United Announces Second-Quarter 2014 Profit

United Airlines (UAL) today reported second-quarter 2014 net income of $919 million, an increase of 51 percent year-over-year, or $2.34 per diluted share, excluding $130 million of special items. Including special items, UAL reported second-quarter 2014 net income of $789 million, or $2.01 per diluted share.

• United's consolidated passenger revenue per available seat mile (PRASM) increased 3.7 percent in the second quarter of 2014 compared to the second quarter of 2013.
• Second-quarter 2014 consolidated unit costs (CASM), excluding special charges, third-party business expenses, fuel and profit sharing, decreased 0.2 percent year-over-year on a consolidated capacity reduction of 0.1 percent. Second-quarter 2014 CASM, including those items, increased 2.2 percent year-over-year.
• The company generated $1.5 billion of operating cash flow in the second quarter of 2014.
• UAL ended the second quarter with $6.8 billion in unrestricted liquidity.
• The company earned a 10.3 percent return on invested capital for the 12 months ended June 30, 2014.
• UAL's Board of Directors authorized a $1.0 billion share repurchase program, which the company expects to complete within the next three years.

"I am encouraged by the solid progress we made in the second quarter. Our team is focused on improving our operations and service and on continuing to improve year-over-year revenue performance and cost control," said Jeff Smisek, UAL's chairman, president and chief executive officer. "The $1 billion share repurchase program we announced today demonstrates our progress and commitment to increasing value for our shareholders and the confidence we have in our plan."

Second-Quarter Revenue and Capacity

For the second quarter of 2014, total revenue was $10.3 billion, an increase of 3.3 percent year-over-year. Second-quarter consolidated passenger revenue increased 3.6 percent to $9.0 billion, compared to the same period in 2013. Ancillary revenue per passenger in the second quarter increased 7.9 percent year-over-year to more than $21 per passenger. Second-quarter cargo revenue decreased 1.7 percent versus the second quarter of 2013 to $232 million. Other revenue in the second quarter increased 1.7 percent year-over-year to $1.1 billion.

Consolidated revenue passenger miles increased 0.6 percent and consolidated available seat miles decreased 0.1 percent year-over-year for the second quarter, resulting in a second-quarter consolidated load factor of 85.3 percent.

Second-quarter 2014 consolidated PRASM increased 3.7 percent and consolidated yield increased 3.0 percent compared to the second quarter of 2013. The company's consolidated domestic PRASM, including both mainline and regional flying, increased 5.6 percent year-over-year.

"We are beginning to see the benefits of the changes we're implementing to our network and revenue management processes," said Jim Compton, UAL's vice chairman and chief revenue officer. "We have more work to do, however, and will continue to make the appropriate adjustments to accelerate our revenue growth."

Passenger revenue for the second quarter of 2014 and period-to-period comparisons of related statistics for UAL's mainline and regional operations are as follows:

Second-Quarter Costs

Second-quarter consolidated CASM, excluding special charges, third-party business expense, fuel and profit sharing, decreased 0.2 percent compared to the second quarter of 2013. Second-quarter consolidated CASM, including those items, increased 2.2 percent year-over-year. The company's strong cost performance in the quarter was largely driven by execution on its cost-savings initiatives, as well as by the timing of certain expenses moving to the second half of the year.

Second-quarter total operating expenses, excluding special charges, increased $75 million, or 0.8 percent, year-over-year. Including special charges, total operating expenses increased $192 million, or 2.1 percent, in the second quarter versus the same period in 2013. Third-party business expense was $215 million in the second quarter of 2014.

Second-Quarter Liquidity and Cash Flow

UAL ended the second quarter with $6.8 billion in unrestricted liquidity, including $1.0 billion of undrawn commitments under a revolving credit facility. The company generated $1.5 billion of operating cash flow in the second quarter. During the second quarter, the company had gross capital expenditures of $871 million, excluding fully reimbursable projects. The company made debt and capital lease principal payments of $333 million in the second quarter. For the 12 months ended June 30, 2014, the company's return on invested capital was 10.3 percent.

The company's long-term capital structure goals include reducing its non-aircraft related debt and achieving a total gross debt balance, including capitalized operating leases, of approximately $15 billion while maintaining an unrestricted liquidity balance of $5 billion to $6 billion, including its undrawn revolver.

Share Repurchase Program

UAL's Board authorized a $1.0 billion share repurchase program, which the company expects to complete within the next three years. This amount represents approximately 6 percent of the company's market capitalization as of yesterday's closing stock price. Additionally, in the second quarter, the company spent $62 million to retire convertible debt that would have converted into approximately 1.5 million shares of UAL common stock.

"We have laid a sound financial foundation over the last few years by paying off debt and investing in our business. Our earnings profile, coupled with measured capital expenditures and manageable debt maturities, enable us to take this initial step toward returning cash to our shareholders," said John Rainey, UAL's executive vice president and chief financial officer. "This action helps us achieve a more balanced allocation of our cash flow."

UALmay repurchase shares through the open market, privately negotiated transactions, block trades, or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL will repurchase shares of common stock subject to prevailing market conditions and may discontinue such repurchases at any time.

