UNITED News Release
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FOR IMMEDIATE RELEASE
UAL CORPORATION REPORTS FOURTH-QUARTER RESULTS
Fourth-Quarter Operating Loss of $493 Million
Fuel Expense $308 Million Higher Than Fourth Quarter 2003
Further Progress on Cost Reductions, Will See Benefits in 2005
Solid Unit Revenue Performance in Tough Environment
CHICAGO, January 27, 2004 - UAL Corporation (OTCBB: UALAQ.OB), the holding company whose primary subsidiary is United Airlines, today reported its fourth-quarter 2004 financial results, which were impacted by high fuel costs and a difficult domestic revenue environment.
UAL reported a fourth-quarter operating loss of $493 million, which compares with a $134 million operating loss in the fourth quarter of 2003. UAL reported a net loss of $664 million, or a loss per basic share of $5.73, which includes $111 million in special items. Excluding the special items, UAL's net loss for the fourth quarter totaled $553 million, or a loss per basic share of $4.77.
Special items in this year's fourth quarter included a $158 million gain from the sale of UAL's remaining shares of Orbitz, $222 million in reorganization expenses and a $47 million increase in frequent flyer liability, principally associated with revised estimates.
For the full year 2004, UAL reported a net loss of $1.6 billion, or a loss per basic share of $14.57, compared to a net loss of $2.8 billion in 2003. Excluding special items, UAL reported a net loss of $1.2 billion, or a loss per basic share of $10.74.
"As expected, the industry environment continues to be extremely difficult," said Glenn Tilton, chairman, president and chief executive. "Record fuel prices and pressure on revenue led to unacceptable results. United has made good progress with more cost reductions already underway. But as we have said, and as this quarter shows without question, we have more work to do."
United's Restructuring Progress Continues
Over the last several months, United continued work on its restructuring. The company has made meaningful progress toward the target of an incremental $2 billion in savings from labor, non labor and pension costs. These savings are in addition to the $5 billion in average annual savings the company has previously announced. As part of the recent restructuring efforts, United:
"We have made further progress in reducing our costs, and will see the benefits of this in 2005," said Jake Brace, United's executive vice president and chief financial officer. "Nonetheless, there is significant work still ahead. We continue to believe termination and replacement of all of our pension plans is necessary for United to successfully exit Chapter 11 as a competitive, sustainable enterprise."
Revenue results
UAL's fourth quarter 2004 operating revenues were $4.0 billion, up 5% compared to fourth quarter 2003. Load factor increased 0.3 points to 77.2% as traffic increased 5% on a 4% increase in capacity. During the fourth quarter, both passenger unit revenue and yield were essentially flat compared to fourth quarter last year, despite a very difficult revenue environment.
"While we are clearly not satisfied with United's revenue performance, we are pleased with our improved passenger unit revenue performance relative to our peers," said John Tague, executive vice president-Marketing, Sales and Revenue. "United is committed to continuous revenue improvement, and we are taking significant actions to forward this objective."
To meet those objectives, the company is undertaking a number of initiatives, including rebalancing its capacity, optimizing revenue execution and developing industry-leading customer initiatives. Specifically, United is:
The company continued to implement non labor contract cost reductions, all of which will deliver savings during 2005. Specifically, United has:
Total operating expenses for the quarter were $4.5 billion, up 14% from the year-ago quarter on a 4% increase in capacity. Mainline operating expenses per available seat mile increased 8% from the fourth quarter 2003. Excluding fuel, mainline operating expenses per available seat mile increased less than 1%. Productivity (available seat miles divided by employee equivalents) was up 7% for the quarter year-over-year. Fuel expense was $308 million higher than in the fourth quarter 2003. Average fuel price for the quarter was $1.45 per gallon (including taxes), up 52% year-over-year.
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.
Operations Continue to Deliver Outstanding Performance
While United's focus on revenue improvement and cost reduction work continues, the company's operations have consistently delivered excellent performance metrics for customers throughout 2004:
Cash
The company ended the quarter with an unrestricted cash balance of $1.3 billion, and in addition a restricted cash balance of $877 million, for a total cash balance of $2.1 billion. During the quarter the company made the final quarterly retroactive wage payment to International Association of Machinists members of $63 million and a quarterly Success Sharing reward to employees of $26 million. In addition, the company received $185 million in cash proceeds from the sale of Orbitz shares.
