聯合航空 (UAL) 2007 Q1 法說會逐字稿

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  • Operator

  • Good morning, and welcome to UAL Corporation earnings conference call for the first quarter of 2007.

  • (OPERATOR INSTRUCTIONS) This call is being recorded and is copyrighted.

  • Please note that it cannot be recorded, transcribed, or rebroadcast without UAL's permission.

  • Your participation implies consent to our recording of this call.

  • If you do not agree with these terms, simply drop off the line.

  • I would now like to turn the presentation over to your host for today's call, Mr.

  • Robert Sahadevan.

  • Please proceed.

  • Robert Sahadevan - Managing Director, IR

  • Thank you, Danielle.

  • Welcome to UAL's first quarter earnings conference call.

  • The earnings announcement was released earlier this morning and is available on our website.

  • After our prepared remarks, we will open the lines to questions from analysts and investors.

  • Following the end of the investor Q&A, at approximately noon Eastern time, we will take questions from the media.

  • Let me point out that statements in the press release and those made during this conference call may contain various forward-looking statements, which represent the Company's expectations or beliefs concerning future events.

  • All forward-looking statements are based upon information currently available to the Company.

  • A number of factors could cause actual results to differ materially from our current expectations.

  • Please refer to our press release, Form 10-K, and other reports filed with the SEC for a more thorough description of these factors.

  • Lastly, during the course of our call, we will be discussing several non-GAAP financial measures.

  • For a reconciliation of these non-GAAP numbers to GAAP financial measures, please refer to our earnings release.

  • Now I would like to turn the call over to Glenn Tilton, UAL's Chairman, President, and CEO.

  • Glenn Tilton - Chairman, President, CEO

  • Thanks very much, Robert, and good morning, and welcome to everybody on the call.

  • Joining me and participating on the call today are Jake Brace, our Chief Financial Officer; and John Tague, our Chief Revenue Officer; Peter McDonald, our Chief Operating Officer is also with us and will be available to take questions after the prepared remarks.

  • In the years since we exited Chapter 11, at United we have made significant progress on our performance agenda that we have shared with all of you.

  • We are focused on improving our product, our work processes, and most importantly our relationship with our best customers.

  • Our financial results are also improving.

  • In this seasonally weak quarter for United, our pretax loss excluding reorganization items narrowed by some $70 million or 23% and we generated 38% more cash from operations than we did a year ago.

  • While there remains accounting noise in our numbers that obscures year-over-year comparisons, our core results show progress on both cost and revenue.

  • Our core revenue performance improved year over year after setting aside the change in Frequent Flier program accounting.

  • In January, we acknowledged that we added too much capacity into the domestic system, which led us to underperform our peers.

  • The storms in February reduced some capacity and we were back on track in March, resulting in a significantly stronger performance as the quarter ended.

  • Advanced bookings for United are solid, running in-line with a year ago while yields remain strong in international markets and weaker in domestic markets.

  • Later on in the call, after Jake takes us through the financials, John will elaborate on the quarter's revenue results and the work underway to continue to drive revenue performance.

  • We continue to tightly manage our costs at the Company and our first quarter CASM results reflect the success in our efforts to do so.

  • Many of you have asked about other opportunities for further cost improvement at United.

  • I'll highlight a couple of projects underway that are representative of the multiple cross functional initiatives that run the full spectrum of work we have underway across the Company.

  • For example, our aircraft utilization rate is among the highest in the U.S.

  • industry, up 12% since 2002.

  • Our operations research and scheduled planning teams work together for further improvement in our international fleeting and routing, balancing customer schedules, operational factors, improved scheduling, we can now fly the existing schedule with one less aircraft.

  • We use this additional $150 million asset to further expand international service.

  • A similar partnership between the operations research and airport teams to redesign employee shifts resulted in improved efficiency in O'Hare operations.

  • This provides the Company with more flexibility in handling irregular operations and reduces our overtime costs.

  • The cost saving at O'Hare translates to about $300 million a year.

  • We're now pursuing similar work at all of our other domestic hubs so we get the multiplier affect of the work that originates at O'Hare.

  • In addition, we have initiated business education training for all of our employees at the Company that will drive sustainable focus on continuous improvement.

  • We're here to educate our employees in the way forward.

  • In what is the most comprehensive employee training program at United in many years, our employees attend two full days of training.

  • All attend the first day which covers the economics of our business and our strategy.

  • United's business model and the drivers of financial performance are included and we stress the need to balance the interests of customers, shareholders, and employees.

  • The second day is focused on customer service for our customer facing employees, or leadership skills for our management employees.

  • This training is designed to be interactive and to encourage candid dialogue and interaction.

  • The work we have done so far has put us in a significantly improved financial position, enabling United to generate significant free cash flow.

  • We're using that cash to good advantage, to improve our balance sheet and preserve our strategic options.

  • This quarter we reduced total debt by some $1.4 billion and we're making the capital investment necessary to keep United competitive, including an important investment in our cabin interiors.

  • As we have previously shared with you, our current capital plan funds a major upgrade to first and business class cabins.

  • And we'll put the first refurbished aircraft into service this fall.

  • As you all know, on the call, our fleet is comparatively relatively young and the first aircraft we would replace are our Boeing 737s, which we expect to perform for us for the next eight to ten years.

  • This unique position provides us an advantage and enables us to hold off on ordering any 737 replacement aircraft until we see if next generation narrow body aircraft will be developed and offered to the market place.

  • As we continue to focus on our performance agenda and on improving United's competitiveness, we believe it's also important to press forward to address the regulatory and infrastructure challenges that impede the development of a strong U.S.

  • aviation sector.

  • As you all know we have long been a strong supporter of international deregulation.

  • We support the USEU open skies agreement as it opens up markets to competition.

  • We do not believe that protecting markets from competition is a sustainable strategy for long-term success for any company and certainly not for us.

  • John will speak further to this in his remarks.

  • As to infrastructure challenges, air traffic control modernization and funding are clearly critical issues that have to be resolved in a manner that will ensure the competitiveness of the industry in the United States and benefit customers who are severely impacted personally and commercially through loss of time and productivity.

  • This said, United will continue to focus on increasing our own operational reliability within this very difficult and challenging environment.

  • At the Company today, despite the need for us to experience the first quarter, which is seasonally weak for us, we're executing against our performance agenda with an eye on a multiyear target.

  • We're controlling our costs, we're driving revenue growth, and we're enhancing our customer experience while generating significant free cash flow.