Second-Quarter 2014 Accomplishments

Operations, Employees and Network

• United Airlines reported a second-quarter mainline on-time arrival rate (domestic and international) of 76.4 percent, adversely affected by multi-month runway closures in its San Francisco and Newark hubs. The on-time arrival rate is based on flights arriving within 14 minutes of scheduled arrival time.
• The company reached a joint collective bargaining agreement with the Professional Airline Flight Control Association (PAFCA) and the Transport Workers Union (TWU) for United's dispatchers. The dispatchers subsequently ratified the new agreement.
• The company began a facilitated negotiations process with the Association of Flight Attendants and held further discussions in advance of scheduled mediation with the International Brotherhood of Teamsters, representing United's technicians.
• United expanded its industry-leading global route network, launching nonstop flights from Houston to Munich; Newark to Santiago, Dominican Republic; and new seasonal service between Chicago and Edinburgh, Scotland, and from Washington, D.C., to both Madrid and Nassau, Bahamas. The company continued to develop its industry-leading Pacific gateway in San Francisco by launching service to Chengdu, China, and announcing service to Tokyo's Haneda airport. The company also announced new service from Houston to Santiago, Chile, and announced new routes from Chicago to Belize City, Belize; Denver to Panama City; Houston to Punta Cana, Dominican Republic; and San Francisco to Kelowna, British Columbia. The airline announced nine new domestic markets and launched 14 new domestic routes in the second quarter, including United's first service to Atlantic City, N.J.; Bangor, Maine; Pueblo, Colorado; and St. Cloud, Minnesota.

Finance and Fleet

• United raised $949 million of debt financing through enhanced equipment trust certificates at a blended rate of 4.13 percent. The debt proceeds are being used to finance the acquisition of 13 Boeing 737-900ERs, nine Embraer 175s, two 787-8 Dreamliners and one 787-9 Dreamliner.
• The company took delivery of 10 Boeing 737-900ERs and one 787-8 Dreamliner, and also exited from scheduled service nine 757-200s during the quarter.
• The company introduced seven highly efficient Embraer 175 aircraft to the United Express fleet. The modern and spacious 76-seat aircraft is the newest addition to the United Express fleet, enabling the airline to offer an improved regional jet experience. These aircraft will largely replace less-efficient 50-seat regional jets, and the company expects to reduce its 50-seat regional jet fleet by 38 aircraft by the end of the year.
• United continued installing slimmer, next-generation economy-class seats on certain aircraft, which enables one to two additional rows per aircraft. The airline now offers these seats, which are 10 to 15 percent lighter than the seats they are replacing, on approximately 240 aircraft.

Flyer-Friendly Product, Loyalty Program and Facilities

• The company now offers Wi-Fi on more than 290 aircraft, including its entire Airbus fleet, and expects to have more than 450 Wi-Fi-equipped aircraft by the end of 2014.
• United began installing its new personal device entertainment system on select aircraft, enabling customers to choose from more than 150 movies and nearly 200 television shows and watch them on their laptops or iOS devices.
• United launched its all-new mobile application for the Android platform, offering innovative new features, smoother functionality and an improved touch-friendly design. The new Android app follows the airline's redesign of its mobile app for the iOS platform.
• United announced its 2015 MileagePlus program. Members will earn award miles based on ticket price specifically the base fare and carrier-imposed surcharges and MileagePlus status, rather than distance flown.
• United consolidated its London Heathrow operation into one terminal in the new Terminal 2: The Queen's Terminal. United's 22 Star Alliance partners serving Heathrow are progressively moving to Terminal 2, enabling faster, more convenient connections for customers. United operates more daily flights to Heathrow than any other U.S. carrier.
• The company unveiled a new 10-gate, 97,000-square-foot concourse in Boston Logan International Airport's Terminal B that offers modern conveniences that streamline the airport experience, including self-tagging baggage kiosks, automated self-boarding gates and a new customer service center.
• The airline opened new United Clubs at London Heathrow, Boston and San Francisco, featuring the latest airport lounge design concept thatit unveiled at United Clubs in Chicago, San Diego and Seattle. The company also opened a new United Global First Lounge in London, offering premium customers more privacy and personal service.

About United

United Airlines and United Express operate an average of more than 5,200 flights a day to 374 airports across six continents. In 2013, United and United Express operated nearly two million flights carrying 139 million customers. With hubs in Chicago, Denver, Houston, Los Angeles, Newark, San Francisco and Washington, D.C., United operates more than 700 mainline aircraft and, in 2014, will take delivery of 35 new Boeing aircraft, including the 787-9 as the North American launch customer, and will welcome 32 new Embraer 175 aircraft to United Express. The airline is a founding member of Star Alliance, which provides service to 192 countries via 27 member airlines. More than 85,000 United employees reside in every U.S. state and in countries around the world. For more information, visit united.com, follow @United on Twitter or connect on Facebook. The common stock of United's parent, United Continental Holdings, Inc., is traded on the NYSE under the symbol UAL.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain statements included in this release 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); 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; the possibility that expected merger synergies will not be realized or will not be realized within the expected time period; 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.

-tables attached-