on financial measures like return on invested capital.

(c)

Non-interest bearing liabilities include advance ticket sales, frequent flyer deferred revenue, deferred income taxes and other non-interest bearing liabilities.

 

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION

(A)   UAL evaluates its financial performance utilizing various accounting principles generally accepted in the United States of America (GAAP) and Non-GAAP financial measures, including operating income (loss) excluding special charges, income (loss) before income taxes excluding special charges and reflecting hedge adjustments, net income (loss) excluding special charges and reflecting hedge adjustments, net earnings (loss) per share excluding special charges and reflecting hedge adjustments, and CASM, as adjusted, among others.

CASM is a common metric used in the airline industry to measure an airline’s cost structure and efficiency. UAL reports CASM excluding special charges, third-party business expenses, fuel and profit sharing. UAL believes that adjusting for special charges is useful to investors because special charges 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 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. In addition, the company believes that adjusting for 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.

Pursuant to SEC Regulation G, UAL has included the following reconciliations of reported Non-GAAP financial measures to comparable financial measures reported on a GAAP basis.

Three Months Ended

September 30,

%

Increase/

(Decrease)

Nine Months Ended

September 30,

%

Increase/

(Decrease)

2017

2016

2017

2016

CASM Mainline Operations (cents)

Cost per available seat mile (CASM)

12.03

11.65

3.3

12.49

12.15

2.8

Special charges (D)

0.08

0.08

NM

0.08

0.40

NM

Third-party business expenses

0.10

0.10

0.12

0.11

9.1

Fuel expense

2.41

2.21

9.0

2.39

2.11

13.3

CASM, excluding special charges, third-party business expenses and fuel

9.44

9.26

1.9

9.90

9.53

3.9

Profit sharing per available seat mile

0.21

0.34

(38.2)

0.17

0.30

(43.3)

CASM, excluding special charges, third-party business expenses, fuel, and profit sharing

9.23

8.92

3.5

9.73

9.23

5.4

CASM Consolidated Operations (cents)

Cost per available seat mile (CASM)

12.54

12.18

3.0

12.94

12.65

2.3

Special charges (D)

0.07

0.07

NM

0.08

0.35

NM

Third-party business expenses

0.09

0.09

0.10

0.10

Fuel expense

2.58

2.35

9.8

2.55

2.23

14.3

CASM, excluding special charges, third-party business expenses and fuel

9.80

9.67

1.3

10.21

9.97

2.4

Profit sharing per available seat mile

0.19

0.30

(36.7)

0.16

0.26

(38.5)

CASM, excluding special charges, third-party business expenses, fuel, and profit sharing

9.61

9.37

2.6

10.05

9.71

3.5

 

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION (Continued)

Three Months Ended

September 30,

$

Increase/

(Decrease)

%

Increase/

(Decrease)

Nine Months Ended

September 30,

$

Increase/

(Decrease)

%

Increase/

(Decrease)

(in millions)

2017

2016

2017

2016

Operating expenses

$

8,786

$

8,289

$

497

6.0

$

25,529

$

24,171

$

1,358

5.6

Special charges (D)

50

45

5

NM

145

669

(524)

NM

Operating expenses, excluding special charges

8,736

8,244

492

6.0

25,384

23,502

1,882

8.0

Third-party business expenses

62

61

1

1.6

205

188

17

9.0

Fuel expense

1,809

1,603

206

12.9

5,038

4,258

780

18.3

Profit sharing, including taxes

130

204

(74)

(36.3)

304

506

(202)

(39.9)

Operating expenses, excluding fuel, profit sharing, special charges and third-party business expenses

$

6,735

$

6,376

$

359

5.6

$

19,837

$

18,550

$

1,287

6.9

Operating income

$

1,092

$

1,624

$

(532)

(32.8)

$

2,769

$

3,333

$

(564)

(16.9)

Special charges (D)

50

45

5

NM

145

669

(524)

NM

Operating income, excluding special charges

$

1,142

$

1,669

$

(527)

(31.6)

$

2,914

$

4,002

$

(1,088)