  • With that as an introduction, I'll hand the call over to Jake and he'll take you through the detail of the numbers.

  • Jake, over to you.

  • Jake Brace - CFO

  • Thanks, Glenn, and good morning, everyone.

  • As Glenn mentioned, our fundamental performance remains strong.

  • We have reduced our cost, improved revenues, generated cash, and used that cash responsibly.

  • In the first quarter, while we booked a loss we maintained the momentum we've built since our exit.

  • Our net loss in this seasonally weak quarter was $152 million or $1.32 per share based on weighted average shares of $117 million.

  • Our first quarter net loss also includes an income tax benefit of $84 million.

  • As a reminder, income tax expense should be viewed primarily as a non-cash item.

  • Due to our large NOLs, we anticipate only paying minimal cash taxes for the foreseeable future.

  • At the pretax level, our loss this quarter of $236 million was lower by 23% or $70 million year over year, excluding reorganization items last year.

  • This improvement was driven by strong cost controls, offset by somewhat slower revenue growth and the change to our frequent flier accounting policy.

  • Because of the affects of fresh start and exit-related accounting, we continue to stress that cash generation is an important story for United.

  • Cash performance in the first quarter continued to be strong.

  • We generated $626 million in cash from operations, up 38% from the comparable period last year.

  • This continues the trend of strong generation of operating cash flow, which totaled about $1.6 billion in 2006.

  • During the quarter, we used the cash we generated internally to pay down nearly $1 billion of our original $3 billion exit facility and refinanced the remaining $2 billion.

  • The transaction will save us approximately $70 million in net annual interest costs, gave us less restrictive covenants and released approximately $2.5 billion of collateral.

  • During the quarter, we also spent $68 million on capital expenditures and $331 million for other debt and capital lease payments in addition to our early paydown of the exit facility.

  • We ended the quarter with total debt, including off-balance sheet capitalized aircraft rents and municipal debt of $12.5 billion, a reduction of $1.4 billion from the end of last year.

  • I'm pleased to report that our cash balance remains strong at $4.2 billion as of the end of the quarter, which included $856 million of restricted cash.

  • All in all, a strong demonstration that we are executing against our performance agenda.

  • In prior quarters, we have pointed out that our reported earnings include a number of noncash, fresh start, and exit-related charges and have attempted to identify these impacts for investors, since they do obscure some fundamental year-over-year improvements and negatively affect comparisons to some of our competitors.

  • This is the case again this quarter.

  • All the details can be found in the tables to our earnings release and also posted on our website, but one of the largest affects is that at exit, United switched to the deferred revenue method for our frequent flier accounting from the incremental cost method.

  • United and Air Canada are the only major North American carriers that follow this method, although it has been proposed as the international standard by the IASB.

  • Under the deferred revenue approach, a portion of ticket revenue is deferred recognized when the awarded miles associated with that ticket are redeemed.

  • This approach lowers revenue recognition in the current period, increases seasonality, and is more volatile.

  • Despite this, we believe that applying this accounting treatment is preferable to the alternative methods used by others.

  • This accounting change cost us $107 million in the first quarter versus the previous methodology and was $94 million worse year over year.

  • Both of these numbers include a $28 million benefit from the change to the expiration period for miles from 36 to 18 months.

  • Three other significant changes affected the quarter' revenue performance.

  • First, other revenue was lower due to lower fuel sales to third parties, including lower fuel sales to United Express carriers.

  • Second, other revenue also declined as we exited some low margin third party maintenance work.

  • And third, cargo revenue showed a year over year decline reflecting weaker Pacific freight yield and United ceasing to carry domestic mail as of the end of the second quarter 2006.

  • I would note, however, earlier this month we announced that we had signed a new higher margin long-term contract with the U.S.

  • Post Office to restart carrying domestic mail beginning at the end of this month.

  • The agreement extends through 2011 and is expected to generate 15 to $20 million in revenue this year.

  • Due to the large changes in other revenues, I thought it would be helpful to provide some guidance for this line.

  • We expect to record other revenue of approximately 970 to $980 million for the full year 2007, with revenue in the last three quarters being roughly evenly spread.

  • Included in that guidance is that we expect UAFC revenue to be under $10 million in the second quarter and falling to less than $5 million a quarter thereafter.

  • Adjusted for UAFC and Mileage Plus accounting effects, first quarter mainline RASM increased 1.4% year over year versus the 2.7% decline we reported on a GAAP basis.

  • Consolidated RASM, again, adjusted for UAFC and Mileage Plus increased by 1.0% versus the GAAP number, which was down 2.7%.

  • On the cost side, we had a few unusual items.

  • We had a special non-cash credit to operating expenses of $22 million related to the reduction in the estimated liability related to United's leaseholds at San Francisco and Los Angeles International Airports.

  • We also recorded a non-cash charge to interest expense of $23 million to expense certain debt issuance and financing costs related to the amendment and refinancing of our exit credit facility in February.

  • Additionally, the termination of the associated interest rate swap resulted in a mostly noncash charge to interest expense of $11 million.

  • As a company, we continue to be focused on cost management, as Glenn mentioned.

  • We believe fundamental improvements in how we go about our work will further strengthen our competitive position while resulting in meaningful benefits to customers, investors, and employees.

  • To that end, we have further reduced our G&A head count, increasing the total head count reduction to nearly 1200 from the goal of 1,000 we set for ourselves last year.

  • As Glenn mentioned, we also had other successes in the cost reduction and efficiency improvement area.

  • We remain intensely focused on reducing costs and improving operational execution throughout the organization and remain on track to achieve the additional $265 million of cost savings to fulfill our $400 million cost reduction program.

  • Our cost performance this quarter was strong and is evident both in our operating expenses, which are down 4% this quarter versus the same quarter of 2006 and in mainline CASM which is down 4.3% year over year.

  • Mainline CASM, excluding fuel and special items, decreased 1.5% while mainline CASM excluding these items and also excluding profit sharing programs was down 3.3% from the year ago quarter, coming in better than the guidance that we gave you on the fourth quarter call.

  • CASM performance during the quarter would have been even better if not for the impact of severe weather during February and March, which resulted in over 3500 cancellations and reduced mainline capacity by 0.6 of 1%.

  • We did, however, benefit in the quarter by approximately $30 million in costs, which we expected to incur in the first quarter that will now be incurred in the second quarter and beyond.

  • Let me walk you through some of the line items where we saw significant changes in the quarter.

