聯合航空 (UAL) 2008 Q4 法說會逐字稿

Good morning and welcome to UAL Corporation earnings conference call for the fourth quarter of 2008.

My name is Melissa, I'll be your conference facilitator today.

Following the prepared remarks from UALs management, we'll open the line for questions from analysts.

At the end of the analysts' Q&A at approximately 12 eastern time we'll take questions from the media.

(Operator Instructions) This call is being recorded and is copywrited.

Please note that it could not 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.

At this time, I would now like to turn the presentation over to your host for today's call, John (Gebo).

Please go ahead sir.

Thank you, Melissa.

Welcome to UAL's fourth quarter earnings conference call.

The earnings announcement was released earlier this morning, and is available on our web site at www.united.com/IR.

Let me point out that information in the press release and the remarks made during this conference call may contain forward-looking statements which represent the company's expectations or beliefs concerning future event 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.

Also 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 the tables at the end of our earnings release.

Unless otherwise noted, as we walk you through our numbers for the quarter, we will be excluding certain charges and the fuel edge non-cash net mark-to-market losses that will be discussed later in the call.

These items are detailed in the table in note five on page 16 at the end of our earnings release.

And now I'd like to turn the call over to Glenn Tilton, UAL's Chairman, President and CEO.

Thank you John and good morning and welcome to everyone on the call.

Joining me today in addition to John and participating on the call are Katherine Mikells our Chief Financial Officer and John Tague, our Chief Operating Officer.

Pete McDonald our Chief Administrative Officer is also with us, and Pete's available for questions.

This morning, we reported a fourth quarter pre-tax loss of $547 million and a full-year loss of $1 .7 billion excluding the charges that John just mentioned.

2008 was, by any measure a challenging year for United, defined by unprecedented volatility and unpredictability.

The year began with dramatic oil prices escalation and volatility that had little to do with physical supply and demand.

By July, oil was at $147, and Goldman Sachs predicted $200 a barrel by year end.

The second half of the year was characterized by the previously unimaginable failure of companies and financial institutions with whom everyone on the call is familiar.

As the potential economic consequences of massive business failures became evident, government intervened on a scale previously also unimaginable.

Today crude oil is not $147 a barrel, nor is it $200 a barrel, but rather 40 some odd dollars a barrel.

And yet we are nevertheless in a financial crisis of a different making, with ramifications across virtually every aspect of business and the economy.

So 2008 was indeed a very tough year, but for United, it was also characterized by steady and durable and sustainable improvement.

Our management team made timely decisions that resulted in fundamental improvement across our business, which will hold us in very good stead in 2009 and beyond.

Our commitment to safety first holds true regardless of any external pressure, and we focused on improvement.

We had difficult operating conditions, particularly in December, and we were vigilant about running a safe operation.

Our crews dealt admirably with these circumstances, and we had no flight safety incidents.

Aircraft damage was lower than last year, and we continue to focus on ways to mitigate aircraft damage and continue to reduce employee injury.

As the price of oil sky rocketed, we led the industry with a substantial capacity response to a new demand reality with the elimination of our entire 737 fleet, while making sure we maintained the breadth and the relevance of our network.

We were well out in front of the downturn in international demand, as the first carrier to announce international capacity reduction, along with the removal of six Boeing 747s from our fleet.

Our unit revenue for the quarter and for the year was solid, with a 4.7% increase year over year for the fourth quarter, excluding the impact of mileage plus accounting.

We led the industry toward unbundling and ancillary revenue growth, with our January announcement of second-bag charges and our new product launches throughout the year.

Unbundling works.

The revenue generated from these products and services is now a proven and meaningful contributor to United's bottom line.

Our philosophy in this regard is simple: Know what products and services our customers value and are willing to pay for.

As John will discuss in a moment, we developed several new and innovative products last year; and when we give our customers the option, as we have with economy plus, they're deciding to buy it.

In 2009 we expect to generate in the area of $1.2 billion from fees and ancillary revenue, up about $300 million from this year -- from last year.

We have consistently said we focus on the dual components of profit margin, and you have come to expect us to drive competitive revenue results.

These are now coupled with solid, sustainable, non-fuel cost performance.

We've made significant improvement in our non-fuel-cost performance, with considerable reduction in overhead cost, and our full-year non-fuel cost was up only 1.5%, despite a 4% drop in capacity.

In the fourth quarter, the mainline non-fuel unit cost increased by only 1 .6%.

Despite a capacity reduction of nearly 12%.

As I mentioned a moment ago, we have dramatically reduced our overhead costs, focusing on eliminating non-value added work and process improvement, which allowed us to stream-line the organization.

This enabled a reduction of salaried in management staff by some 1,000 positions in addition to the 1,500 previously announced.

This will bring our full salaried and management reductions to almost 30% of the 9,000 salaried and management workforce we had in 2007.

As we have improved our costs, we have not lost sight of our customers and the fact that we are in a service industry.

We have targeted for improvement elements of our business that have a highest impact on our performance and ability to provide the level of service our customers should expect.

This focus is delivering results and is gathering momentum.

For on-time arrivals and completion, we move from last in the industry at mid-year to second in the fourth quarter.

At the same time, we saw our customer satisfaction ratings improve by more than 30%.

We continue to successfully raise liquidity.

Despite what we all know to be the toughest credit market in decades.

During the fourth quarter, which is seasonably a weak quarter for United and traditionally one in which cash-flow is challenging, we raised nearly $400 million on top of the liquidity raised in prior quarters.

The combined effect of high fuel prices in the first half of the year and hedge contracts in the second drove a $2.9 billion increase in expense compared to 2007 fuel prices.

In essence, we took out an insurance policy that proved to be very expensive indeed, in the short term in which masked the improvements in other areas of our business.

In December, we hosted our partners in the Star Alliance, at a meeting here in Chicago.

The discussions focused on the difficulties and the opportunities of the current operating environment and what we might do as an alliance to better serve our customers and strengthen our business.

This alliance has a competitive advantage today that was unforeseen when it was formed some 12 years ago.

Continental will make a significant contribution to the Star Alliance when they complete their plans to join.

In addition, United continues to work with Continental for leverage revenue opportunities, build on our announced code sharing plans and cooperate to reduce costs and provide customer benefits.

In fact, I'm headed to Houston tomorrow to meet with Larry and our project teams for our regular progress review.

For our employees, ensuring the viability and the competitiveness of this company is the number-one priority.

Despite enormous weather challenges, our front-line employees have performed at a very high level.

In December, nearly half the month had irregular operation conditions ranging from fog to snowstorms.

That said, we delivered an arrival 14 percentage of 79.2%, an improvement year-over-year and our best on-time performance in the fourth quarter since 2004.

Better performance and generally worse operating conditions demonstrate that the fundamentals of our operations are, indeed, improving.

Within this tough economic environment, we have looked for ways to lessen the impact of difficult business decisions on our employees.

