聯合航空 (UAL) 2009 Q1 法說會逐字稿

Good afternoon and welcome to the UAL Corporation's earnings conference call for the first quarter of 2009.

I will be your conference facilitator today.

Following the prepared remarks from UAL's Management, we'll open the line for questions from analysts.

At the end of the analyst Q&A, at approximately 3 PM Eastern time, we will take questions from the media.

(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.

John Gebo.

Please go ahead, sir.

Thank you, Jennifer.

Welcome to UAL's first quarter earnings conference call.

Our earnings release and separate investor update were issued earlier this morning and are available on our website 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 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 discuss several non-GAAP financial measures.

For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release.

Unless otherwise noted, as we walk you through the numbers for the quarter, we will exclude certain accounting charges and fuel hedge noncash net mark to market gains.

These items are detailed in the table in note six on page 12 at the end of our earnings release.

In addition, this quarter the Company has adopted accounting standard APB 14-1, which affects how we account for certain convertible debt instruments.

The adoption of this accounting standard was retroactively applied to prior periods and has a non-cash impact on our interest expense, increasing it by approximately $55 million for the full year 2009 and $48 million for the full-year 2008.

For additional details on the impact of this accounting change, please refer to question number 9 of the Q&A section of our earnings press release.

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

Thank you, John.

Good afternoon and welcome to everyone on the call.

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

This morning, we reported a first quarter pretax loss of $579 million.

As expected, and well documented by industry associations and many of you on the call, the recession is having a severe effect on the demand for travel.

In the face of a extremely challenging economic environment, however, we have managed to offset a significant year-over-year reduction in revenue with over $1 billion in cost savings, both in fuel and non-fuel expense.

Our pretax loss, while clearly unsatisfactory, was about even compared to the year ago quarter.

As we discussed last quarter, 2008 was a tough year for our industry and one that we are glad to have behind us.

That said, we have no illusions that 2009, given the current level of demand, is going to be any less challenging.

In conversations with our customers, investors, and those in our government, however, there is a common thread.

All widely agree on the importance of this industry.

This industry, without question, enables the global economy.

The irony, of course, is that our industry drives economic and business development in the United States and abroad -- in the United States to the tune of more than $1 trillion a year and contributes in aggregate some 5% of GDP -- yet is incapable systemically of earning its cost of capital.

That said, no matter the challenge -- terrorism, fuel spikes, or today's recession -- we continue to provide a vital service.

This is a resilient industry with a record of finding creative solutions to manage through difficult circumstances.

As a recent example, earlier this month we were very pleased to receive tentative approval on our application with the DOT for Continental to join our immunized trans-Atlantic alliance with Lufthansa and Air Canada.

Despite some competitive opposition, the DOT noted in its order that it shared our view that alliance's strength in service for customers and communities.

We expect final DOT approval next month and look forward to Continental officially joining Star Alliance in the third quarter.

Larry Kellner and I, together with our teams, had an opportunity on Friday in Chicago to review the work that we have underway and to reinforce the strong commitment of both teams to make the most of the opportunity that the work presents to our two companies through this enhanced alliance relationship.

In this industry we're on the front lines of the recession, and we're taking the actions necessary to align to the new business reality.

The steps we took at United beginning last year when jet fuel was $180 a barrel are serving us well in the current unprecedented financial and economic crisis.

Out of crisis on occasion comes opportunity, and we believe the work we have done affords us just such an opportunity.

The steps that we and others have taken to reduce capacity in response to record fuel prices were the right decisions then and continue to be appropriate for the current demand environment.

At the same time across our Company, all our people from the finance team to our front-line employees are driving a fundamental improvement in our business -- reducing our costs, raising liquidity, growing ancillary revenue, and what matters most to our customers -- delivering great service and on-time performance.

We continue to take steps to improve our performance for our customers and our investors, and that work positions us well to be competitive in what continues to be a challenging economy.

As we reported last quarter, we are continuing to make good progress on improving our already strong safety performance, which is, of course, our first priority regardless of the economic environment.

Our work includes a comprehensive leadership safety program.

It rewards individuals for outstanding safety performance and awareness.

The program was piloted last fall in O'Hare and Dulles and is currently being rolled out to all our stations.

Moving now to capacity, and demand environment.

We led the industry in the speed and depth of our capacity cuts.