Outlook
United expects first-quarter system mainline capacity to be down about 2% year-over-year. System mainline capacity for 2005 is expected to be about 3% lower than 2004. The company projects fuel price, including taxes and expected hedge benefit, for the first quarter to average $1.41 per gallon. The company has 30% of its expected fuel consumption for the first quarter hedged at an average of $1.38 per gallon, including taxes.
December Monthly Operating Report
UAL today also filed with the United States Bankruptcy Court its Monthly Operating Report for December. The company posted a $235 million operating loss for December. The company received a waiver from its DIP lenders for the monthly EBITDAR covenants during the fourth quarter. United is well along in the process of resetting its covenants with the DIP lenders and an amendment is currently under consideration by the syndicate.
News releases and other information about United Airlines can be found at the company's website, www.united.com.
Note 9 to the attached Statements of Consolidated Operations provides a reconciliation of net loss reported under GAAP to net loss excluding special items for all periods presented.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain statements included in this press release are forward-looking and thus reflect the Company's current expectations and beliefs with respect to certain current and future events and financial performance. Such forward-looking statements are and will be, as the case may be, subject to many risks and uncertainties relating to the operations and business environments of the Company that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Factors that could significantly affect net earnings, revenues, expenses, costs, load factor and capacity include, without limitation, the following: the Company's ability to continue as a going concern; the Company's ability to comply with the terms of the DIP financing or negotiate modifications or amendments thereto as necessary; the Company's ability to obtain court approval with respect to motions in the Chapter 11 proceeding prosecuted by it from time to time; the Company's ability to develop, prosecute, confirm and consummate one or more plans of reorganization with respect to the Chapter 11 cases; risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusive period for the Company to propose and confirm one or more plans of reorganization; the potential adverse impact of the Chapter 11 cases on the Company's liquidity or results of operations; the appointment of a Chapter 11 trustee or conversion of the cases to Chapter 7; the costs and availability of financing; the Company's ability to execute its business plan; the Company's ability to attract, motivate and/or retain key employees; the Company's ability to attract and retain customers; demand for transportation in the markets in which the Company operates; general economic conditions; the effects of any hostilities or act of war or any terrorist attack; the ability of other air carriers with whom the Company has alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aircraft insurance; the costs of aviation fuel; the costs associated with security measures and practices; labor costs; competitive pressures on pricing (particularly from lower-cost competitors) and on demand; government legislation and regulation; the ability of the Company to maintain satisfactory labor relations; weather conditions; and other risks and uncertainties set forth from time to time in UAL's reports to the United States Securities and Exchange Commission. Consequently, the forward-looking statements should not be regarded as representations or warranties by the Company that such matters will be realized. The Company disclaims any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.