  • Salaries and related costs were $16 million lower than the first quarter of 2006, lower FAS 123R expense was largely offset by higher accruals for profit sharing programs, maintenance was up $22 million, inflationary increases related to our V2500 engine maintenance contract that accounted for the majority of the increase, although we expect higher maintenance expenses in the third and fourth quarters as we have significantly more aircraft sea checks and heavy maintenance visits scheduled for the back half of the year.

  • Landing fees and other rents were $18 million higher year over year due to rate increases, primarily at O'Hare and Los Angeles.

  • We continue to fight these rent increase, including our recent attempt to levy a $10 surcharge on Los Angeles O&D passengers.

  • We also received a credit of $8 million from O'Hare in the first quarter of 2006, which makes the year over year comparisons look worse than normal.

  • Distribution expenses were better by $13 million, or 7% this quarter, reflecting the savings from new contracts with online travel agencies and renegotiations with major vendors.

  • Other operating expense was $26 million better this quarter, primarily driven by our cost savings initiatives, which resulted in advertising expenses being lower by $19 million.

  • I just mentioned distribution expenses and you may have noticed we made a change to our income statement this quarter that relates strictly to the geography of certain operating expense items.

  • We wanted to provide more transparency around distribution costs.

  • Historically, credit card transaction fees and GDS fees were classified as purchased services while travel agency commissions, including those from online agencies, were included in the commissions line.

  • Starting this quarter, we are consolidating all three of these items into a new distribution line.

  • We have restated prior periods to reflect this change as well.

  • In the fist quarter, the Company entered into and exercised fuel hedges that were classified as economic hedges.

  • We recognized a loss on hedges that settled in the first quarter of $3 million, and we also recognized an unrealized mark to market gain of $24 million for hedges that will settle in the remainder of 2007.

  • All of this was recorded in the fuel line.

  • Including the cost of hedging, average mainline jet fuel price including taxes was $1.89 per gallon for the quarter compared with $1.95 last year.

  • Now I'll turn the call over to John to discuss our revenue.

  • John Tague - EVP, Marketing, Sales, Revenue

  • Thanks, Jake.

  • The fourth and the first quarters of any year are historically United's weakest and our performance typically lags those of our competitors during this period.

  • This year is no exception.

  • Although as you may recall, last year's first quarter revenue results were viewed with some level of disappointment.

  • However, we finished the full year in an industry leading position.

  • Our performance in international markets continues to be quite strong compensating for softer domestic performance.

  • We started the quarter with a very weak January performance, primarily as a result of simply offering too much domestic capacity.

  • Those significant entries by low-cost carriers in key United markets year over year played a role as well.

  • Our system year-over-year unit revenue performance adjusted for Mileage Plus improved in February and in March performed above the industry average.

  • First quarter consolidated PRASM was down by 0.3 of a point while consolidated PRASM adjusted for Mileage Plus increased by 1.9%.

  • Mainline PRASM was unchanged and adjusted for Mileage Plus grew by 2.3%.

  • Our consolidated unadjusted results were driven by a 0.6 of a point increase in load factor, but 1% lower yield.

  • Similarly, our mainline results were driven by a 0.7 of a point increase in load factor for the quarter, with a yield decline also of 0.7 of a point.

  • Adjusted for Mileage Plus, consolidated and mainline yields improved by 1.2% and 1.5%, respectively.

  • Moving to the geographic region discussion, I'll point out that all of the numbers I'm going to discuss here are unadjusted for Mileage Plus, and in fact the impact of Mileage Plus tends to impact certain regions more than others.

  • For example, in the Pacific, we have a very high earn ratio and we don't actually redeem or burn or recognize much redemption revenue in the Pacific, so it gets a disproportionate impact.

  • However, our Atlantic performance was particularly strong during the quarter and Latin markets also turned in robust double digit PRASM growth in the quarter.

  • Pacific PRASM was relatively flat in January and February, but showed sharp growth in March.

  • Unadjusted for Mileage Plus, overall Pacific was up 4%.

  • However, I would remind you that our absolute performance in the Pacific tends to be industry leading.

  • The Atlantic had a 10% increase and Latin America had a 16% increase over the year-ago quarter.

  • Demand and yield growth continue to be strong internationally, and we are particularly encouraged by the strength in the Pacific as we head into the peak summer season.

  • Our year-over-year revenue growth in the Pacific lagged the industry somewhat, primarily as a result of the Mileage Plus adjustments I discussed, and competitors improving relative performance through some key route eliminations.

  • The domestic market continues to be soft, primarily due to yield pressure driven by capacity growth in the industry.

  • For the quarter on a consolidated system level, industry capacity grew at 1.1% while United's consolidated capacity grew modestly at 0.6%.

  • However, in January the industry mainline domestic capacity actually declined by 0.9 of a point while our capacity increased by 2.2%, posing a particular challenge and frankly one of our own making.

  • While we do not report specific results, the affect of incursions at hubs by low-cost carriers can be seen from the unit revenue results of some of those carriers' recent quarterly reports.

  • We have effectively competed with LCCs all over the country and we continue to do so today.

  • Domestic pressures particularly affected regional markets, where absolute PRASM performance showed a year-over-year decline of 4% or a decline of 2% after adjusting for Mileage Plus.

  • These results were driven by yields that were 4% lower than the comparable period, which offset the benefit of slightly higher load factors.

  • Longer stage length and larger aircraft played a contributing role.

  • However, core performance was solid as the segment improved its contribution to the enterprise on a year-over-year basis.

  • We continue to take actions to further optimize our network within a fixed fleet, by deploying our assets where they can earn the greatest return.

  • Recent examples include the launch of our routes from Dulles to Kuwait, Dulles to Beijing, and Dulles to Rome.

  • We are also adding a second daily flight between Frankfurt and San Francisco and in June a new service will be introduced between San Francisco and Taipei.

  • We are pleased with the initial results and outlook for all of these new services.

  • In addition, we redeployed aircraft flying from JFK to Tokyo to our Dulles hub to take full advantage of our strength in that market.

  • We also took action to eliminate underperforming routes, notably Osaka--Chicago, and we recently announced we will eliminate Osaka--Honolulu in the fourth quarter.

  • We are also monitoring the domestic situation.

  • Frankly, we may find it hard to make the case for some of our utilization flying against weakening domestic fundamentals.

  • While we have not completed our assessment, it is certainly possible we will be removing some capacity from our domestic system in the back half of the year.