To date we have grounded more than half of our 737 fleet.

And we'll complete that work to eliminate our oldest and least fuel efficient aircraft this year.

Our mainline capacity is down some 13% for the quarter, with international capacity down almost 14%.

Others, particularly foreign flag carriers, are now playing to what amounts to catch-up to the cuts we have made.

We believe the actions we have taken are the right ones and we're staying our course.

That said, we have both the willingness and the flexibility to do more if it's required.

We continue to enjoy a passenger unit revenue premium relative to the industry.

Like others, we reported a year-over-year unit revenue decline.

As you might expect, with our greater exposure to premium and business traffic both domestically and internationally, we have taken a somewhat disproportionate hit.

The work we have done to grow ancillary revenue has been key.

New products, such as our Premiere line as well as more mature products such as Economy Plus, are performing very well.

We are now generating about $14 in ancillary and fee revenue per passenger, an increase of some 60% compared to a year ago.

Last month we began to move to a cashless cabin domestically.

Such a move will further enable our ancillary revenue strategy.

For example, we can now enable flight attendants to upgrade customers to Economy Plus while on board.

As we at the Company have consistently said, we focus on the dual components of profit margin.

Our revenue is competitive and our strong cost performance is helping to offset the recession is having on our revenues.

We continue our focus on improving non-fuel cost performance, even as we dramatically reduce our capacity.

Despite a more than 13% mainline capacity reduction, our non-fuel unit costs decreased by about 1% year-over-year.

Our people are delivering excellent cost performance across the Company, and our goal is to deliver competitive unit cost performance on a consistent basis regardless of the economic environment.

As we discussed last quarter, and when we issued our guidance, the hedges we put in place last year when fuel prices were on the rise are now rolling off, and we are today benefiting from current lower fuel prices.

Further, our hedge losses are largely covered by the cash collateral we posted late last year.

As is our practice, we continue to hedge systematically, and are balancing our desire to build our hedge portfolio with our liquidity requirements.

The last several quarters, we have successfully raised hundreds of millions of dollars in an extremely tight credit market, and the first quarter was no different.

We raised nearly $500 million in new liquidity.

We continue to maintain roughly $1.7 billion in unencumbered assets and we'll continue to leverage those assets for additional liquidity going forward.

We have targeted several areas of our business for fundamental improvement, focusing on those areas that are most important to our customers.

That work today is paying off and our customer feedback and DOT results demonstrate the progress.

We ranked first in on-time performance for the quarter, up from fourth a year ago.

And we saw our key customer satisfaction measure rise a full 10 percentage points compared to last year.

As many of you know, we began labor negotiations this month with unions that represent more than 80% of our employees.

We are just beginning our opening talks with our unions with a goal of having cooperative discussions resulting in agreements that provide stability, both for our Company and for our people.

The discussions have had a professional, respectful tenor and tone on both sides.

All parties recognize the process is just beginning and there is much work ahead.

We continue to strengthen our leadership team, and I'm personally well pleased with how the team is coming together to address the current environment and its challenges and to position United for success.

With that, I'll now hand the call over to Kathryn, who will take us through the numbers over in greater detail.

Kathryn, over to you.

Thanks, Glenn, and good afternoon, everyone.

As Glenn said, the challenges we face this year as an industry are different, but no less severe than those we persevered last year.

Importantly, the plan we're executing is the right one for this environment.

We're pulling capacity in the face of weak demand, growing ancillary revenue streams, extracting costs from our business, further reducing our capital spending, and raising our liquidity.

We clearly made progress on all of these fronts this quarter.

Our first quarter results were significantly impacted by the effects of the recession, which were felt across the industry and across the globe.

Our loss for the quarter was disappointing.

Like last quarter, our loss was widened by the settlement of legacy fuel hedges that were put in place as the oil markets spiked last year.

These hedge losses masked the substantial progress we're making elsewhere, especially in managing down our costs.

As you've heard me discuss before, the cash impact of those fuel hedges is behind us, and you can see that our successful financing efforts enabled us to build substantial liquidity this quarter, a pretty significant accomplishment in light of the icy credit markets we face.

While total revenues for the quarter declined by 22% or about $1 billion, our operating expenses declined by $1.1 billion, reflecting the impact of our capacity reductions, our cost control efforts, and significantly lower fuel prices.