# # #
| (In accordance with GAAP) | |||
| Operating revenues: | |||
| Passenger - United Airlines | $ 2,979 | $ 2,866 | 3.9 |
| - Regional Affiliates | 487 | 424 | 14.9 |
| Cargo | 218 | 167 | 30.5 |
| Other operating revenues | 304 | 340 | (10.6) |
3,988 | 3,797 | 5.0 | |
| Operating expenses: | |||
| Salaries and related costs | 1,271 | 1,276 | (0.4) |
| Aircraft fuel | 842 | 534 | 57.7 |
| Purchased services | 369 | 340 | 8.5 |
| Aircraft rent | 129 | 125 | 3.2 |
| Landing fees and other rent | 254 | 214 | 18.7 |
| Depreciation and amortization | 213 | 193 | 10.4 |
| Aircraft maintenance | 185 | 173 | 6.9 |
| Commissions | 65 | 64 | 1.6 |
| Regional Affiliates | 616 | 504 | 22.2 |
| Other operating expenses | 537 | 508 | 5.7 |
4,481 | 3,931 | 14.0 | |
| Loss from operations | (493) | (134) | - |
| Other income (expense): | |||
| Interest expense | (112) | (118) | (5.1) |
| Interest capitalized | - | 1 | - |
| Interest income | 6 | 1 | - |
| Equity in earnings of affiliates | 5 | - | - |
| Special non-operating items | - | (89) | - |
| Gain on sale of investments | 158 | 158 | - |
| Miscellaneous, net | (6) | (2) | - |
| 51 | (49) | - | |
| Loss before reorganization items and income taxes | (442) | (183) | - |
| Reorganization items, net | (222) | (293) | (24.2) |
| Loss before income taxes | (664) | (476) | 39.5 |
| Credit for income taxes | - | - | - |
| Net loss | $ (664) | $ (476) | 39.5 |
| Per share, basic: | |||
| Net loss | $ (5.73) | $ (4.33) | |
| Weighted average shares (basic) | 116.2 | 110.3 | |
| _____________ | |||
| See accompanying notes. | |||
| (In accordance with GAAP) | |||
| Operating revenues: | |||
| Passenger - United Airlines | $ 12,483 | $ 11,317 | 10.3 |
| - Regional Affiliates | 1,927 | 1,529 | 26.0 |
| Cargo | 704 | 630 | 11.7 |
| Other operating revenues | 1,277 | 1,452 | (12.1) |
16,391 | 14,928 | 9.8 | |
| Operating expenses: | |||
| Salaries and related costs | 5,006 | 5,377 | (6.9) |
| Aircraft fuel | 2,943 | 2,072 | 42.0 |
| Purchased services | 1,462 | 1,301 | 12.4 |
| Aircraft rent | 533 | 612 | (12.9) |
| Landing fees and other rent | 964 | 930 | 3.7 |
| Depreciation and amortization | 874 | 968 | (9.7) |
| Aircraft maintenance | 747 | 572 | 30.6 |
| Commissions | 305 | 277 | 10.1 |
| Regional Affiliates | 2,348 | 1,921 | 22.2 |
| Other operating expenses | 1,986 | 2,258 | (12.0) |
17,168 | 16,288 | 5.4 | |
| Loss from operations | (777) | (1,360) | (42.9) |
| Other income (expense): | |||
| Interest expense | (449) | (527) | (14.8) |
| Interest capitalized | 1 | 3 | (66.7) |
| Interest income | 25 | 14 | 78.6 |
| Equity in earnings (losses) of affiliates | 5 | (4) | - |
| Special non-operating items | 5 | 90 | (94.4) |
| Gain on sale of investments | 158 | 158 | - |
| Miscellaneous, net | (1) | (9) | (88.9) |
| (256) | (275) | (6.9) | |
| Loss before reorganization items and income taxes | (1,033) | (1,635) | (36.8) |
| Reorganization items, net | (611) | (1,173) | (47.9) |
| Loss before income taxes | (1,644) | (2,808) | (41.5) |
| Credit for income taxes | - | - | |
| Net loss | $ (1,644) | $ (2,808) | (41.5) |
| Per share, basic: | |||
| Net loss | $ (14.57) | $ (27.36) | |
| Weighted average shares (basic) | 113.5 | 103.0 | |
| _____________ | |||
| See accompanying notes. | |||
| Consolidated Notes (Unaudited) | ||||||||||||
| (1) | UAL Corporation ("UAL" or the "Company") is a holding company whose principal subsidiary is United Air Lines, Inc. ("United"). On December 9, 2002, UAL, United and twenty-six direct and indirect wholly owned subsidiaries filed Chapter 11 petitions for relief in the U.S. Bankruptcy Court for the Northern District of Illinois. | |||||||||||
| (2) | During the third quarter of 2004, United changed its classification of United Express ("UAX") revenues and expenses for all of its UAX carriers. Previously, certain UAX carrier revenues and expenses were presented net in passenger revenue. Amounts for all UAX carriers are recorded as "regional affiliates revenue" and "regional affiliates expense". Prior period amounts have been reclassified. | |||||||||||