We've been working cooperatively with our unions, including the Association of Flight Attendants, the Teamsters and the International Association of Machinist, and we have found creative and fiscally responsible ways to minimize and in some cases, fully avoid, involuntary furloughs.

And of course, we're looking forward to continuing such discussions as we commence section six negotiations with our various unions in April.

To fully leverage the opportunity we have at United, we continue to strengthen our management team.

Both from within and outside the company.

One target area for improvement has been maintenance, where we had underperformed for some time.

Today, we are already seeing encouraging improvements.

I'm very pleased with our management team, and their creative and expansive solutions to managing the volatility and unpredictability that we faced in 2008.

We are aligned, and we are focused on our goals, and we're confident in our ability to continue to improve and meet our goals, in what is certain to be a very challenging 2009.

With that, I'm pleased to hand off to Katherine Mikells.

Katherine has done a first-class job in taking on her new role as our Chief Financial Officer, and Kathy will take us through the numbers in detail.

Kathy, over to you.

Thanks, Glenn, and good morning, everyone.

We've made significant progress during the quarter, managing for the current environment .

We're successfully executing on large-capacity reductions, aggressively controlling our costs, and adjusting our fuel hedge portfolio.

All actions that well position us for the challenges ahead.

Our results for the quarter were impacted by losses on fuel hedge contracts put in place to offset the rapid rise in fuel prices we saw through last summer, effectively masking the headway we've made elsewhere in our financial performance.

Similar to the third quarter, our GAAP loss was widened by non-cash fuel-hedging impacts, as well as the accounting charges associated with our fleet reductions.

Excluding these items, we reported a pre-tax loss of $547 million, or $4.22 per share, beating the consensus loss per share estimate of $4.42.

Our revenue results for the quarter were solid.

We exceeded the top end of our guidance for unit revenue growth by almost a percentage point with both main-line and consolidated PRASM increasing roughly 4.5% year-over-year.

The nearly 11% reduction in consolidated capacity we implemented in the quarter was the right action at the right time.

It enabled us to deliver positive unit revenue growth despite about a 9% decline in consolidated passenger revenue as the effects of the recession started to take a bigger toll on our industry.

You'll recall that in the fourth quarter of 2007, the policy change we made to shorten up the expiration period for frequent flyer miles resulted in a onetime, non-cash revenue increase of about $120 million.

This one time item lowered our GAAP passenger unit revenue growth for the quarter by about 2.5 percentage points to roughly 2%.

Cargo and other revenue for the quarter was $382 million, down about 18% from a year ago.

The largest contributor to the decline was cargo revenue, reflecting recessionary demand trends as well as the elimination of over 20% of our freight capacity, as we pull down some of our international wide-body flying in response to weakening international travel demands.

Turning now to the cost side, fuel hedge losses are having a negative impact on our cost, but that impact is clearly short-term.

From a cash-flow perspective, the posting of fuel hedge collateral in the third and fourth quarter has effectively paid for the underwater positions in our entire hedge portfolio.

So, as we look forward into 2009, lower fuel prices are a very positive catalyst for improved cash flow.

We took action during the quarter to mitigate the negative impact of the price drop on fuel hedges, by purchasing put contracts to cap the losses on much of our portfolio.

Our purchase-put paid more than $50 million in the quarter, and helped to dampen the loss we incurred as our contract settled.

In total, we recorded $370 million in cash losses on fuel hedge contracts that settled in the quarter, with $142 million booked to the fuel line and $228 million booked in non-operating expenses.

Details on our oddest period, non-cash net mark-to-market loss is included in our press release.

Including the cash impact from settled contracts, average main-line jet fuel price for the quarter was $2.82 per gallon, up from $2.54 a year ago.

Our unhedged fuel price for the quarter was $2.53 a gallon, which is about $0.59 above average stock prices during the quarter .

This is simply due to a timing difference, as United fuel purchasing arrangements typically have about a one-month delay before changes in market price hit our fuel expense.

Of course, this phenomena washes out over time, but in a quarter with big price swings, the variance is a little bit more pronounced.

The team made very good progress, improving our non-fuel-cost performance in 2008.

Hard work across the company has enabled us to limit our non-fuel unit cost growth.

For the quarter, we essentially hit our guidance, with non-fuel main-line CASM up 1.6% for the quarter compared to last year.

This despite a capacity reduction of nearly 12%.

We ended the full year with main-line, non-fuel CASM up only 1.5% year-over-year.

This was at the low end of the guidance we provided to you last January, despite a full-year drop in capacity of over 4%, which was not anticipated at that time.

As John will cover in a few minutes, we're delivering improved reliability and product quality at the same time as we're improving our cost performance.

Now, I'll walk you through some of the line items where we saw significant year-over-year changes this quarter that impacted our adjusted non-fuel unit cost.

Salaries decreased $110 million as a result of eliminating more than 1,500 management positions in 2008 as well as our commitment to maintain front-line productivity as we reduced capacity significantly.

Aircraft maintenance and materials and outside repairs decreased $78 million or about 25%, as the work we've been doing all year to improve our maintenance costs continue to bear fruit.

We also saw lower engine and air-frame volumes in the quarter compared to last year in part due to the significant retirement of a program that's underway.

Distribution expenses decreased $31 million or 17%, significantly more than the corresponding reduction in passenger revenue, as we continued our successful pattern of targeting high-cost channels for cost reduction, particularly in the area of commissions.

Purchase services and other operating expenses decreased $38 million each, as we worked hard to reduce costs in line with capacity.

Excluding the below the line fuel hedge losses I mentioned earlier, our non-operating expense was $143 million for the quarter, $109 million higher than a year ago and $13 million above the high end of our guidance.

There were three major items that drove this difference.

First, last year we recorded a one time, $41 million gain, on the sale of our air ink interest, which reduced our 2007 non-operating expense.

Second, while our interest expense improved by $24 million, on lower debt levels and lower interest rates, our interest incomes declined by $54 million, again on lower rates as well as lower cash balances.

Third, the rapid weakening of the dollar in December, caused us to record higher foreign exchange losses, about $30 million higher than last year, and about $15 million higher than we expected.

We continued our steady stream of successful liquidity initiatives in the fourth quarter, in what remains a very difficult credit market, we raised nearly $400 million.

$215 million from two aircraft financings, $66 million from asset sales, and $107 million through the equity offering we announced in December.

We also successfully executed an amendment to our Chase credit card processing agreement, that allows us to substitute aircraft collateral in place of incremental cash hold-backs.

We generated negative operating cash flow of $980 million in the fourth quarter, which includes $586 million of net incremental collateral that was posted with our hedge counter parties.

Free cash flow, which we define as operating cash flow less capital expenditures came in at negative $1.1 billion this quarter.

During 2008, we reduced on and off balance sheet debt by about $400 million.

Ending the year with total debt of $11.2 billion and net debt of $9.2 billion.

We closed out the year with $2 billion in unrestricted cash, in line with our guidance.