  • Obviously none of these changes will impact the basic competitiveness of our domestic network and we will of course update you as our work progresses.

  • Domestic fundamentals are certainly being impacted by excess capacity and some slowing of the economy.

  • However, I believe the biggest culprit is undisciplined pricing behavior.

  • Particularly the loss of Saturday night stay restrictions, weakening advanced purchase requirements, and secondary airport LCC pricing polluting primary airport city pairs.

  • Glenn has already spoken of our deep rooted support of open skies and international deregulation; however, I would like to take just a few minutes to address the additional opportunities that open skies affords us by removing current bilateral constraints and providing significant scheduling flexibility.

  • Many of you have wondered whether the likelihood of increased competition at Heathrow offsets any benefit that United might otherwise enjoy from open skies.

  • Well, the answer to that question depends upon a complex set of competitive actions that will only be determined over time.

  • We do see many current benefits from deregulation, as well as the pressure on financial results from increased competition at Heathrow.

  • The existing U.K.

  • bilateral allows us to fly to the United Kingdom from only a specific set of U.S.

  • Gateways, for example, Denver is not an authorized city pair, and it restricts the number of seats we could offer to Heathrow, for instance with the case of Chicago.

  • With open skies, United will be free to operate without restriction, between any point in the U.S.

  • and any point in the EU including additional opportunities in the U.K.

  • and Ireland.

  • One important fact to note is that Heathrow still remains very capacity constrained and new entrants must obtain slots, gates, and in some cases terminal capacity.

  • In our case, we have slots on lease to other carriers that we can recall over time to fund our expansion at Heathrow, or alternatively we can monetize these assets if we think that is the right decision by selling them or leasing them to other carriers.

  • Besides restricting our own flying, the old regime also constrained the expansion of our European partners.

  • We will now have full coach share rights in Europe, allowing us to expand coach share on United's TransAtlantic flights.

  • United has applied to complete its antitrust immunity with BMI, which the U.S.

  • Department of Transportation granted conditionally in 2002, however, that was subject to the achievement of open skies.

  • Immunity would allow the two airlines to integrate our operations at Heathrow more fully.

  • BMI's control of valuable Heathrow slots and gates enables it to unlock value for both itself and its principal partners and we look forwarding to exploring those options with this important star alliance partner.

  • In addition to continuous improvement of our flight network, we are also tackling a very focused effort on optimizing our Mileage Plus asset.

  • The industry has evolved greatly since Mileage Plus was introduced over 25 years ago.

  • Much has changed in the industry over those years and past practices frankly don't align very well with today's current realities.

  • We are re-evaluating all aspects of the Mileage Plus program to ensure that it is not only rewarding for our most important and frequent customers, but to make sure that we also do it in a way that provides full economic sense.

  • We will improve those features of the program that reinforce profitable customer behavior while minimizing over delivery of benefits for low margin activity.

  • We believe that the switch to deferred revenue accounting that Jake discussed in his portion of the call has facilitated more discipline around Mileage Plus issuance and redemption at United.

  • Our decision to move from a 36-month exploration period to an 18-month exploration period per inactive Mileage Plus accounts was driven by our desire to ensure that we are rewarding our most frequent fliers and to encourage members to use everyday earnings opportunities to stay active, like their use of the Mileage Plus Visa card.

  • Look for further economically motivated improvements in Mileage Plus as we continue to drive higher profitability.

  • Product and bundling, a topic we spoke about at our investor day is another area that we believe contains much opportunity for further revenue generation.

  • Unbundling produces new streams while at the same time prioritizing scarce resources for our most important customers.

  • Our first unbundling initiatives focused on upsell revenue.

  • They proved extremely successful.

  • As we began 2007, upsell initiatives have been tracking well in excess of our $100 million goal.

  • Everything we're seeing in the financial results tells us that there is significant additional opportunity to generate new revenue streams from isolating and selling existing products and services to our current customer base.

  • For example, we are studying with interest what other carriers are doing to realize revenue opportunities around seat assignment and baggage, while once again protecting the value for most loyal and profitable customers of the Company.

  • Finally, before I conclude, I want to provide you with a quick update on our view of the revenue environment.

  • Bookings for the remainder of the second quarter are strong, running ahead of last year, both domestically and internationally?

  • Yields are expected to continue to be strong internationally, but under pressure domestically as industry capacity grows and domestic industry revenue slows.

  • While we don't provide specific revenue guidance, I want to be clear we do expect year over year unit revenue growth in the second quarter, albeit not at the pace we enjoyed last year.

  • With that I'll turn it back to you, Jake.

  • Jake Brace - CFO

  • Thanks, John.

  • Let me give you a little additional guidance here.

  • We expect second quarter mainline capacity to be between down 0.5 of 1% to flat.

  • We expect express capacity to grow 7.5 to 8.5%, and we expect that mainline CASM, excluding fuel, last year's severance charge, and special items will be up 1.5 to 2% in the second quarter compared to the second quarter of 2006.

  • Our guidance for the full year is unchanged, although you should note that we have moved to providing CASM guidance from X fuel and X profit sharing basis to providing CASM guidance X fuel, but including profit sharing.

  • Let me emphasize that there's no change to our expectation for expenses on an X fuel, X profit-sharing basis.

  • We are merely changing the vehicle by which we communicate our expectations.

  • Having said all that, we expect mainline capacity for 2007 to be flat to up 1%.

  • We expect mainline CASM in 2007, X fuel will be up 1 to 2%.

  • Given the current domestic demand environment, as John mentioned, we are revisiting our capacity plans to look at what the appropriate capacity level should be for the rest of the year, clearly with an eye towards reducing it.

  • As we have not yet completed the process, we'll provide you updated guidance later this quarter.

  • As of April 23, we had hedged 23% of forecasted fuel consumption for the second quarter of 2007, predominantly through crude oil three-way options with upside protection on a weighted average basis beginning from $59 a barrel and capped at $69 a barrel, payment obligations on a weighted average basis begin if crude drops below $55 a barrel.

  • Now, Danielle, we are ready to open the call to questions.

  • Operator

  • Thank you, sir.

  • (OPERATOR INSTRUCTIONS) Your first question will come from the line of Gary Chase with Lehman Brothers.

  • Please proceed.

  • Gary Chase - Analyst

  • Sorry, good morning guys.

  • Couple quick ones for you.

  • Maybe start off with Jake.

  • On the cost side, how should we be thinking about core inflation?