(27.2)

 Income before income taxes

$

980

$

1,510

$

(530)

(35.1)

$

2,399

$

2,935

$

(536)

(18.3)

Special charges and hedge adjustments before income taxes (D)

50

48

2

NM

145

670

(525)

NM

Income before income taxes excluding special charges and reflecting hedge adjustments

$

1,030

$

1,558

$

(528)

(33.9)

$

2,544

$

3,605

$

(1,061)

(29.4)

 Net income

$

637

$

965

$

(328)

(34.0)

$

1,551

$

1,866

$

(315)

(16.9)

Special charges and hedge adjustments, net of tax (D)

32

32

NM

93

429

(336)

NM

Net income, excluding special charges and reflecting hedge adjustments

$

669

$

997

$

(328)

(32.9)

$

1,644

$

2,295

$

(651)

(28.4)

 Diluted earnings per share

$

2.12

$

3.01

$

(0.89)

(29.6)

$

5.04

$

5.57

$

(0.53)

(9.5)

Special charges and hedge adjustments

0.16

0.15

0.01

NM

0.47

2.00

(1.53)

NM

Tax effect related to special charges and hedge adjustments

(0.06)

(0.05)

(0.01)

NM

(0.16)

(0.72)

0.56

NM

Diluted earnings per share, excluding special charges and reflecting hedge adjustments

$

2.22

$

3.11

$

(0.89)

(28.6)

$

5.35

$

6.85

$

(1.50)

(21.9)

 

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION (Continued)

UAL provides financial metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA), that we believe provide useful supplemental information for management and investors by measuring profit and profit as a percentage of total operating revenues. Adjusted EBITDA is EBITDA excluding special charges that are non-recurring and that management believes are not indicative of UAL’s ongoing performance. Adjusted EBITDA also includes hedge adjustments to reflect the cash impact of fuel derivative contracts settled in the current period.

Three Months Ended
September 30,

Nine Months Ended
September 30,

EBITDA

2017

2016

2017

2016

(In millions)

Net income

$

637

$

965

$

1,551

$

1,866

Adjusted for:

Depreciation and amortization

556

503

1,610

1,473

Interest expense

164

150

472

466

Interest capitalized

(20)

(20)

(64)

(48)

Interest income

(17)

(14)

(41)

(31)

Income tax expense

343

545

848

1,069

Special charges and hedge adjustments before income taxes (D)

50

48

145

670

Adjusted EBITDA, excluding special charges and reflecting hedge adjustments – Non-GAAP

$

1,713

$

2,177

$

4,521

$

5,465

UAL believes that adjusting capital expenditures for assets acquired through the issuance of debt and capital leases, airport construction financing and excluding fully reimbursable projects is useful to investors in order to appropriately reflect the non-reimbursable funds spent on capital expenditures.  UAL also believes that adjusting net cash provided by operating activities for capital expenditures and adjusted capital expenditures is useful to allow investors to evaluate the company’s ability to generate cash that is available for debt service or general corporate initiatives.

Three Months Ended

September 30,

Nine Months Ended

September 30,

Capital Expenditures (in millions)

2017

2016

2017

2016

Capital expenditures

$

1,120

$

689

$

2,900

$

2,343

Property and equipment acquired through the issuance of debt and capital leases

11

56

918

115

Airport construction financing

9

33

41

68

Fully reimbursable projects

(58)

(99)

(176)

(257)

Adjusted capital expenditures – Non-GAAP

$

1,082

$

679

$

3,683

$

2,269

Free Cash Flow (in millions)

Net cash provided by operating activities

$

577

$

1,138

$

2,685

$

4,884

Less capital expenditures

1,120

689

2,900

2,343

Free cash flow, net of financings – Non-GAAP

$

(543)

$

449

$

(215)

$

2,541

Net cash provided by operating activities

$

577

$

1,138

$

2,685

$

4,884

Less adjusted capital expenditures – Non-GAAP

1,082

679

3,683

2,269

Free cash flow – Non-GAAP

$

(505)

$

459

$

(998)

$

2,615

 

UNITED CONTINENTAL HOLDINGS, INC.