This enabled a year-over-year improvement in operating income of about $100 million.

In what is always a seasonally weak quarter for us made worse by the shift in the Easter holiday this year, we reported a pretax loss of $579 million, or $4 a share -- better than the consensus estimate of $4.45 a share as our revenue came in at the high end of our March guidance and costs came in significantly better.

The revenue environment was clearly very challenging this quarter.

Consolidated passenger unit revenues declined by 11.1% year-over-year.

Growth in certain ancillary revenues, such as bag fees and ticket change fees, improved consolidated passenger unit revenue performance by about 2 percentage points.

As John will discuss in more detail in a few minutes, our overall revenue results were driven by significant declines in international premium demand and domestic and international corporate travel.

Cargo and other revenue for the quarter was $331 million, down about 27% from a year ago.

The most significant driver of the reduction was cargo revenue, which was down about 43% year-over-year due to lower demand, softer yields, lower fuel surcharges, and reduced cargo capacity as a result of our international capacity reductions, particularly in the Pacific.

Cargo revenues have been affected by United's exposure to trans-Pacific export markets where industry cargo demand is down about 50% in Japan and about 25% in other Asian markets as a result of the global recession.

Other revenue was also impacted by Mileage Plus third-party revenues, which were down due to lower consumer credit card spending.

Turning to the cost side, as I mentioned, total operating costs were down about $1.1 billion this quarter compared to last year -- $729 million from reduced fuel costs and $390 million from lower non-fuel costs.

The $729 million decline in consolidated fuel expense reflects settled hedge losses of $242 million that are reported in the fuel expense line and represents a reduction of nearly 39% that was driven by both our capacity reductions as well as lower fuel prices.

Including the impact of these settled fuel hedges, the average mainline jet fuel expense for the quarter was $2.11, down from $2.89 a year ago, a reduction of 27%, contributing to about half of the lower cost we experienced.

Our unhedged fuel price for the quarter was $1.59 per gallon.

We recorded an additional $81 million in settled hedge losses and non-operating expense.

The return of collateral we had previously posted with fuel hedge counterparties essentially offset the losses associated with fuel hedges that settled out of the money this quarter, allowing us to participate in just under $1 billion in total fuel savings on a cash basis.

The team made great progress reducing non-fuel costs this quarter, continuing the momentum we built since last summer.

We know that to succeed in the long run, we must have a competitive cost structure and we're pleased by our continued progress in closing the negative gap we have had with some of our peers and widening the positive gap that we enjoy with others.

Non-fuel expenses were down $390 million or almost 12%, as we successfully reduced non-fuel costs at about the pace of our capacity reductions.

We continue to demonstrate industry-leading non-fuel unit cost control with our first quarter mainline non-fuel unit costs down 1.1% on over 13% lower capacity.

Our consolidated non-fuel unit costs were down about 0.5%, significantly better than our March guidance, and nearly 5 points better than the early guidance we provided on our conference call last quarter.

This, despite the natural headwinds from capacity reductions, in excess of 11%.

Our cost savings are coming from across the Company -- from large areas of opportunity to the thousands of little things that our people are doing everyday to improve the efficiency and cost-effectiveness of our operation.

Maintenance costs are being driven down as we fully harvest the opportunity created through the elimination of our 737 fleet.

We're aggressively tackling our distribution costs particularly in commissions.

Productivity is improving as we eliminate low value add work and significantly reduce our overhead.

As our operational reliability improves, our cost effectiveness improves along with it.

Moving to the balance sheet, we've been pleased with our continued success in raising additional liquidity.

This quarter, we raised nearly $500 million in new cash, including nearly $320 million from previously announced liquidity initiatives.

As we announced on our January earnings call, we raised $95 million in an aircraft financing, $160 million associated with the relocation of our Chicago O'Hare cargo facility, and $62 million from equity issuances.

Beyond these initial efforts, we were also successful in closing $174 million in additional transactions late in the first quarter.

We raised $134 million in an engine financing transaction, $35 million through the sale of certain leasehold interests in Los Angeles, and an additional $5 million in asset sales.

Our progress raising capital stands out when you consider that we're doing so in what is the worst credit market we've seen in a very long time.

We generated positive operating cash flow of $426 million in the quarter and free cash flow, which we define as operating cash flow less capital expenditures, of positive $347 million.