  • Because when you talk about hitting the objectives you're talking about the 250 to 300 million incrementally here, yet cost growth -- CASM growth for United seems pretty similar to what we hear from other carriers.

  • The $300 million size adjusted is similar to the opportunity they see on an annual basis.

  • Is it really the case that the cost opportunity here is one of limiting CASM growth, or are there opportunities to actually take your CASM down?

  • Jake Brace - CFO

  • The -- we have -- all airlines have cost programs, so I think that's an inevitably in the airline business and it's a top priority no matter what carrier you're talking to.

  • Our cost situation in 2007 is challenged by high growth in maintenance expenses.

  • I think we've given you guidance previously that we expected maintenance expenses to be up 10% year over year and actually we exceeded the guidance that we gave you for maintenance expenses in the first quarter by a little bit, so we continue to be challenged on the maintenance side.

  • As I mentioned in my remarks, we continue to be challenged on the airport rent side with some big increases at certain airports that are pretty important to us, like O'Hare and Los Angeles.

  • So we have some fundamental expenses that are increasing at much faster than the rate of inflation.

  • We do have salaries, which are increasing about 1.5% this year which is less than the rate of inflation.

  • So I think for right now, we're going to stick with our $265 million of additional cost savings this year, that will complete the $400 million program, but we believe that beyond that, there are additional opportunities.

  • I'm not going to predict whether it's going to increase our CASM or hold it flat or any other level for that matter, but it's something that is a constant thing at United is working on our costs.

  • Glenn Tilton - Chairman, President, CEO

  • Hey, Gary, it's Glenn.

  • A couple of points.

  • Jake is absolutely right that every one of our competitors has a similar focus of finding ways to become more efficient and reduce costs.

  • Clearly for us, this is not something that we have historically excelled at and so for us, perhaps there is more opportunity for us to become more efficient, more productive on a relative basis, and more focused on continuous improvement than we have in times past.

  • We are certainly not without opportunity that goes beyond what we have identified for you, as Jake said a moment ago.

  • We'll leave it to Jake, when we get to the point of probity and we can present a case, we'll be sharing it with you.

  • But just to give you a sense of the types of things that we are doing I'd like Pete to at least take two or three minutes and talk about initiatives under way and strategic sourcing to give you just an illustrative example of continuous improvement.

  • Pete McDonald - COO, EVP

  • Sure, thanks, Glenn.

  • We have launched a fairly significant project to transform and build long-term capability within strategic sourcing.

  • Obviously, we have a lot of our expense outsourced and we have put together teams focused on catering our air frame maintenance expense, communications expense, and United Express ground handling.

  • We put some of our best talent in the Company, joined by some experts from outside to not just reduce the expense, but also sustainable, long-term capability so that on an ongoing basis, we have better market knowledge, we have better RFP process, and we have the right talent in the organization to continue to obtain the very, very best prices in these areas.

  • It's an example of the continuous improvement effort.

  • Gary Chase - Analyst

  • Just switching to the revenue side quickly, I assume the upsell revenue is in the passenger line.

  • I was curious if you could give us a little bit more color on how the frequent flier change -- I know, John, you said Pacific was disproportionately impacted, but if you could give us a little bit more color on what happened in the specific entities, so we can look at how your revenue performance is really stacking up separate from the mix of flying you happen to do versus peers.

  • John Tague - EVP, Marketing, Sales, Revenue

  • I would say the Pacific is the only sort of noteworthy outlier from a general extrapolation of the accounting.

  • I don't think it produces significant anti variability.

  • As you know, we underperformed in the domestic, clearly, in the first quarter and severely so in January.

  • I think some of that unique pressure is going to continue.

  • We've got a lot of LCC penetration in some key markets, but however we see very strong and very competitive performance internationally.

  • So I don't think that more color on Mileage Plus would particularly provide you with much help there, Gary.

  • Gary Chase - Analyst

  • Okay, thanks.

  • Glenn Tilton - Chairman, President, CEO

  • Thanks, Gary.

  • Operator

  • Your next question comes from the line of Michael Linenberg with Merrill Lynch.

  • Unidentified Participant - Analyst

  • Good morning, gentlemen.

  • This is Lilly standing in for Michael.

  • My first question is in regards to your domestic RASM weakness.

  • Could you share with us which region in the U.S.

  • was particularly bad, especially with reference to your hubs in Denver and Chicago?

  • John Tague - EVP, Marketing, Sales, Revenue

  • This is John here.

  • So I would say, clearly, as you've seen from some of our principal competitors in Denver, Denver was uniquely punished on a year-over-year basis and that really comes from a platform of, frankly, having turned Denver around and it being one of our best contributing hubs 12 months ago.

  • So clearly we're under pressure in Denver and we expect that to continue.

  • I wouldn't say that anywhere else was an outlier of significance besides that.

  • Unidentified Participant - Analyst

  • Great, thanks.

  • Maybe early stats on Virgin America starting up an FFO this summer?

  • John Tague - EVP, Marketing, Sales, Revenue

  • It's unclear to me as to when they'll start up at this point in time, but again, this is sort of a -- the annual event.

  • We're going to see more LCC competition, we expect to see it, we're sure that they'll be a valid competitor and we'll take them on as we do everybody else.

  • Glenn Tilton - Chairman, President, CEO

  • It triangulates back to the point that we're going to continue to focus on efficiency and productivity so we can be ready for it.

  • Unidentified Participant - Analyst

  • Great.

  • Thanks very much.

  • John Tague - EVP, Marketing, Sales, Revenue

  • Thanks, Lilly.

  • Operator

  • Your next question comes from the line of Robert Barry with Goldman Sachs.

  • Please proceed.

  • Robert Barry - Analyst

  • Hi, guys.

  • Good morning.

  • Glenn Tilton - Chairman, President, CEO

  • Good morning.

  • Robert Barry - Analyst

  • Could you tell us what some of these regions were PRASM growth on an adjusted basis?

  • Or at least North America, where pressure seemed to be the greatest?

  • John Tague - EVP, Marketing, Sales, Revenue

  • As I think I mentioned to Gary, we're not in a position to disclose the regional impact of Mileage Plus.

  • However, as I discussed, there is some regional variability.

  • I would say the most significant variability off of the system number really occurs in the Pacific, where we have very, very high earnings levels, but relatively few redemption customers.

  • And I think as Jake mentioned earlier, we're going to have a lot of seasonal variation here because of different earn and redemption behaviors from period to period.