Our momentum raising cash has continued into the New Year.

We've already executed additional transactions and we have more within our sights before we close the quarter.

In early January, we closed a new aircraft financing deal for $95 million.

We have continued the equity offering in January, raising an additional $63 million prior to the start of the quiet period.

We expect to raise approximately $160 million from a cargo facility relocation agreement with Chicago's O'Hare Airport, that's part of the planning for the next new runway, and we expect another $27 million as we complete the equity offering.

All together, we expect to raise approximately $350 million in the first quarter of 2009, from transactions that we have already circled.

And now I'd like

Thanks, Kathy.

As we outlined in the second quarter earnings call, we have set an aggressive agenda at United focused on generating a breakthrough in our performance.

With our investors, employees and customers, we have been and we will continue to be transparent about our goals as well as our progress against those objectives.

You've heard us say this before, our focus is straightforward.

An airline that runs on time with clean planes, provides the platform for our employees to deliver great service, and in doing so, allows us to deliver solid financial performance.

In 2008, we began to aligning all functions of the company around our five major goals, all of which are based on a foundation of safety excellence: Deliver industry-leading revenue, achieve competitive cost performance, drive top-tier operational performance, improve the cleanliness and workability of our products, all in support of a courteous, caring, respectful work environment, for our people and our customers.

We refer to our goals simply as focus on five, and we are streamlining everything we do against those five very clear goals, while eliminating non-value added work and resources that simply don't support these goals and, therefore, are not priorities for our company.

On the revenue front, United continues to maintain a unit revenue premium for the industry when adjusted for length of haul.

Our fourth quarter unit revenue results were solid and ahead of our previous guidance for the quarter.

Excluding the impact of mileage plus that we mentioned earlier, fourth quarter consolidated PRASM was up 4.7% year-over-year and mainline PRASM was up 4.4%.

Our consolidated results were driven by a 5.1% increase in yield partially offset by a 0.3 point decline in our load factors.

Generally our mainline results were driven by a yield improvement of 4.8% year-over-year and again a 0.3 point decline in out load factors.

The results are on top of our strong performance last year, when our PRASM growth of 8.6%, adjusted for mileage plus, exceeded the industry's growth rate by 4 full points.

Domestic PRASM results for the quarter were strong up 6.7% year-over-year.

This is a result of the significant capacity actions taken by United as well as the rest of the industry.

Our domestic main-line capacity was down more than 14% as we removed half of our 737s from the domestic fleet, all of which will be out of the system in 2009.

International PRASM was up 1.2% for the quarter, underlining the initial effects of a global economic slow down on international travel demands.

As an industry, we are clearly seeing less demand for our products and a change in the behavior of our customers, who are not only traveling less, but are buying down from premium cabins into our coach cabins.

As corporations are tightening their travel budgets, we are seeing a double digit decline in international premium traffic year-over-year.

Helping to offset decline in premium demand is our new international premium cabin configuration.

We began flying a number of these aircraft late in 2007 and they've ramped up to over 25% of the fleet being reconfigured at the end of 2008.

When our roll-out is complete, this new configuration will reduce our premium seat counts on international wide-body aircraft by more than 20%.

We believe that this will enable us to offer not only the best product in the US market, but also the right seat density for these aircraft going forward throughout the business cycle.

Our 767 will be completely converted by early this Spring and our 747s will be finished up later this year in the Fall.

777s will begin the conversion process in the Fall and will be completed in just over a year.

In the Atlantic, PRASM growth was down 0.2% on a capacity increase of 2.4%.

Our results were particularly impacted in the London market, where passenger unit revenues were down 4%, while industry capacity increased by 10%.

This compared to the rest of Continental Europe, where our unit revenues were actually up by 3%.

While we took actions to reduce capacity in some Atlantic markets, overall we grew by 2.4% in the quarter, as we took advantage of new opportunities in the Middle East with service from Washington to Dubai.

Later this year we will continue to expand the breadth of our Atlantic service with the addition of Washington to Moscow and Washington to Geneva.

In Latin America, we saw strong PRASM growth of 3.7%.

However, it was moderated relative to our improvements earlier in the year.

In South America, we have over 60% of our capacity in the Latin deep south markets, and those markets began to reverse earlier gains that we experienced during 2008.

In the Pacific, our unit revenues were up slightly over last year, with yield up 5 points on a 3 point decline in load factor.

I want the provide some more clarity in the Pacific as to how each of the component entities are performing, because I think there is a developing story here.

Japan was particularly strong, and that's the most directly comparable component of our system to our large competitors in the Pacific, and unit revenue grew over 9% in Japan in the fourth quarter.

China produced modest unit revenue gains of about 2%.

Unfortunately, the south Pacific, with double-digit unit revenue decline contributed to the pressure we experienced.

Our unit revenue declines in (inaudible) with Australia are approximately 20%, and they offset the gains that we experienced in Japan and China.

This year, 2008, marked a significant change in the industry's approach to pricing its products and services.

The industry moved away from an all-inclusive one-size-fits-all model to pricing for our customers to provide them with choice and improved differentiation importantly relative to their loyalty with United.

Customers can now select the products and services they value, including services that were unavailable to them in the past.

Loyalty is now rewarded with greater differentiation in product delivery.

During the fourth quarter, we continued to add new products to the travel options by United's portfolio.

Including award accelerator and premium line service which allows non-elite customers to purchase access to special reserve lines at check-in, security and boarding.

In looking forward to 2009, we expect our travel options, products, premium seat up-sell and fees to generate in the area of $1.2 billion as we will rollout several additional products this is year.

As Kathy mentioned earlier, both our full-year and fourth quarter non-fuel cost performance was very good, particularly in light of the large capacity reductions that occurred.

This performance reflects a dedication and perseverance that every employee at United Airlines in 2008.

We tackled key cost areas across the enterprise and we plan to build on this momentum in 2009.

Clearly, the decision we made to eliminate the 737 fleet is creating an additional benefit in the maintenance area, enabling us to cause a real and sustainable improvement in our effectiveness across our maintenance division.

Beyond the fleet elimination, however, we are also executing against a number of efficiency and effectiveness work streams across the maintenance team that we expect to continue to drive performance improvement both in terms of cost as well as quality of out put.

As Glenn mentioned, we've brought new leadership to head up our maintenance division, and they see opportunities where we see opportunities, and they have the skills and the ability to deliver on that.

Maintenance is only one example of the work we're doing to reduce cost across the entire enterprise, division by division.

We're re-evaluating everything we do, searching for opportunities to work leaner and smarter, and focusing our work on what it takes to meet the core goals of focus on five.

In addition of the 2,500 salary to management reductions that Glenn mentioned, we expect to reduce our front-line workforce, by about 6,500 as we had previously announced.

Altogether, we expect to reduce our workforce by some 9,000 positions compared with the beginning of 2008.

We are committed to minimizing the impact this has on all of our employee groups.