In addition to about $335 million in collateral returns associated with the hedges that settled during the quarter, both operating and free cash flow include the return of about $60 million of collateral associated with fuel hedges that will settle during the remainder of 2009, as well as $160 million from the Chicago O'Hare transaction I mentioned.

During the first quarter, we made scheduled debt and net capital lease payments of $264 million and spent $79 million in non-aircraft capital, largely on customer facing projects such as our new international Premium Seat product.

We ended the quarter with $11.1 billion in total debt including off balance sheet obligations, and $8.6 billion in net debt.

Our $2.5 billion unrestricted cash balance at quarter end was more than $250 million higher than our guidance and more than $400 million higher than where we ended last year.

Our liquidity standing is clearly another important metric where we have closed the gap with some of our peers.

Now I'll turn it over to John.

Thanks, Kathy, and good afternoon everybody.

We continue to run the Company around five major goals built on a foundation of safety -- 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 and respectful work environment for our people and for our customers.

Achieving these goals is even more important in today's economic environment.

The significant decline in unit revenue and demand during the first quarter is clearly one of the biggest issues facing our industry.

United's year-over-year revenue decline was disappointing.

However, our absolute revenue performance was competitive and we continue to enjoy a premium to the industry.

The position we have earned in key business and international markets such as China is the right place to be.

However, at this point in the cycle, year-over-year performance against these strengths has been challenging.

For the first quarter, our unit revenue results were at the top end of our guidance.

Consolidated passenger unit revenue declined 11.1% year-over-year, driven by a 9.2% decrease in yields and a 1.7 point decline in load factor.

As Glenn mentioned, we continue to benefit from the growth in ancillary and fee revenues as we collected approximately $14 per passenger in the ancillary and fee revenues in the first quarter, which represents an increase of more than 60% year-over-year.

We expect full-year ancillary and fee revenues of about $1.1 billion in 2009 or $200 million higher than 2008 on much lower passenger volumes.

This is a bit lower than our prior outlook.

While consolidated domestic load factor was about flat for the quarter compared to last year, domestic yields were under pressure as the demand mix deteriorated.

Consolidated domestic PRASM for the quarter was down 9.2% year-over-year on a corresponding 9.5% drop in yield.

Internationally, PRASM was down 15.4% for the quarter, driven both by yield and load factor declines.

The global recession is clearly having a significant impact on premium cabin traffic internationally.

In the first quarter, our international premium cabin traffic was down 30% year-over-year, resulting in an international premium cabin PRASM decline of 16% compared to an 8% decline in international coach PRASM.

Turning to entity results, in the Atlantic, first quarter PRASM declined 13.4% year-over-year as a result of weakness in both London in the secondary cities in Continental Europe.

In Germany, however, our capacity actions over the last several months have helped limit the PRASM decline there to mid-single-digits for the first quarter.

In the Pacific where PRASM declined 16.3% year-over-year, 10 points of which was attributable to the premium cabin declines, the largest PRASM declines were in China and Australia.

Japan has held up better with a single-digit PRASM decline.

However, in comparison to other US carriers, Japan only makes up about 30% of the United's total Pacific operation.

Our Japan unit revenue performance was impacted by a 13% appreciation in the yen, so only 28% of our Japan revenues are yen-denominated.

Overall, our Pacific unit revenues were negatively impacted by foreign exchange to the tune of 1.6 points.

While not yet complete, we believe our announced capacity actions continue to be appropriate.

We are maintaining our existing 737 retirement schedule with the last of the aircraft to be removed by the end of this year.

Continued industry capacity reductions are constructive and we are seeing moderate additional capacity cuts domestically and are encouraged by the recent significant capacity reductions announced by international carriers.

As these actions are implemented, we expect that they will contribute to an improving industry revenue trend.

Despite the capacity reductions we have made, we continue to maintain the breadth of our network, serving roughly the same number of cities as we did in 2008.

In the first quarter, we expanded this breadth with new service from Washington, DC to Moscow and the reinstating of Denver to London service.

In addition, this week we started new service from Washington, DC to Geneva.

Another way we are expanding the breadth of our system is through cooperation with our fellow Star Alliance members.

As Glenn mentioned, we are very pleased that the DOT has tentatively approved Continental Airline's application to join the antitrust immunization alliance of United and eight other Star Alliance member airlines.