  • Robert Barry - Analyst

  • So is the flip side of that, it's least impactful in North America?

  • John Tague - EVP, Marketing, Sales, Revenue

  • No--.

  • Robert Barry - Analyst

  • Most significant in the Pacific, where is it least significant?

  • John Tague - EVP, Marketing, Sales, Revenue

  • What I'm saying, is if you look at the system impact, the area that I would say most deviates from the system impact is in the Pacific, and the remainder of the entities don't tend to have deviations of note.

  • Robert Barry - Analyst

  • Okay.

  • On the cash flow, you did about -- just over $600 million in the quarter and it's a seasonally weak quarter, so that seems pretty good.

  • I guess it's fair not to assume that that's kind of a quarterly run rate, but can you give us some color on how to think about cash flow for the remainder of the year?

  • Jake Brace - CFO

  • Yes.

  • I was careful not to say that the first quarter was a seasonally weak quarter for cash flow.

  • It's actually a pretty decent quarter for cash flow because you have a big build up in ticket sales, and so your ATL builds up pretty well during the first quarter.

  • It's a seasonally weak quarter for earnings and we obviously talked about that already.

  • Last year we had $1.6 billion in cash flow and you can see what our first quarter there was.

  • We were 626 this year, up about 40% and I would expect to see something like the same pattern throughout the year, is what I'm looking forward to.

  • The one thing that you might notice is we did spend less than our plan in the first quarter on capital spending.

  • We are going to catch up, we think, in the second and third quarters, so that's not a part of operating cash flow, but you might want to note that for cash flow purposes.

  • Glenn Tilton - Chairman, President, CEO

  • Robert, thanks for that question.

  • Robert Barry - Analyst

  • Yes, no problem.

  • Finally, I just wanted to clarify, when you mentioned the aircraft replacement, the first would be the 73s, and you are going to need them to do those for eight to ten years, does that mean generally speaking you don't see any aircraft replacement needs for at least eight to ten areas?

  • Jake Brace - CFO

  • We don't have to -- this is Jake.

  • We don't have to replace them for eight to ten years.

  • I think there could be a case to be made to place an order sometime in the next few years.

  • We aren't engaged in any discussions with anyone about that, but we could want to place an order for some wide body in the next few years.

  • We really do want a new narrow body.

  • We don't want to replace the 737s with what is really very old technology.

  • We'd like to replace it with new technology, which is why we talk about the time frame that Glenn did.

  • The other thing is, as we look at our fleet and we look at the domestic environment out there, as John was talking about, we do have some 737s coming off lease later this year and we're going to have to stare hard at them and say whether it makes sense to actually renew them.

  • Robert Barry - Analyst

  • Okay.

  • Thank you.

  • Glenn Tilton - Chairman, President, CEO

  • Thanks, Robert.

  • Operator

  • Your next question comes from the line of Jamie Baker with JPMorgan.

  • Please proceed.

  • Jamie Baker - Analyst

  • Yes, good morning, everybody.

  • Glenn Tilton - Chairman, President, CEO

  • Jamie, how are you?

  • Robert Barry - Analyst

  • Doing well, thanks.

  • John, what's the frequent flier impact in the second quarter?

  • I'm just trying to determine whether your guidance for positive RASM takes into account the accounting change?

  • Jake Brace - CFO

  • This is Jake, Jamie.

  • Jamie Baker - Analyst

  • Hi, Jake.

  • Jake Brace - CFO

  • We don't -- we haven't given any guidance for the second quarter, but what I would note to you is that the second quarter is fully annualized from the change in accounting, so in the first quarter we had only two months of the similar accounting.

  • And as I mentioned, the announced change to the expiration period of miles from 36 months to 18 months has a positive affect.

  • It has a positive effect of $28 million in the first quarter, it has a larger positive effect in the second quarter and that should allow us to be flat to positive in terms of the effect of the new accounting in the second quarter.

  • So John's discussion of RASM increases included our expectations for that.

  • Jamie Baker - Analyst

  • Is that to suggest then that if these changes were not taking place, and you were on the old revenue accounting that you would not experience positive RASM?

  • Jake Brace - CFO

  • No, it's not that big a mover.

  • Jamie Baker - Analyst

  • Okay.

  • Secondly, as I recall, it was February of 2001 that domestic demand really hit the wall, but international hung on for really another five or six months.

  • What's going to be different this time?

  • What's changed globally that we should not assume that this domestic weakness spills over to the international after some undetermined amount of time?

  • Jake Brace - CFO

  • I would not characterize that we have weak traffic demand in the U.S.

  • We have too much capacity and I think even more importantly, we have some foolish behavior, so I -- we're not seeing a major correction in the underlying demand.

  • We're seeing a lack of discipline in how it's managed and frankly we were a contributor to the overcapacity problem in the first quarter and we're going to correct that.

  • Glenn Tilton - Chairman, President, CEO

  • I think that the extrapolation, Jamie, would be ill advised.

  • Jamie Baker - Analyst

  • Okay.

  • Duly noted.

  • Thanks a lot, everyone.

  • Glenn Tilton - Chairman, President, CEO

  • You bet.

  • Operator

  • Your next question comes from the line of [Frank Borrick] Bear Stearns.

  • Frank Borrick - Analyst

  • Good morning.

  • I just wanted a quick question on cash flow.

  • Given the strong generation and the lack of aircraft coming in right now, any thoughts on returning some of that excess cash flow to shareholders or, I guess what options are on the table and any covenant restrictions from returning some of that to shareholders?

  • Thanks.

  • Jake Brace - CFO

  • This is Jake.

  • We think about that very frequently--.

  • Glenn Tilton - Chairman, President, CEO

  • Very frequently.

  • Jake Brace - CFO

  • Very frequently.

  • We have discussions on it frequently.

  • We currently do have a restriction in our bank facility that would prohibit anything meaningful in that regard.

  • We are going to watch the cash balance, as I mentioned.

  • We had a good strong cash flow in the fist quarter.

  • So far, we're seeing good cash flows in the second quarter.

  • You're right, we have very limited amount of capital spending that we have to do.

  • We don't have any large debt maturities, we don't have any pension funding requirements so we're hopeful that our cash balance will continue to build and then toward the end of the year, thinking late in the third quarter or in the fourth quarter, we will look at the situation then and decide how to deploy our cash balance and one of our priorities is to do something that is shareholder friendly.

  • We would have to go back to the bags for that, but it's not in my judgment something where they are opposed to it.