To that end, we've been working with each of our unions in an effort to minimize the number of involuntary furloughs.

We have succeeded in covering nearly 40% of the 6,500 front-line reductions with voluntary furloughs, and I'm hopeful that number will increase as we work our way through in 2009.

In fact, we were able to accomplish the reduction in our flight attendant population, through an entirely voluntary program.

We've also worked with both the IM and the Teamsters union to help mitigate the number of positions that we need to reduce.

Despite the reductions in capacity and the training and redeployment of our people that comes with it, we have been able to maintain our level of employee productivity throughout the period.

We're really cracking the code on what it takes to drive costs out with the capacity reductions at United.

This is made obviously tougher by the fact that our capacity reductions tend the be larger than most of our competitors.

However, each and every division is working to drive true and full costs out of the business, along with the capacity reduction, and we're not done.

We're working very, very hard to realize even more opportunity in 2009, and soon we will begin to roll up our sleeves and work the problem in 2010 with high expectations that we can and will differentiate our cost performance in that year as well.

Our focus on improving operating performance showed results in the quarter, despite some of the most challenging weather we have ever seen in the month of December, particularly in Chicago.

Our on-time performance improved by over 10 points year-over-year.

It helped us improve our rank to second among the US major carriers and on-time performance for the quarter.

Our improvement reflects the hard work and the commitment of our employees.

The investments we have made in our schedule and the improvements in airport infrastructure.

Our people work in exceptionally difficult and trying conditions and they demonstrated their ability to deliver for our customers.

Our cost performance against the challenging weather is also notable.

As we reduce our costs, even as we face much higher weather-related operating expenses.

In the fourth quarter, we demonstrate that we can deliver on cost while improving quality and escalating our customer satisfaction at the same time.

That's what it's all going to be about as we look towards our agenda in 2009 and future years.

In order to drive continued improvements in our operational performance in 2009 and to better reward our employees for their performance, we have announced a new cash incentive program.

Eligible employees will receive a monthly cash payout if we achieve first or second-place ranking amongst the largest network carriers in the DOT A-14 ranking.

This reward also applies for our employees when we meet our internal goals relative to reliability.

I hope you agree that we have been and we will continue to be clear about how we define success, and the work that we are doing to achieve it.

We are equally clear about what our commitments are and how we're going to deliver on them.

There is no shortage of opportunity here, and we have the right team to realize it.

We will set aggressive targets and we will meet or beat them.

Last year was filled with exceptional challenges, difficult decisions brought on by the volatility of both fuel and revenue.

But despite those challenges in the fourth quarter, we improved the product we delivered to our customers while controlling our costs.

There is still significant work to be done in 2009 to move United to where it belongs and we are taking the right actions to get there.

Now, back to you Kathy.

Thanks, John.

Moving to guidance, for the first quarter, we expect main-line capacity to be down 13.5% to 14.5%.

In consolidated capacity to be down 11.5% to 12.5%.

For the full-year we expect main-line capacity to be down 8.5% to 9.5% and consolidated capacity to be down 7% to 8%.

Our 2009 full-year capacity guidance is up modestly from the initial guidance we provided for 2009, on our second quarter earnings call last summer.

The difference is simply the result of fine-tuning our fleet retirement schedule and completion factors in conjunction with our more detailed year-end planning process.

We continue to be on track to permanently reduce the fleet by 100 aircraft by the end of 2009, having taken 51 aircraft out of operating service last year.

In terms of our unit costs, we expect to continue to see the good performance building on our momentum from this year.

For the full-year 2009, we expect both mainline and consolidated unit costs, excluding fuel and profit-sharing programs, to be up only 2.5% to 3.5%, in the face of a mainline capacity reduction of about 9%.

For the first quarter, we expect both mainline and consolidated unit costs, excluding fuel and profit-sharing programs, to be up 4% to 5%, despite a main-line capacity reduction of 14%.

First quarter unit cost gross is expected to be a bit higher than full-year, as transition costs, such as pilot training and a first quarter capacity reduction, almost 5 percentage points higher than the full year, are creating a bit more headwind out of the gate this year.

Turning to fuel, in the light of the risks posed by volatility in crude prices, we've continued our hedging programs to mitigate risk and dampen volatility, albeit at a slower pace and with more conservative instruments.

Since our December 17 update, we've purchased additional call options covering 7% of our expected 2009 consolidated consumption, at an average strike price of $53 a barrel.

We expect main-line jet fuel prices, including taxes and cash type settlements, to be $2.22 per gallon for the first quarter, based on January 16, closing forward prices.

You can find a detailed description of our hedge positions, as well as our detailed fuel price guidance, in our earnings release.

We start 2009 in a much better position to generate positive cash flow.

We're beyond the peak of our fuel hedge collateral requirements, and we've capped much of our down-side exposure.

We have limited capital spending plans, additional liquidity initiatives in the pipeline and will shortly be emerging from our seasonal winter trough.

So, while the recessionary environment is clearly straining revenue, lower fuel prices and the aggressive actions we have taken are serving us well as we navigate through these volatial times.

And with that, Melissa, we're ready to open up the call for questions.

Thank you.

First, we'll take questions from the analyst community, and then I'll take questions from the media.

(Operator Instructions) And we'll take our first question from William Green from Morgan Stanley.

Yes.

A question for John.

John, can you comment on the January to date RASM trends?

Specifically I want to know, too, if the international is being pretty negatively effected by some of these efforts we've seen our of Virgin over the Atlantic.

Well, as you know, we don't provide guidance.

And certainly not within the monthly period.

These times are challenging, and clearly demand is under pressure across the industry.

The one thing that I do know is that we and many others are better positioned to better deal with this recession than we likely have ever been before.

We've made significant capacity cuts, as Kathy outlined, a 14 point reduction in main-line capacity in the first quarter.

So, we're in good shape in terms of capacity, and we're clearly in good shape with the success we're having on the cost side.

I know thats unsatisfying, but as you imagine that, you know, the visibility, relative to revenue trends, is less than desirable.

And most of the downward pressure on unit revenues has been within closed-end bookings.

So, we're a little bit cautious about, you know, providing too firm of an outline.

I think there's a possibility the first quarter may be one of the more difficult quarters this year; but again, we're doing what we can to introduce new products and services, and we are cautiously optimistic about how revenues will perform relative to the prior recession, but it is challenging.

Kathy, maybe I can ask you about liquidity, can you talk a little bit about the options you might have from Sierra?

You talked about the deals you've already closed, but what are the unencumbered assets?

Is there more to get from maybe Chase and whatnot?

And in that context as well, is there much you can do on CapEx?

CapEx is already running pretty low, my assumption is as we look to 2010 and beyond, you're going to have to start to up that as well.

So, I would think there's going to be a growing need cash on the capital segment.

Maybe you could comment on those.

I'm happy to comment on those.

I'll take those one at a time.