And it also tentatively approved United and Continental's request to form a trans-Atlantic joint venture including Lufthansa and Air Canada.

This approval paves the way for Continental to join Star, an essential step to allow Star to compete effectively against the SkyTeam.

As Kathy mentioned, our cost control for the first quarter continues to be impressive, particularly given the amount of capacity we have reduced.

Nine months ago, when we laid out our performance agenda, we declared our intention to lead the industry in cost discipline.

We have delivered on that commitment with excellent cost control each of the last three quarters, and we continue to outperform our peers in year-over-year cost control, despite deeper capacity cuts.

Our cost discipline is neither temporary nor unsustainable.

We have not yet reached our full potential on cost control, and you can expect to see encouraging results from us in the future, both in good times and bad.

We will not achieve these objectives by simply replicating the business practices of the past.

Importantly, we need to have the willingness to envision significant changes to the business model if we are to reach our goals.

On the revenue side, the industry has demonstrated significant value capture in the area of unbundling.

We need to be just as creative and aggressive on the cost side.

This will involve taking new approaches to major expenses such as distribution.

Our progress in this area has been substantial, as evidenced by a 36% decline year-over-year in United's distribution costs on a 21% reduction in consolidated passenger revenue.

While the progress is significant, more must be done.

Cost performance is about seeing the opportunities, building the right team to realize them, driving first-class performance management, and operational execution.

Our improvement demonstrates our belief that cost leadership is not mutually exclusive to being a leader in operational performance.

By running a good airline, we are able to drive cost benefit from a quality product, and by narrowing our focus to our five fundamental goals, we can limit our investments to the areas that support these goals.

This disciplined focus and the continuing efforts of all of our employees was strongly in evidence during the first quarter when we came in number one among the major US carriers in A14 on-time performance.

These results are in line with the commitment we made to you nine months ago to return United to operational leadership in the industry.

Our employees are being rewarded for these efforts and the contributions in running an airline on time.

Through our new incentive program, front line employees have earned a bonus as a result of our improved on time performance in the each month in the first quarter, totaling $265 per employee.

Our customers, as Glenn suggested, are taking note of the work we have underway at United, driving a 10-point improvement in our customer satisfaction scores.

This is a result not only of our operational performance, but the steady improvements in the reliability of our on-board product offering and cabin cleanliness and condition.

It also reflects the great work my fellow employees are doing to deliver courteous, caring, and reliable service to our customers.

Together we are running a good airline.

We have competitive revenues and costs.

We have made tremendous progress operationally and our customers are telling us that they notice the difference -- all encouraging results and an affirmation on our Focus On Five agenda.

As we did at this time last year, we are beginning the planning process for 2010, with the commitment to further enhance the competitiveness of all of our work.

Our team is fully capable and aligned around doing just that.

Now back to you, Kathy.

Thanks, John.

Moving to guidance, for the second quarter we expect mainline capacity to be down 10% to 11% year-over-year and consolidated capacity to be down 8.2% to 9.2%.

For the full year we expect mainline capacity to be down 9% to 10% year-over-year, and consolidated capacity to be down 7% to 8%.

Incorporating the results of this quarter is better than planned performance on non-fuel cost as well as an expectation of continued good cost control momentum, we've lowered our full-year 2009 outlook for mainline unit costs excluding fuel and profit-sharing programs to be up only 1% to 2% against the mainline capacity reductions of 9% to 10%, a savings of about $150 million from our prior guidance.

Consolidated unit costs excluding fuel and profit-sharing programs are expected to be up only 1.5% to 2.5% in the face of a consolidated capacity reduction of 7% to 8%.

For the second quarter, we expect mainline unit costs excluding fuel and profit-sharing programs to be up 2% to 3% against the second quarter mainline capacity reduction of 10% to 11%.

We expect consolidated unit costs excluding fuel and profit-sharing programs to be up 2.5% to 3.5% despite a capacity reduction of about 8% to 9%.

Based on April 15th closing forward fuel prices, mainline jet line fuel prices are expected to be $2.02 per gallon for the second quarter.

This price includes taxes as well as the cash impact of fuel hedges that settle in the quarter and are recorded into [our spend].

Similar to the first quarter, we expect our posted collateral to effectively offset hedge settlement obligation.