NOTES (UNAUDITED)

(B)     Select passenger revenue information is as follows (in millions):

3Q 2017
Passenger
Revenue

(millions)

Passenger

Revenue

vs.

3Q 2016

PRASM
vs.

3Q 2016

Yield
vs.

3Q 2016

Available

Seat Miles
vs.

3Q 2016

Mainline

$

3,708

3.5%

(3.5%)

(2.8%)

7.3%

Regional

1,407

(8.3%)

(1.8%)

2.3%

(6.7%)

Domestic

5,115

0.0%

(4.4%)

(3.2%)

4.6%

Atlantic

1,622

0.2%

(0.4%)

(0.9%)

0.6%

Pacific

1,059

(9.3%)

(10.4%)

(6.6%)

1.2%

Latin America

732

4.7%

3.5%

3.4%

1.3%

International

3,413

(2.1%)

(3.0%)

(1.9%)

0.9%

Consolidated

$

8,528

(0.9%)

(3.7%)

(2.5%)

3.0%

Mainline

$

7,083

0.9%

(3.1%)

(2.1%)

4.2%

Regional

1,445

(8.9%)

(1.8%)

1.9%

(7.2%)

Consolidated

$

8,528

 

UNITED CONTINENTAL HOLDINGS, INC.

NOTES (UNAUDITED)

(C)     UAL’s results of operations include fuel expense for both mainline and regional operations.

Three Months Ended

September 30,

%

Increase/

(Decrease)

Nine Months Ended

September 30,

%

Increase/

(Decrease)

(In millions, except per gallon)

2017

2016

2017

2016

Mainline fuel expense excluding hedge impacts

$

1,526

$

1,319

15.7

$

4,219

$

3,370

25.2

Hedge losses reported in fuel expense (a)

(24)

NM

(2)

(197)

NM

Total mainline fuel expense

1,526

1,343

13.6

4,221

3,567

18.3

Regional fuel expense

283

260

8.8

817

691

18.2

Consolidated fuel expense

$

1,809

$

1,603

12.9

$

5,038

$

4,258

18.3

Mainline fuel consumption (gallons)

909

889

2.2

2,537

2,457

3.3

Mainline average aircraft fuel price per gallon

$

1.68

$

1.51

11.3

$

1.66

$

1.45

14.5

Mainline average aircraft fuel price per gallon excluding hedge losses recorded in fuel expense

$

1.68

$

1.48

13.5

$

1.66

$

1.37

21.2

Regional fuel consumption (gallons)

156

168

(7.1)

461

485

(4.9)

Regional average aircraft fuel price per gallon

$

1.81

$

1.55

16.8

$

1.77

$

1.42

24.6

Consolidated fuel consumption (gallons)

1,065

1,057

0.8

2,998

2,942

1.9

Consolidated average aircraft fuel price per gallon

$

1.70

$

1.52

11.8

$

1.68

$

1.45

15.9

Consolidated average aircraft fuel price per gallon excluding hedge losses recorded in fuel expense

$

1.70

$

1.49

14.1

$

1.68

$

1.38

21.7

 

(a)   UAL allocates 100 percent of losses from settled hedges that were designated for hedge accounting to mainline fuel expense.

 

UNITED CONTINENTAL HOLDINGS, INC.

NOTES (UNAUDITED)

(D)     Special charges and hedge adjustments include the following:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(In millions)

2017

2016

2017

2016

Operating:

Severance and benefit costs

$

23

$

13

$

101

$

27

Impairment of assets

15

15

412

Labor agreement costs

14

124

Cleveland airport lease restructuring

74

(Gains) losses on sale of assets and other special charges

12

18

29

32

Subtotal

50

45

145

669

Other nonoperating (gains) losses

(1)

Total special charges

50

45

145

668

Income tax benefit related to special charges

(18)

(16)

(52)

(241)

Total special charges, net of income taxes

32

29

93

427

Hedge adjustments: prior period gains on fuel derivative contracts settled in the current period

3

2

Total special charges and hedge adjustments, net of income taxes

$

32

$

32

$

93

$

429

 

Special charges and hedge adjustments

Severance and benefit costs: During the three and nine months ended September 30, 2017, the company recorded $16 million ($10 million net of taxes) and $73 million ($47 million net of taxes), respectively, of severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the International Brotherhood of Teamsters (the “IBT”). In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019.  Also during the three and nine months ended September 30, 2017, the company recorded $7 million ($5 million net of taxes) and $28 million ($18 million net of taxes), respectively, of severance primarily related to its management reorganization initiative.