First, with respect to liquidity and incremental initiatives, I think we've done an extraordinarily good job at showing how we can continue to build liquidity through liquidity actions in whats a varied cost environment in a sustainable way.

As we look at what other initiatives we have underway, as you are well aware, we have a fair amount of unencumbered assets, obviously.

Some of the initiatives that I alluded to, both in the fourth quarter and in the first, start to use up some of the asset base.

But as I stand here today, we still have, I'll call it roughly $2 billion in unencumbered assets, and very rough numbers, about half of that, remain in terms of aircraft.

We also have flexibility in terms of the chase agreement that I mentioned, to potentially exit that agreement early.

I had mentioned that we're -- have the ability to substitute aircraft for collateral in that arrangement should additional collateral be necessary, but we've got some flexibility there, too, to do some different things.

So, I think we continue to be fairly well positioned in terms of having different things in the pipeline and having access that we can look to on the incremental liquidity side.

Can you repeat your second question?

Well its just on CapEx.

You've been running it at I guess 450 now, it will be two years running.

So, won't that have to start to grow pretty substantially?

So, my response on CapEx is you've also got to realize that we're a smaller company.

You know, with the hundred aircraft reduction underway, with the substantial investment that we're making in our international aircraft in terms of the modification they're going through, the upgrade in (inaudible) in new seats and entertainment systems in our first and business class, that's a substantial investment, but well underway and clearly taken into consideration in that 450.

So, I don't think as we think about the 450 and the things that we have planned underway this year, we are feeling particularly constrained.

And we're very, you know, customer-centric, and the things that we have within that 450, they are things that will continue to, I think, deliver very significant improvements in terms of the customer experience.

So, we're not really feeling constrained.

And, you know, perhaps that as a result of a number of years, you know, living within more constrained means, but, honestly, it hasn't been an issue whatsoever, and I don't think you should presume that that means we're going to have a significant future capital need.

Alright.

Thank you for your help.

We'll take our next question from Hunter Keay with Stifel Nicolaus.

Hi, thanks, good morning.

Good morning.

Just a very quick point of clarification.

You have not received ATI on your proposed international JVs with continental so far, correct?

Correct.

Okay.

Now, if, you know, the JV -- or if the AGI does not go through, would there be any kind of incremental risk here of say Continental not leaving Sky Team?

I assume the horse is probably our of the barn on that, and that will just probably just, you know, proceed as a traditional (inaudible) agreement if that does not happen, correct?

Well, we have no reason to expect that that will be the out come, number one.

And number two, I would not necessarily draw the conclusion that you do around, I think, Continental.

You know, I would obviously urge you to ask them this.

But they're very serious about entering Star, and I think they're extremely pleased with the decision they've made.

And I have no I reason to expect that that will not be the case.

Okay.

Fair enough.

And just one other follow-up.

You gave some interesting color there on Pacific, specifically with Australia, I think you mentioned went down 25% or 20%, 25% PRASM in the quarter.

How do you see -- how are you looking at the potentially run rate as we go into 2009 here?

Just sort of high level and maybe just anecdotally or qualitatively?

I mean is this something -- maybe you can do some color on the mechanics of what's moving around here and what we should maybe expect from this region as we go into 2009.

Yes.

I wouldn't necessarily draw the conclusion that that leads to significant financial losses in the region.

This has been a profitable market for us historically.

However it is, as you say, significant downward pressure on the unit revenues.

You know, I don't think in the short-term that we are terribly optimistic.

There will be additional service coming into the market by one or two carriers.

However, United has a long-stand long-standing successful operation in the region and to the extent the market operates with too much capacity, we feel pretty strongly we have the structural advantage here, and we'll be the long-term, you know, successful competitor in the market.

You know, these things happen from time to time across our system.

It's just -- the reason I wanted to provide clarity on this one specific root is it does represent a lot of ASMs in the Pacific region, and I think, you know, we were producing Pacific results that were counter-intuitive and I think -- I just wanted to clarify, but, you know, we've seen this happen in markets from time to time.

We'll compete.

We'll compete aggressively.

We're very well established there.

Our cost structure is highly competitive, and at the end of the day, we'll win.

Okay.

Great.

Thank you.

We'll take our next question from Kevin Crissey with UBS.

Hello?

Yes, hi.

Actually this is (inaudible) Davis from Loophole Capital.

A couple of things.

Ever since oil has come down, you guys have been able, you know, obviously take advantage of a lot of that, so you should be charging less to your customers.

A couple of things.

When I recently called to book a trip to Chicago in June.

I was told my flight was going to be, like, $270, which is fairly reasonable, but then when I mentioned that I had a small dog that I'll be carrying on the plane with me, they had mentioned I need to put the dog turned seat, count it as a carry-on bag, and you guys are charging me $350 to take a little 5 lb.

dog that fits in a purse-size bag, and you would count it as a bag.

How can you justify that, that you charge passenger $270, 165 lb, 5'8" passenger, but a 5 lb.

dog, that counts as a bag, so you have to take an extra bag for you as well, $350?

Can you explain?

Well, hey, I have three dogs, too.

So, I mean, it certainly isn't any prejudice we have against dogs.

And it's a good thing we don't charge by the weight or my travel would be quite expensive.

Look, I think that fuel prices are declining, but the industry remains challenged in terms of its ability to produce a profit, so we need to price our product in a way that allows for a full recovery and a profitable operation for the company.

We'll take our next question from Jamie Baker from JPMorgan.

Well, I can't even think of a comical follow-up to that.

Could you -- seriously, could you review for us, John, where each of the ancillary revenue streams are accounted for, specifically which of the fees do show up in main line revenue and which fall into the "other" revenue category?

Yes, Jamie, It's Glenn.

You won't hear John referring to the cash flows or the revenues that we get from small dogs.

Apparently not.

We'll have to put that in our forecast that we lost a dog.

So, we are working hard to provide additional clarity as it relates to where we put these line items in the income statement, comparable across the the company is clearly difficult.

And I think, in the future, we will be able to provide that clarity.

We're not in a position right now.

However, it's appropriate for you to draw that conclusion for us that it is principally in the passenger revenue line.

Okay.

Fair enough.

And Katherine, just for the calculation of profit sharing expense and the impact that one would hope that would have on CASM, can you remind us how you account for profit sharing in each of the quarters?

Would it show up in any quarter in which you produced a profit, or is it mostly year end measure loaded towards Q4?

A very good question.

And in the past, the way we have calculated for profit sharing is on a full-year profit outlook.

That caused a fair amount of variability in terms of how we've accounted for profit-sharing.

And so we are working very hard to be able to account for it on a go go-forward basis in a manner where we would accrue on the basis of what we realized in the quarter rather than on a full-year basis, and I think that would also help us in terms of being able to provide more transparency to you folks?

Which we have struggled with in the past, because of our accounting treatment.

Excellent.

I agree.

And thank you very much.

You bet, thanks Jamie.

We'll take our next question from Mike Linenberg with Merrill Lynch.