  • I think they just want to talk to us about it before we do it.

  • Frank Borrick - Analyst

  • One follow-up.

  • Are you seeing any striking differences in between the leisure and business side of demand over the quarter and looking forward?

  • John Tague - EVP, Marketing, Sales, Revenue

  • This is John.

  • That situation is frankly a little bit blurred by some of the distraction around segmentation of pricing structure.

  • Frankly, we've given the business market the opportunity to purchase leisure fares through the absence of Saturday night restrictions and the weakening of advance purchases and they are fully taking advantage of it.

  • When I look at the Corporate portfolio and the demand there, I don't really see any smoking guns in terms of corporate demand.

  • I think they're changing purchasing behavior to take full advantage of the opportunity the industry has given them.

  • Glenn Tilton - Chairman, President, CEO

  • So again, we'd caution against any extrapolation in terms of corporations cutting back on business travel.

  • We certainly don't see that.

  • And we don't see any linkage to a softening economy, either.

  • Frank Borrick - Analyst

  • Okay, great.

  • Thank you.

  • Glenn Tilton - Chairman, President, CEO

  • You bet.

  • Operator

  • Your next question comes from the line of William Greene with Morgan Stanley.

  • Please proceed.

  • William Greene - Analyst

  • Hi.

  • Jake, did I understand you correctly to say you accrued profit sharing in the quarter?

  • Jake Brace - CFO

  • I didn't make any statement regarding profit sharing, but if you look in our Reg G reconciliations, you'll see that we did make an accrual.

  • William Greene - Analyst

  • I'm sorry, what are the mechanics such that, because there was a loss, so I would have assumed there wouldn't have been, but how does it work, exactly?

  • Jake Brace - CFO

  • Well, I would caution you to be very careful when you paw through our Reg G reconciliations to try to extrapolate from that to our own internal profit expectations, but the -- because there's some noise in that data and so just beware, as it were.

  • But I will tell you, we look at our profit expectations for the year and our expectations for making our objectives on our other program, what we call success sharing, and we factor that in and we accrue it throughout the year based on what our current expectations are, but the success sharing is not strictly profit driven.

  • It has components related to customer satisfaction and to on-time performance.

  • So again, I'd caution you to try to extrapolate that for any profit purposes, but the numbers are there in our reconciliations for you to look at.

  • William Greene - Analyst

  • Okay.

  • Then what's the spot fuel price assumption for the second quarter?

  • Jake Brace - CFO

  • The spot assumption is 2.11.

  • William Greene - Analyst

  • Last question on revenue, John, did I understand you to say that the upsell that you're getting in some of these markets is a material level or -- because I'm just wondering as you see low cost carrier competition invade some of the markets where they haven't been before, can you offset that upsell, or is it just the magnitude is far too great on the fare side?

  • John Tague - EVP, Marketing, Sales, Revenue

  • Well, I think that the is upsell opportunity, we established $100 million goal for economy plus this year, we're performing ahead of that and we fully envision that we'll establish a significantly higher goal for next year.

  • I think what it shows us is, through -- unbundling, there's a strategic opportunity going forward to realize more revenue out of the current passenger base and to frankly unlock ourself from this trap that the only way to grow revenue is to take a passenger away from a competitor and then have them bid them back to their airline three months from now.

  • If we're going to get true revenue profitable growth in the business, we've got to find ways to offer valuable products and services to our existing customer base, and we think economy plus is evidence of that potential.

  • William Greene - Analyst

  • Okay, but at this point we've not yet reached a level where we're fully offsetting the fare degradation, that's still to come?

  • John Tague - EVP, Marketing, Sales, Revenue

  • Well, as you know, any place we compete with an LCC, we generate a premium through a variety of means and upsell is just one of those.

  • William Greene - Analyst

  • Okay, thanks for your help.

  • Operator

  • Your next question will come from the line of Bill Mastoris with Bank of New York Capital.

  • Please proceed.

  • Bill Mastoris - Analyst

  • Thank you.

  • In the past you've been one of the largest proponents of consolidation.

  • Some of your competitors have indicated that they don't expect any consolidation to the next downturn.

  • Could you update us on any of your views, your current views on consolidation, and when it may take place or would you agree with some of your competitors that we do have to wait for the next downturn?

  • Glenn Tilton - Chairman, President, CEO

  • Well, it's difficult to be prescient and predict whether or not there's going to be the initiative taken by Boards of Directors and Chief Executive Officers to recognize that this is in fact a strategic decision to be made.

  • Other than a defensive or an opportunistic decision to be made.

  • It frankly is a little puzzling to me for somebody to think about it in a passive context, as if you have nothing to do with it since you in fact are what is the Chief Executive Officer of the Chairman of the Board and the discussion is yours to have.

  • I think it's strategic.

  • I continue to think that the industry is going to continue to have discussions, such as the discussions we're having this morning relative to punishing capacity issues in the industry that are nonvalue contributing.

  • I think that consolidation is a strategic imperative for the industry and I've been very dispositive about that.

  • So that being my view for me to be able to effect it, I need somebody else to agree with me and to step up to realize the opportunity should the opportunity present itself.

  • I think over time that will happen, because I think that nothing has changed to make it strategically appropriate for the industry.

  • Bill Mastoris - Analyst

  • Okay.

  • My follow-up has to do with, Jake, the $265 million in additional cost that we can expect are going to be wrung out of the system.

  • What cost categories might we look to and is that affected at all by the recent pilot vote as far as scheduling flexibility that is there unwillingness to provide any type of additional scheduling flexibility?

  • Maybe you could just address that?

  • Jake Brace - CFO

  • Let me start and let Pete chime in here, because he touched on some of it earlier.

  • But the categories that we look at are G&A, purchased services, our other expenses we've saved money in advertising and marketing, and then a variety of operational improvements, so if you look at purchased services, the salary line.

  • As it relates to the tentative agreement that did not get approved, that was something that wouldn't have affected our costs one way or another.

  • We had structured an agreement with our pilots that was neutral from a cost standpoint.

  • It provided us some scheduling flexibilities, provided them some things that they wanted that cost us a little money, but net it was all neutral to us, so that wouldn't have driven that line at all.

  • That's what we're thinking about.

  • Pete?

  • Pete McDonald - COO, EVP

  • Well, I'd just reiterate, you've mentioned some of the categories we're currently executing on to reduce cost.