Altogether, based on April 15 closing forward prices, we estimate total expense for the full 2009 year to decline $4.4 billion, including the impact of settled hedges.

On the same basis, we expect total consolidated CASM for the full-year 2009 to decline about 26%.

On top of this cost reduction, we expect to benefit from the return of about $940 million of hedged collateral in 2009.

You can find a detailed description of our hedge positions, our detailed fuel price outlook, and additional guidance information in the investor update that we issued this morning.

In response to the tougher demand environment, we are reducing our capital spending by additional $100 million from our previous announced plan of $400 million.

We now plan to spend only $350 million in non-aircraft capital in 2009, with a significant portion of that going to the international cabin upgrade in our wide body aircraft.

We continue to work to build our [solid] liquidity position and have manageable fixed obligations going forward in 2009.

We have modest set obligations with no large bullet payments due, no aircraft purchase commitments, no material assigned benefit plans to fund, and even lower year over year capital spending.

We're confident in our ability to navigate the current economic environment.

We have the flexibility to make additional changes in the business should it become necessary, and the tough work we're doing now should put us in a very good position for a strong rebound when the economy begins to recover.

With that, Jennifer, we're ready to open up the call for questions.

Thank you.

First we will take questions from the analyst community and then we will take questions from the media.

(Operator Instructions).

And we'll take our first question from Kevin Crissey with UBS.

Hello, everybody.

Hi.

Distribution, you talked about getting a lot of savings there -- can you talk about specifically how you went about that and what opportunities are there in the future?

John here.

So, Kevin, we like a lot of folks in the industry have made significant progress on our GDS expenses over the last few years, as well as what I would characterize good initial progress in terms of OTAs.

Our commission expense has been a line item we've been aggressively managing for a few years, particularly trying to move down fixed commission expense in markets such as Asia.

So this is really a line by line cost of sales commitment.

We're managing at the highest level of detail, and that's what's driving the results we've experienced, which we think compare pretty favorably to what's occurring at this stage of the industry.

But clearly this is a very large expense item for the industry.

What we pay for distributing a product right now doesn't make any money.

So we're clearly focused on targeting this line item.

Okay.

So you said -- I want to go back to your original statement was you had a significant improvement, was that significant -- in your kind of prepared remarks -- it was significant improvement, but I didn't catch over what timeframe?

Because you talked about the GDS expenses.

That hasn't changed over the last year or so, has it?

Year-over-year, quite a bit of what we've been able to do is commissions and particularly internationally.

You said that -- again, I don't want to misquote you, but like good initial progress with the OTAs?

This seems like a tough time to be negotiating with a distributor when you're short on revenue, not just United, but everyone.

But what opportunities do you see there?

What is the problem?

Is it a switch that you would rather go -- obviously you would rather have the website -- do you prefer the [kayaks] over the OTAs?

What is it about the OTA distribution that you see as an opportunity?

We're a few years out in being able to renegotiate those contracts.

We did make progress last time.

But we clearly see an opportunity to further improve the economics there.

I accept your point that it is difficult to reduce distribution costs during periods of weak demand.

However, I think this gets back to capacity discipline.

We ultimately got to capacity set low enough to have some commercial courage on attacking this cost.

If we're constantly terrorized by excess capacity, the chances of improving the economics around these key cost components to business are not very high.

When you look at OTAs, they offer less value add to our most profitable customers.

The large travel management companies are performing a service that we really can't step in and perform, and one that our most profitable corporate customers have determined is of significant value to them.

Terrific.

And Kathy, if I could ask you, your financings -- I mean, I was just at an air finance conference yesterday.

Tough times to raise capital.

Congratulations on getting some done.

But it has to be at a pretty expensive rate.

Can you talk about what kind of -- how it compares to previously, and why we should be -- I mean, maybe it helps you survive, but why should an investor be excited about the financing you've been able to accomplish?

I think overall given what the very difficult credit market and desire to continue to build liquid liquidity, I think investors should be -- like we are -- very pleased that we've been able to continue to raise money.

Clearly given these tight credit markets, the debt that we would be raising is coming at a higher costs than what we would have achieved a couple of years ago.

But I think when you look at the level overall, relative to our total debt obligations, I don't think we're putting on additional obligations that are really going to overly penalize the Company in terms of those higher debt rates overall.