Yes.

Hello, good morning.

Just a quick follow-up -- actually, two questions.

John, I -- you know I heard you quickly mention mentioned about a double digit decline in -- I think it was premium RASM.

And I wasn't sure if that was what you saw in the fourth quarter, if you were referring to the North Atlantic, if that was international or if that was what you were seeing now?

Can you just elaborate on that?

So our premium cabin demand in the fourth quarter was off 25%.

I point out -- we started to see a softening in premium trends way back in the Spring of 2008.

And that certainly grew as we went through the year, and we're currently operating about that area today.

As you know, United enjoys more premium traffic in the good times than some of our competitors, and our cabins are configured that way, that's one of the reasons, frankly, that we're taking 20% of the seats out in the front cabin to align our configurations more where the bottom of the cycle as opposed to the top of the cycle.

But there has been a significant reduction.

A chunk of that is people moving to the coach cabin, clearly.

Corporations are becoming more restrictive about who they're going to allow in the front cabins in this period and a lot of our highly valuable elite fliers are moving out of the cabin and moving into coach.

You know, Mike in a way that we didn't expect that's a benefit that we have with economy plus.

Okay.

Good.

And then just -- my second question -- this is to Kathy.

When you look at your CASM guidance, ex-fuel, it's pretty impressive given how much capacity is coming out in 2009.

You know, where are the big areas that you're going to get the savings and then, you know, we're still running into some cost headwinds, maybe airport operations, for example, as the number of flights drop -- drop off pretty dramatically across the country.

So, you know, can you give us a little bit more color on, you know, on, you know, on the opportunities -- or the areas where you think, you know, will allow you to achieve that low -- that small increase in unit costs?

Sure.

You know, as we look overall in terms of absolute cost reduction, again, excluding fuel year-over-year, that (inaudible) number has to come down about $750 million in order to get us in the target range that we laid out.

You know, we've got about $300 million in terms of inflationary cost pressure pushing against that.

So, if you think about it in absolute terms, you know, that sets up the challenge of you know a little $1 billion.

We're obviously bringing capacity down, and so you've got some variable costs that naturally come out of the system.

If you assume that puts kind of roughly 60/40, that leaves us with about $400 million of, you know, real hard roll-up your sleeves work that's embedded in those numbers that we talked about.

On specific line items and where do we see the most benefit coming from, you know, you heard John talk about maintenance, you heard him talking about the leadership change in maintenance.

We've talked about the fact that the 737 fleet elimination certainly provided for us kind of a step change in terms of being able to get some costs out of our maintenance programs generally, and so we're clearly looking for that to help us from a momentum perspective as we look forward.

We're also very committed that as we reduce capacity to maintain productivity levels, we spoke to the fact that we've got additional overhead that we're targeting to pull out of the system, not -- you know, not easy decisions to make, but very necessary decisions.

This is not easy on our employees, but ultimately exactly what we have to do to have a sustainable cost structure and to position ourselves well competitively.

So, I think that helps to give you a feel for, you know, some of those bigger areas where you should see some benefits.

Yes, the only thing I would add a little bit is, you know, every dollar that is in the guidance that Kathy provided has a program against it.

So, we know exactly what we need to do, where we need to do it in order to deliver against this cost guidance.

We put the plan to bat largely four months ago, and, you know, we have a high confidence level in the team's alignment and the team's commitment to meeting that objective.

I think what I would add is that the rigger of the budget that we -- and the commitment we have made to the board is very, very granular and made up a tremendous number of what you might perceive to be small item items.

Okay.

Very good.

Thank you.

Thanks.

We'll take our next question from Gary Chase with Barclays Capital.

Good morning, everybody.

Good morning.

I wanted the see, John, if I could get some clarity for you on something.

You know, some of the information that at least I am, and from what I understand others are, putting out in the market about -- you know, sort of -- the big question now is obviously how this recession or how this economic downturn is affecting the industry.

Relative to what we've seen in the past.

When you talked about being consciously optimistic that you could do better than prior, I just want the clarify this, were you thinking in terms of RASM performance or revenue?

Because clearly with the amount of capacity that's come out of the equation, it's kind of hard to believe we're not going to do better from a RASM standpoint.

So, as you talk about this issue broadly -- and I know you've not given specific guidance -- are you thinking in terms of unit revenue or actual revenue generation?

No, you (inaudible) I mean absolute demand, you know, is clearly going to be under significant pressure.

Our capacity plan reflects our expectations in regard to that.

So, I think our degree of confidence is based almost entirely on the responsible actions the industry has taken on capacity.

Not a terribly optimistic view of absolute demand.

Right, no, no, of course.

But when you talk about, you know, baselining this and comparing it to prior recessions, do you think you're going to do better on a unit revenue basis?

Unit revenue.

Okay.

Can I also ask you, you know -- I guess I was a little surprised to hear that China RSAM was up.

You know, we're hearing a lot of things about economic activity specific to China that sounds like things have really slowed markedly there, and I know you mentioned some of the contrast between United's specific business and others.

Clearly you've got more China focus than, well, Northwest now, Delta.

How is that holding up?

How do you expect it to hold up looking forward relative the rest of your Asian business?

As I, you know, going back to some of the premium cabin traffic we talked about earlier, you know, the declines in Asia are much steeper in the premium cabin than they are in the trans Atlantic.

However we've been able to offset that with fare increases through the period, producing about a 2% increase in China.

We haven't seen anything recently that really deviates from what our performance trend there was in the fourth quarter.

So, I think, you know, clearly China is being impacted.

We're seeing it clearly on the freight side of Asia.

We've had significant declines in our freight revenues throughout the Asia region.

But I would not say we're bullish on China, but it is not a problem.

Okay.

And then just one last one to clean this up.

While I recognize the change in capacity is small and you explained sort of where that's coming from, at least as we look at it, it does come more internationally than domestically.

Any thought there on your part about how that's performing versus domestic?

I think there's some common wisdom out there that you're going to be subject to more pressure internationally, which may or may not be right.

Is that the way you're thinking about?

Well, as Glenn mentioned earlier, we were pretty early out of the gate to go ahead and scale back our international capacity.

We made that decision really in the third quarter of last year.

We think we have it right.

More clearly, we're rearranging the network a little bit, taking some of our depth, i.e.

frequency, out of some of the big international markets and moving into places like Dubai, that are performing extremely well.

So, we think we -- we think we've got it right.

We acted early, we'll continue to monitor it.

But I don't have any reason to expect that we will need to make additional corrections at this time.

Okay, thanks very much.

Thank you.

We'll take our next question from Ray Neidl with Calyon Securities.

Good morning or good afternoon, all.

Hello, Ray.

A lot of things have been covered in the yield section there, but you did point out one thing in the the Pacific, especially the South Pacific, the weakness there.

I'm just wondering what are your thoughts down the road if Quantus were to merge with with another airline -- there's nothing on the table right now, the BA thing is off the table.