| (3) | In connection with its bankruptcy proceedings, the Company recorded the following reorganization items: | |||||||||||
| (In Millions) | ||||||||||||
| Aircraft rejection costs | $ 29 | $ 272 | $ 341 | $ 721 | ||||||||
| Transfer of lease certificates | - | 8 | - | 223 | ||||||||
| Curtailment charge | 152 | - | 152 | - | ||||||||
| Professional fees | 37 | 30 | 160 | 142 | ||||||||
| Severance and employee retention | 6 | 13 | 13 | 94 | ||||||||
| Interest income | (7) | (4) | (19) | (16) | ||||||||
| Other | 5 | (26) | (36) | 9 | ||||||||
$ 222 | $ 293 | $ 611 | $ 1,173 | |||||||||
| Aircraft rejection costs include the Company's estimate of claims incurred as a result of the rejection of certain aircraft as part of the bankruptcy process. In addition, in 2003 the Company renegotiated certain off-balance sheet aircraft leases and surrendered its portion of the lease debt to the original equity participant. Accordingly, the Company's investment in these certificates was reduced to zero and the Company recognized a $223 million non-cash charge in reorganization items during 2003. In the fourth quarter of 2004, the Company recognized a pension curtailment charge of $152 million associated with a motion filed by the Pension Benefit Guaranty Corporation to involuntarily terminate (on December 30, 2004) the Company's defined benefit pension plan for covered members of the Air Line Pilots Association. Based upon the involuntary nature of the termination of the defined benefit pension plan and its direct relationship to the Company's reorganization, the 2004 curtailment charge is classified as a reorganization expense. | ||||||||||||
| (4) | Special operating items recorded in the fourth quarter and twelve months ended December 31, 2004 and 2003, respectively: | |||||||||||
| (In Millions) | ||||||||||||
| Revenue adjustment - passenger revenue -United | - | - | (60) | - | ||||||||
| Frequent flyer accrual - other operating expenses | 47 | - | 47 | - | ||||||||
| Aircraft impairment - other operating expenses | - | - | - | 26 | ||||||||
| Loss on sale of aircraft - depreciation & amort | - | - | - | 86 | ||||||||
| Contract renegotiations - salaries & related costs: | ||||||||||||
| Reversal of employee charges | - | - | - | (102) | ||||||||
| Curtailment charges | - | - | - | 152 | ||||||||
$ 47 | $ - | $ (13) | $ 162 | |||||||||
| (5) | Special non-operating items recorded in the fourth quarter and twelve months ended December 31, 2004 and 2003, respectively: | |||||||||||
| (In Millions) | ||||||||||||
| Gain on sale of pre-petition claim | ||||||||||||
| against Air Canada | - | - | (18) | - | ||||||||
| Non-operating aircraft write-down | - | - | 13 | 25 | ||||||||
| Non-operating asset write-down | - | 89 | - | 89 | ||||||||
| Government compensation | - | - | - | (300) | ||||||||
| Interest income - tax refund | - | - | - | (41) | ||||||||
| Air Canada investment write-off | - | - | - | 46 | ||||||||
| Air Canada debt write-off | - | - | - | 91 | ||||||||
$ - | $ 89 | $ (5) | $ (90) | |||||||||
| (6) | During the fourth quarter of 2004, the Company sold its investment in Orbitz for cash proceeds of approximately $185 million and recognized a gain of $158 million. | |||||||||||
| (7) | During the fourth quarter of 2003, UAL sold its investment in Hotwire for cash proceeds of approximately $85 million and recognized a gain of $81 million. In connection with the initial public offering of Orbitz, UAL recognized a gain of $23 million as a result of the issuance of additional shares by Orbitz that reduced UAL's ownership percentage, in accordance with Staff Accounting Bulletin No. 51. In addition, UAL sold a portion of its investment in Orbitz for cash proceeds of $65 million and recognized a gain of $54 million. | |||||||||||