During the three and nine months ended September 30, 2016, the company recorded $13 million ($8 million net of taxes) and $27 million ($17 million net of taxes), respectively, of severance and benefit costs primarily related to a voluntary early-out program for its flight attendants.

Impairment of assets: During the three months ended September 30, 2017, United recorded a $15 million ($10 million net of taxes) intangible asset impairment charge related to a maintenance service agreement.

In April 2016, the Federal Aviation Administration (“FAA”) announced that, effective October 30, 2016, it would designate Newark Liberty International Airport (“Newark”) as a Level 2 schedule-facilitated airport under the International Air Transport Association Worldwide Slot Guidelines. The designation was associated with an updated demand and capacity analysis of Newark by the FAA. In the second quarter of 2016, the company determined that the FAA’s action impaired the entire value of its Newark slots because the slots are no longer the mechanism that governs take-off and landing rights. Accordingly, the company recorded a $412 million special charge ($264 million net of taxes) to write off the intangible asset.

Labor agreement costs: During the nine months ended September 30, 2016, the fleet service, passenger service, storekeeper and other employees represented by the International Association of Machinists and Aerospace Workers (the “IAM”) ratified seven new contracts with the company which extended the contracts through 2021. The company also reached a tentative agreement with the IBT during the same time period. During the three and nine months ended September 30, 2016, the company recorded $61 million ($39 million net of taxes) and $171 million ($109 million net of taxes), respectively, of special charges primarily for payments in conjunction with the IAM and IBT agreements described above. Also, as part of its contract with the Association of Flight Attendants, the company amended two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a one-time $47 million gain ($30 million net of taxes) for accelerated recognition of a prior service credit.

Cleveland airport lease restructuring: During the nine months ended September 30, 2016, the City of Cleveland agreed to amend the company’s lease, which runs through 2029, associated with certain excess airport terminal space (principally Terminal D) and related facilities at Hopkins International Airport. The company recorded an accrual for remaining payments under the lease for facilities that the company no longer uses and will continue to incur costs under the lease without economic benefit to the company. This liability was measured and recorded at its fair value when the company ceased its right to use such facilities leased to it pursuant to the lease. The company recorded a special charge of $74 million ($47 million net of taxes) related to the amended lease.

Hedge adjustments: Prior to 2017, the company used certain combinations of derivative contracts that were economic hedges but did not qualify for hedge accounting under U.S. generally accepted accounting principles.  As with derivatives that qualified for hedge accounting, the economic hedges and individual contracts were part of the company’s program to mitigate the adverse financial impact of potential increases in the price of fuel. The company recorded changes in the fair value of the various contracts that were not designated for hedge accounting to Nonoperating income (expense): Miscellaneous, net in the statements of consolidated operations. During the three and nine months ended September 30, 2016, for fuel derivative contracts that settled in the three and nine months ended September 30, 2016, the company recorded MTM gains of $3 million and $2 million, respectively, in prior periods.

(E) Effective tax rate: The company’s effective tax rate for the three and nine months ended September 30, 2017 was 35.0% and 35.3%, respectively. The company’s effective tax rate for the three and nine months ended September 30, 2016 was 36.1% and 36.4%, respectively. The effective tax rates for the 2017 and 2016 periods represented a blend of federal, state and foreign taxes and the impact of certain nondeductible items. The effective tax rate for the three and nine months ended September 30, 2017 also reflects the impact of a change in the mix of domestic and foreign earnings.

Posted by on October 19, 2017.

Categories: Travel Industry News

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