But what would happen if Quantus did merge into a bigger system?

And then you mentioned there's going to be open skies in Australia or near open skies with new competition coming in?

What's that going to do to you in the south Pacific, and then secondly, with Asia -- with the Northwest Delta merger, a new powerhouse emerging in that part of the world, are they going to be that much tougher of a competitor there?

Well, I couldn't provide any particular wisdom on the first comment, Ray.

But we think we're very well positioned in Asia.

You know, the San Francisco hub geographically is, you know -- he who flies from the most western hub collects the most traffic.

o, we've got a very good hub position there, and are confident that our network strength will win out at the end of the day in the south Pacific.

As it relates to, you know, going forward in Delta/Northwest, we're obviously watching how they are using those assets on a combined basis.

We expect them to be able to improve their relative competitiveness, certainly, but we think we have deep structural advantages in the way we operate the Asia system and are not too troubled by how we stack up there in the future.

Okay.

And do you look at cargo as a lead indicator?

Your cargo numbers are way down.

You're not the only one, its down across the board.

Even with the cargo carriers.

Do you look at that as an economic leading indicator worldwide?

Well I think everybody does or most people do.

And I don't think we're in a unique position relative to obviously folks like UPS and FedEx.

But, you know, clear we are seeing, as that we believe the industry is, pretty hard hit freight volumes coming out of Asia.

Okay.

Great.

Thank you.

Thank you, Ray..

We'll take our next question from Bill (Mestoris) from Broadpoint Capital.

Thank you.

John, I just want to confirm.

You talked about a lot of individual markets.

But, you know, fare trends, at least on the international side -- at least this is what I'm hearing from GDS operators -- are really off significantly.

Can you say that, you know, fares might be down 5%, 10% on the premium side or on the international side?

And any additional color that you can provide just in terms of magnitude would really be appreciated?

So, we really see -- I mean, obviously everywhere is under pressure, we don't see the international as sort of being uniquely pressured relative to domestic.

Now, that may be because of what we did early.

I mean as Glenn mentioned earlier, we took six 747s out of the system.

So, we have corrected international capacity plans far more than our competitors have, and so I think that that's -- that could be a reason for the outcome.

But, you know, we're going to have to watch it.

There's nothing unique about it in terms of its performance trend relative to the rest of the business.

I talked about premiums earlier, clearly, and I think that's why -- you know, these changes in mix are why you're seeing very modest yield improvements despite all the fare increases that we in the industry took over the last 12 months, most of them basically got washed out in the bottom because the mix moved against us.

But those fare increases are what are producing the modest yield gains that we have right now.

And finally, a question for Katherine on -- Katherine, if I recall correctly, in all of the restructured aircraft agreements and a lot of the double ETCs and ETCs, there were some pretty significant escalators that kicked in in the year 2009, and I know that there is an offset against some of the double ETCs that you have repurchased in the open markets, but are we going to see any type of meaningful increase in either the interest expense line or the aircraft rent side because of those escalators, or is it really kind of a non-event there?

At this point, that specific issue that is coming out of our old restructured double ETCs is that -- likely to drive up expenses significantly for the company, the answer to that question is, no, it really isn't.

And specifically from a cash-flow perspective, one of the things that we did during the restructuring was basically to line things up so that we had a basic -- you know, smoother debt payment on a go-forward basis.

So, as we look forward next year, our debt payment schedule is roughly $900 million, and that is spread pretty evenly through the quarters.

So, that was something that we sought very actively to accomplish when we restructured all of our debt instruments.

But there's no particular pressure coming out of that area.

You know, in terms of what's going on below the line, you know, you've clear seen the change year-over-year in terms of interest expense relative to interest income, but that has continued to decline, which clear has continued to be a positive factor in terms of reducing interest expense.

Okay.

Thank you.

Thank you, ladies and gentlemen.

This concludes the analyst investor portion of our call today.

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

Tilton for closing comments.

Thanks very much, Melanie.

We appreciate it.

And thanks the everyone on the call for jing us this morning.

As we've discussed on the call, 2008 was, indeed, an extraordinary year and one that we're pleased to put behind us.

2009 is going to be equally challenging, but I think both our prepared comments and our responses to your questions, should give you confidence that we feel very good going into 2009 about the quality of our work being responsive to the challenges that we anticipate that we're going to face.

Speaking of a challenge, as we all know on the call, president Obama has committed to moving quickly on his economic stimulus plan.

We also know that this industry is an important enabler of commerce and will play a critical part in restoring economic growth.

We need investment in our nation's air traffic control system.

Moving from a ground-base to a satellite system will create jobs and it will improve efficiency, and environmentally it will be a responsible part of the stimulus package.

We believe it should be a top priority.

With that, operator, we'll open the call to questions from the media.

Thank you.

We'll now take calls from the media.

(Operator Instructions) We'll take our first question from Josh Freed with Associated Press.

Hello.

Can you say a little more about your sense on the future direction of fares, given the demand situation?

I mean, it seems like capacity reductions have, you know, have reduced the need to reduce fares so far, but you know are you going to be able to continue that?

You know, I think what we're seeing is that (inaudible) periods in this economy are particularly pressured.

But as we move into the Spring and the Summer, we have significant capacity reductions, and we're generally seen revenue demand during the peaks to be certainly less pressure than the periods like the first quarter.

But I, you know, I really can't pause it where fuels -- where pricing direction will go over the next several months.

Alright.

Thanks.

And we'll take our next question from Mary (Schlegelston) with Bloomberg News.

Hi.

I had two quick ones, please.

First, I wanted to see if you could be a little more specific on your foreign exchange losses.

I think you said $30 million higher than a year ago, but I wanted to see what the total figure was?

And then my second question is, do you anticipate that the front-line job cuts that you have made -- or that you've avoided through voluntary furloughs, do you expect to have to add on more there, or do you feel like you've done sufficient trimming there?

So, I'll take the question with respect to foreign exchange losses.

So, the first thing I want to identify is those are specifically the foreign exchange losses that we're running in our non-operating expenses.

Last year, the impact was deminmus.

This year, we had about a $30 million loss, hence, the year-over-year change that I mentioned.

We also have foreign exchange impact generally that impact our revenues as well as our expenses, and those were not what I was referring to.

You know, those numbers would have been roughly about $35 million in terms of foreign exchange impact negatively on revenue, but offset by about $15 million in lower costs as a result of the foreign exchange.

Okay.

Yes, the second question.

Based upon what we know right now, we would not expect that we will increase the furlough number.

Great.

Thank you.

Thank you.

We'll take our next question from Ted Reed the (TheStreet.com).

Thank you.

I have two questions about fuel costs.

The first is for Katherine, given the losses on fuel hedging, after what happened, is there anything that you would do differently if a similar situation of rapid inflation were to occur in the future?

And for Glenn, I would like to add, you spoke of, you know, this prediction that the cost would go to $200 a barrel, and then they didn't.