| (8) | Included in other operating income in UAL's results of operations are the results of its wholly owned subsidiary United Aviation Fuels Corporation ("UAFC"). For the fourth quarter of 2004 and 2003 and the twelve months of 2004 and 2003, UAFC recorded revenues for fuel sales to third parties of $73 million, $105 million, $408 million and $704 million, respectively. | |||||||||||
| (9) | Pursuant to SEC Regulation G, the Company has included the following reconciliation of reported non-GAAP financial measures to comparable financial measures reported on a GAAP basis. The Company believes that the reported non-GAAP financial results provide management and investors a better perspective of on-going financial performance and trends by excluding these special items for comparative purposes. Statistical information is for United mainline operations only. | |||||||||||
| GAAP net loss | $ (664) | $ (476) | $ (5.73) | $ (4.33) | $ (1,644) | $ (2,808) | $ (14.57) | $ (27.36) | ||||
| Adjusted for: | ||||||||||||
| Special operating items | 47 | - | 0.40 | (13) | 162 | |||||||
| Special non-operating items | - | 89 | - | (5) | (90) | |||||||
| Gain on sale of investments | (158) | (158) | (1.35) | (158) | (158) | |||||||
| Reorganization items, net | 222 | 293 | 1.91 | 2.66 | 611 | 1,173 | 5.38 | 11.39 | ||||
$ (553) | $ (252) | $ (4.77) | $ (2.30) | $ (1,209) | $ (1,721) | $ (10.74) | $ (16.80) | |||||
| Operating expense per asm | ||||||||||||
| Fuel expense | ||||||||||||
| Operating expense per asm excluding | ||||||||||||
| fuel expense (cents) | ||||||||||||
| OPERATING STATISTICS | |||
| United Air Lines Mainline Jet Operations | |||
| Revenue passengers (in thousands) | 17,143 | 16,448 | 4.2 |
| Revenue passenger miles (in millions) | 27,853 | 26,610 | 4.7 |
| Available seat miles (in millions) | 36,061 | 34,617 | 4.2 |
| Passenger load factor (percent) | 77.2 | 76.9 | 0.3 pt. |
| Breakeven passenger load factor (percent) | 92.3 | 83.1 | 9.2 pt. |
| Passenger revenue per passenger mile - yield (cents) | 10.65 | 10.69 | (0.4) |
| Passenger revenue per available seat mile - passenger | |||
| unit revenue (cents) | 8.26 | 8.28 | (0.2) |
| Operating revenue per available seat mile - unit revenue (cents) | 9.43 | 9.41 | 0.2 |
| Operating expenses per available seat mile - unit cost (cents) | 10.68 | 9.85 | 8.4 |
| Operating expenses per available seat mile excluding | |||
| fuel expense (cents) | 8.34 | 8.30 | 0.5 |
| Average price per gallon of jet fuel (cents) | 145.1 | 95.5 | 51.9 |
| Number of aircraft in operating fleet at end of period | 497 | 532 | (6.6) |
| Average full-time equivalent employees (thousands) | 57.5 | 58.9 | (2.4) |
| ASMs per equivalent employees - productivity (thousands) | 627 | 587 | 6.8 |
| OPERATING STATISTICS | |||
| United Air Lines Mainline Jet Operations | |||
| Revenue passengers (in thousands) | 70,914 | 66,153 | 7.2 |
| Revenue passenger miles (in millions) | 115,198 | 104,464 | 10.3 |
| Available seat miles (in millions) | 145,361 | 136,630 | 6.4 |
| Passenger load factor (percent) | 79.2 | 76.5 | 2.7 pt. |
| Breakeven passenger load factor (percent) | 86.2 | 87.4 | (1.2) pt. |
| Passenger revenue per passenger mile - yield (cents) | 10.78 | 10.74 | 0.4 |
| Passenger revenue per available seat mile - passenger | |||
| unit revenue (cents) | 8.59 | 8.28 | 3.7 |
| Operating revenue per available seat mile - unit revenue (cents) | 9.70 | 9.57 | 1.4 |
| Operating expenses per available seat mile - unit cost (cents) | 10.16 | 10.46 | (2.9) |
| Operating expenses per available seat mile excluding | |||
| fuel expense (cents) | 8.13 | 8.94 | (9.1) |
| Average price per gallon of jet fuel (cents) | 125.3 | 94.1 | 33.2 |
| Number of aircraft in operating fleet at end of period | 497 | 532 | (6.6) |
| Average full-time equivalent employees (thousands) | 58.9 | 61.7 | (4.5) |
| ASMs per equivalent employees - productivity (thousands) | 2,468 | 2,216 | 11.4 |