I think the much more significant accomplishment is the building of liquidity during what is a very difficult time in terms of the revenue environment, and clearly also a difficult time in term of just being able to close transactions in this market.

Okay.

Thank you very much.

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

Two questions, my first one is actually to Glenn.

Glenn, with your involvement in the ATA and everything, you have a pretty good sense of what you hear about with the industry and what goes on in DC.

And I was just curious, since the stimulus bill was announced, I thought it was somewhat odd that high-speed rail is going to get like $12 billion or $13 billion and the amount that was actually going to the US aviation industry or just airports in the air transportation system was at most maybe one-third of that, at best.

And I following up I was told that the reason why the airlines got a lot less is that it had to do with projects that were shovel ready.

I'm not sure when you think about high speed rail in the US if that is even a year or two away from being shovel-ready.

I was curious based on who you talk to, and what you're hearing, why did the industry fare so poorly in this go-around?

As a matter of fact, Mike, the airline industry got effectively zero.

Now I know.

It is something on the order of $9 billion plus for the vision of rapid rail and zero for next gen.

That circumstance hasn't really gone unnoticed.

I don't think it was a function of our not being shovel-ready as much as it was a function of our being shovel-hesitant.

And there was some doubt as to whether or not there was leadership at the FAA at the point of stimulus one, that could really answer the difficult questions about the complexity of the way forward or next gen.

And so in a sense it was convenient to overlook.

Mike, we now have leadership at the FAA.

We're aligned as an industry in that leadership.

We're speaking with one voice relative to the fact that a good bit of next gen is now gen ready and should have been included in stimulus one, and if there is a stimulus two, I think the chances of it being included in stimulus two would be very good.

That said, if we have to go through the normal appropriation process, we will.

And we're having very constructive conversations about exactly what the next immediate level of investment should be to get us started on next generation technology for ATC.

Okay.

Good, thank you -- and my second question and I think that this is probably for John.

John, I think over the last two or three weeks, we've seen at least one, if not two attempts to raise fares, and I believe actually United may have participated in at least one of the initiatives.

Can you give us a sense of is this -- are you seeing maybe pockets of some strength out there that would support a potential fare increase?

Or are we maybe we're reading the tapes wrong here?

Anything you can say on that front would be great.

As you know, I can't say a lot.

I think in times like this we have to focus on getting the most value we can particularly out of the peak periods and that is the theme of these increase attempts over the last few weeks, most of which as you pointed out have not been successful.

Okay.

Very good.

Thank you.

Okay.

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

Hey, good afternoon, everybody.

Jamie.

Kathy, I realize January of next year is quite a ways away, and a lot can happen between now and then, but I'm starting to think about the processing agreements with both Chase and American Express.

The Chase agreement seems straight forward enough with the January reset.

But your 10-K is a little less clear on AmEx.

Do they have any flexibility to impose a hold-back if [mundane] cash isn't above $2 billion?

And also for both agreements is there a limit to how much of the remaining $1.7 billion in unencumbered assets that you can pledge?

That's a terrific question, Jamie.

Thanks very much for asking it.

I'm going to take a few items separately.

So one thing I would mention with respect to our agreement with Chase on our credit card processing deal, as you I think are very well aware, we have posted non-cash collateral with Chase and we have that arrangement with them as you mentioned through January.

We have already started discussions with them to address that on a longer-term basis.

And as you know, Chase is a bank that participates with us in a full branded credit card.

So we have a pretty strong alignment with them and I think a very good longstanding relationship in terms of working closely together to get the answers that work very well for us and very well for them.

The cash collateral that we have posted against that credit card agreement is not counted when we count our unencumbered assets.

And so right now we've stated we have got about $1.7 billion in unencumbered assets at this point in time, and that is excluding anything that we would have already posted with Chase to cover any potential future credit card reserves that otherwise would be required.

Okay.

I'm going to turn then to talk about American Express.

We've recently redid our arrangement with American Express on credit card processing and we're in a multi-year deal with them.

As part of that arrangement, we actually have a similar, but not exactly the same tiering level with respect to the potential reserves that trigger off of our unrestricted cash, and we closed this quarter as you know with unrestricted cash a little over $2.4 billion.

That was above what would be [credit tiering] levels of American Express and so at this time [unrestricted cash and loan] reserve would be required.