  • I mean, our operational efficiency, which is our new flight planning system is a another one that is reducing both navigation fees and fuel cost, but these other categories that we just launched into, which is catering, our air frame spend, our communication spend, and United Express ground spending are areas we just started and we expect those are going to produce some results for us too.

  • John Tague - EVP, Marketing, Sales, Revenue

  • This is John, the only thing I might add is, we've accomplished a lot on the distribution side and the marketing side, but we have very step change aggressive, multi year objectives to get cost of sales down at United.

  • Bill Mastoris - Analyst

  • Thank you.

  • Glenn Tilton - Chairman, President, CEO

  • Thanks, Bill.

  • Operator

  • Your next question comes from the line of Mark Streeter with JPMorgan.

  • Mark Streeter - Analyst

  • Jake and Glenn as well, I guess I'm a little bit surprised at the talk about returning capital to shareholders given the fact that you're still a single B credit and if you look at the last cycle, certainly when demand started to turn down, there was a lot of share repurchase activity and so forth and that really led to some of the financial distress that the industry suffered.

  • Can you talk a little bit about where you stand with the balance sheet now?

  • I would think you would be still focused on repaying debt further, paying down the exit facility further, perhaps, paying off some of your aircraft debt rather than returning capital to shareholders given where the balance sheet is today?

  • Glenn Tilton - Chairman, President, CEO

  • Hey, Mark, I think that Jake was being responsive to a specific question on whether or not it's on our radar screen and he appropriately responded that indeed it is and we discussed both on a concurrent basis.

  • Clearly, we're focused on the quality of our credit.

  • We're focused on our balance sheet in a primary context.

  • There's no question, Mark, that that comes first.

  • I think the action that we took last year that Jake mentioned in his opening remark here speaks to that resolve by the Company.

  • We view our cash generation, our free cash flow, our ability to construct a balance sheet that is resilient in the face of perhaps a change in the global economy as our first priority.

  • But that having been said, it would be inappropriate for us to say that we don't couple with that a discussion of shareholder value.

  • Jake Brace - CFO

  • Yes, Mark, the discussion -- obviously, we reduced our debt by $1.4 billion in the first quarter, we are a single B credit, that remains our first priority, but we do have obligations to shareholders as well.

  • Don't get me wrong, we're not going to turn all our cash flow and start buying back stock or something like that, but we do have an obligation, we believe, to benefit both the shareholders and the debtors, but our primary focus, as I have said for ever since we got out of bankruptcy is to improve the balance sheet.

  • Mark Streeter - Analyst

  • So we should expect you to -- when we look at your excess cash flow above and beyond your scheduled debt maturities, we should still assume that you will be more aggressively, as you have been this past quarter and this past year, looking for opportunities to further reduce leverage beyond what's contractual?

  • Jake Brace - CFO

  • We are doing that as we speak.

  • So we are looking for opportunities and they are out there to both reduce our debt levels and to reduce our debt cost through refinancing.

  • Mark Streeter - Analyst

  • Okay.

  • Thank you for the clarity.

  • I appreciate it.

  • Jake Brace - CFO

  • Thanks for the question.

  • Operator

  • Your next question will come from the lain of Ray Neidl with Calyon Securities.

  • Please proceed.

  • Ray Neidl - Analyst

  • Two really quick ones here.

  • John, one regarding the cutback in domestic ASMs in the second half of the year.

  • Will that be pretty much replaced by new regional flying?

  • John Tague - EVP, Marketing, Sales, Revenue

  • I think that will be part of the analysis.

  • It's certainly one of the options we have.

  • Our goal is so to -- when we evaluate these things, is to in effect reduce the capacity spend, but maintain the integrity of the network from a schedule and a breadth perspective.

  • That's one of the tools that may be out there.

  • Ray Neidl - Analyst

  • Okay, great.

  • In the regional sector, I know there's been some problems with the Mesa contract in Chicago.

  • When there's bad weather, Mesa was complaining most of their flights are canceled and they are penalized for that.

  • Are you renegotiating that contract or the way that you handle the Mesa situation?

  • Pete McDonald - COO, EVP

  • Ray, this is Pete McDonald.

  • We're working very closely with Jonathan Ornstein and Mesa on the contract, but we just had the FAA in headquarters last week about how, what we refer to as tier 1 ground stops disproportionately affect our express carriers in the short haul markets when we get these thunderstorms and bad weather and we have expressed ways that we maybe spread the pain or not impact disproportionately our express partners and we think there's opportunities there and our partners, ourselves, and the FAA are very focused on improving the way O'Hare handles these situations and I'm confident we're going to be able to make it better.

  • Ray Neidl - Analyst

  • Finally, Jake, I just wanted to clarify something.

  • The cost of sales to third parties is down substantially, is that the dropping of the maintenance contracts that were low margin?

  • Jake Brace - CFO

  • No.

  • The biggest move there was the cost of sales related to fuel sales, mainly to express carriers.

  • I think that was the down something like $80 million.

  • The maintenance was a much smaller number than that.

  • I think it was like $18 million.

  • Ray Neidl - Analyst

  • Great.

  • Thanks a lot.

  • Glenn Tilton - Chairman, President, CEO

  • Thank you, Ray.

  • Operator

  • Ladies and gentlemen, thank you.

  • This concludes the analyst and investor portion of our call today.

  • Before we take questions from the media I would like to turn the call back to Mr.

  • Tilton for closing comments.

  • Glenn Tilton - Chairman, President, CEO

  • Thanks very much, operator, I appreciate it.

  • On behalf of the team here, we appreciate the questions, they are appropriate for all that we're trying to do.

  • They really go to the heart of what we're trying to do here at United.

  • From my vantage point, from the Chief Executive Officer's perspective, one of the things that I hope that you notice is a consistency in what it is that we're focused on at United.

  • We continue to believe that there is tremendous improvement organically within the Company to become a better company and a more successful competitor.

  • That work is our work.

  • When we misstep, as we did in January, we will tell you unequivocally that we did.

  • It is our responsibility, but we'll also tell you that the good things that we're doing that speak to the discretion that we have with respect to our cash flow is something for which we are also accountable and responsible and we'll take credit for that as well.

  • We like the flexibility that we have at the Company, we like the choices we have at the Company, certainly confident in the team that we have assembled at the Company and we're very pleased with the quality of the work that our employees are doing to cross the full spectrum of the opportunity.

  • Thanks for your questions, thanks for the discussion, and with that, we'll terminate the call.

  • We'll turn it over to the media, I'm sorry.

  • Thank you, operator.