Do you think anything has been done in this past episode to decrease the manipulation going forward?

Thank you.

I think that one thing for sure, that the implosion in price established is that we had a huge commodity bubble, just as we had a huge credit bubble.

You know, the housing bubble imploded, and so did the commodity bubble.

As I've said on this call, a number of times.

If there's one thing I've learned over the years about commodities, high prices eventually beget low prices.

And I think what was unusual about this Ted, was the amount of financial institution and hedge fund participation in the bubble.

And I think that that was a very unusual event.

And you've seen those positions unwind.

Ted.

And as those positions have unwound, it really created the rapidity of the decline.

So, I do think that we are hearing now from this administration and from the various over the counter exchanges, that there's going to be more disclosure required, and there's going to be more transparency in the trading of commodities, and I think that's going to be a very good thing.

Especially for those of us that have it as a significant input cost.

And then, Ted, I'm happy to take your question with respect to, you know, with hindsight, what would you have done differently.

And, you know, I think it is not helpful to go back -- but easy to say, "Hey, I can imagine a portfolio that would have produced gains up until the peak and additional gains as we went from the peak of 147 down to 40." I don't find that a very helpful place to go in terms of what would you have done differently.

We do not take a market viewpoint on oil and jet-A as we seek to mitigate volatility.

And we're not suggesting as we look forward that we would seek to make -- you know, take a market viewpoint in terms of how we manage that activity.

I think it is -- there's always a cost to taking an insurance policy out.

I don't think people should have an expectation that when you take out insurance policies you expect them to pay.

You take them out in order to mitigate volatility.

There are different ways to pay for those insurance policies, and we continue to look at, you know, what are the best instruments for us to use as we seek to mitigate risk.

But overall, I think looking to mitigate risk, looking to do so in a very systematic way.

You know, continues to be the right path forward.

Alright, thank you very much for that.

You bet, thank you Ted.

We'll take our next question from Julie Johnson with the Chicago Tribune.

Hi, guys.

I have two questions for Katherine.

First, of all, could you just walk us -- or give us a little color on the $900 million in debt in lease obligations that United is going to face this year?

When do they hit?

How do you plan to meet them?

And does this potentially bring your unrestricted cash close to that $1 billion minimum that's required under your bank debt covenants?

So no, not at all.

And in fact, the level of debt obligations that we have coming due this year are not really materially different than they have been last year or the year before?

The point I was trying the make is, unlike some of these larger instruments that have big bullet payments, we don't actually have any of those next year.

The payments are relatively equally spread.

And I think, importantly, we ended the year with $2 billion of cash, but very well positioned with respect to forward-looking ability to produce incremental cash flow.

So, our fuel hedging collateral issues have peaked, they're behind us.

Effectively that cash went out the door in the third and fourth quarters of last year.

So, as we look forward, that is not a forward looking problem for us, with cash-flow perspective.

We are about to head out of what is logically our seasonal trough.

You know, the winter is not a great cash-flow producing quarter for United.

But as we look forward to the stronger Spring and Summer periods, we naturally do produce a fair amount of cash-flow, and, you know, we take in the revenue or cash, I should say, from the tickets, obviously kind of 60 to 90 days in advance, and so that helps us to build cash-flow in advance of, you know, when our network peaks in the Summertime.

We've also obviously minimized our capital spending at a level that we think is very appropriate for the company.

So, we have taken all of the right steps, I think, to well position us from a cash-flow perspective and building incremental liquidity.

And as you've heard me talk, Julie, you know, we've got more liquidity actions in the pipeline, and I think that has been very positive, in what's clearly been a tough credit market.

So, from that perspective, I think 2008 was clearly a tough year from a liquidity perspective.

But we have put all of the right things in place in order to position ourselves well for 2009.

Okay.

Great.

And my other question, I just want to clarify what's happened with -- or changed with the goals regarding head-count reductions.

I think, on your Q2 call last year, the goal was 7,000, reducing, you know, roughly 7,000 positions.

It sounds like it's increased to 9,000.

Is that -- is that accurate?

That is -- certainly the 9,000 is accurate.

A component piece of the change is the additional thousand we announced today in terms of salary and management.

Some of which have already been realized and some of which are still ahead of us.

And it sounds like the other 1,000 then comes from front-line workers?

Yes, that is the case.

The trouble I'm having is I I don't know that I can confirm the 7,000 earlier.

But yes, any difference between that would be in the front-line work force.

And the one thing I would say, Julie, is as we speak, to put out sort of rough guidance in terms of where we think our head count is going, it is just that, as we actually refine our schedules and get more granular, you know, that's when we can get more specific about exactly which groups its coming out of beyond salaried and management, which we've clear been very specific about.

Okay.

Well, great.

Thanks again.

Thanks, Julie.

We'll take our next question from John Pletz with Crane.

Good morning.

A couple of questions.

One, just to follow up on the head count, do you expect now 9,000 total to go up from 7,000 a year ago?

That's correct.

Much of which has already occurred.

But there's -- so there's an additional 1,000 frontline workers beyond the 5,500 you've announced and beyond the 1,000 salaried and management that you spoke of in the release today?

That is correct.

But much of that has already been actioned or noticed OP.

So, it doesn't really represent new news to our labor unions.

This is just simply (inaudible) memorialize in the changes that have occurred in the last six months.

Okay, and the other question on the premium demand.

What are you seeing in the US at this point, in terms of demand for premium cabins?

Well, you know premium cabin in the US is really a much, much less important as a component of our revenue (inaudible).

Because as you know, much of that traffic tends to be upgrade traffic.

So, we haven't reported that out separately, because frankly it doesn't tend to make a huge difference .

So, when you say 25% -- you have a 25% drop, so most of that's international.

You're going to take out 20% of the premium seating in overseas flights.

Is that what accounts for the decline in international capacity?

It looks like you're taking out less international capacity.

No, actually, the premium product reconfiguration we're doing reduces premium cabin seats by 20%.

That will not be completed until late 2010.

Okay.

On a total aircraft basis, it actually, fleet-wide, increases the seats.

Right.

On a total aircraft basis.

And that's why I was wondering if the new guidance for the reduction for full-year '09 in international capacity, that number has now gotten smaller, and I wonder if that just reflected that you end up with more seats because you're switching from premium to coach with added capacity.

No.

It's just -- it's not a change in our viewpoint or any sort of input issue like that.

It's just the finalization of our schedules as we get closer to the time period.

Okay.

And that seems to be the market that's weakening the most now that you're going to have less of a reduction in capacity overseas than you thought?

Well, I think as is often the case, in previous recessions, you know, clearly -- clearly there is a buying-down behavior, both based upon corporate policy as well as individual choice, so none of this surprises us under the circumstances.

Thanks.

I appreciate it.

Okay.

Thanks, John.

Thank you.

Ladies and gentlemen, that does conclude our call today..

You may disconnect your lines at this time.