But one thing I would point out, that that agreement enables us is the flexibility to actually post non-cash collateral should we at any point be in a position where reserves are required.

So I think with respect to both of our credit card processing agreements, we're in a very good place with respect to liquidity.

I think that substantial unencumbered assets that the Company had billed over the past years is serving us very well in this environment and giving us flexibility and enabling us to raise liquidity.

Okay.

Excellent.

Thanks for the color on that.

Thank you, Jamie.

And we'll take our next question from Gary Chase with Barclays.

Good afternoon, everybody.

Hi, Gary.

I wanted to ask a couple of questions on the costs on the finance side.

The cash position for the quarter, as you know, you gave guidance on March 20th that did come in quite a bit better than you were projecting.

I was curious if you could give us color on what drove the $300 million in upside.

Did some of that financing close late in the quarter when you thought it wouldn't or was that an operating issue?

I'm happy to give you additional color on that.

This is Katherine.

It was a combination of things, and clearly the biggest was closing financing at the very end of the quarter.

In this icy credit market, it is pretty tough for us to actually count on closing financing, even ones that we have in the pipeline and underway.

And so while we knew we had things in the pipeline at the time we gave guidance, we weren't willing to quote, unquote, to count on them, and as a result we didn't include them in the guidance that we gave.

So our engine financing transaction closed at the very end of the quarter.

We also closed the sale of leasehold interest in Los Angeles at the very end of the quarter, and some small additional asset sales.

And so it was really those things that drove the biggest positive variance in terms of the guidance we had provided.

Secondarily, right at the end of the month, fuel prices had gone up a little bit.

I had mentioned in my comments earlier the collateral return that we had seen associated with on the one hand the positions that we closed in the quarter, and on the other hand some of the positions that were still open.

And so that again caused a little bit of movement in terms of our cash balance.

Okay.

And then similar question, I guess -- the cost outlook came in quite a bit better than what you were forecast in that update as well, and if I look at what you are doing with the remainder of the year, and there were two levels of surprise.

In the update on March 20th, you'd be what were forecasting in January, that surprise appears to be carried through the remainder of the year judging by the guidance you've given today.

But then there was also an additional surprise where from the March 20th update, you came in quite a bit better than what you were projecting, and that does not seem to be carried through.

So can you just give us a little flavor for what was going on there, and what was moving around?

Very happy to.

The flavor I would give is I actually think everything is carrying through a little bit more than that.

If you look at things going on in the first quarter, we actually came in at the high end of our capacity guidance.

We didn't move our capacity guidance through the full year.

In fact mainline is down 0.5 point for the full year relative to where we were before.

And so when you think about it on a full-year basis for the remainder of the year, we're actually getting a little bit more headwinds in terms of the capacity reduction that we're seeing.

Overall, we've pulled down our guidance for the full year in an amount that is about $150 million in terms of absolute non-fuel costs that I mentioned.

About $100 million of that comes from the first quarter if we look for the remainder of the year.

We've clearly identified another $50 million in sustainable cost improvement, not really coming from any single line item, but really coming from across the board.

And it is not revenue-related?

No, a couple of things I'd point out -- so the little bit of revenue-related that we may be seeing in kind of 2Q through 4Q is really offset by the additional headwind from a little larger capacity reduction, again, because 1Q came in at the high side and we haven't moved a full year.

So that really isn't coming into impact for us.

And we, as John mentioned, really do have a very good cost management control tracking accountability.

And when we alter our guidance, we're very careful that we're actually counting all the dollars and cents across all the line items to give us a very high degree of confidence that we'll be able to deliver that performance.

I just add to what Katherine said and what John certainly said in his remarks.

It is both operational and overhead related.

Okay.

And just one last one, sorry.

A few of you mentioned in the prepared remarks and it was in the release that you have both the capacity and willingness -- or ability and willingness to reduce capacity further if that becomes warranted.

Glenn, you noted that the returns aren't what you would hoped they would be, not just for United but at an industry level.

How should we think about what the trigger point is for you -- so what would make the difference between what's appropriate now?

Is that predicated on an assumption that revenue improves, that it simply doesn't get worse?

What is it that would trigger additional capacity reaction by United?

I think all of your questions, both of ourselves and of our peers, those that have already reported their results and have had their conference calls, are focused on whether or not we're seeing the bottom of this recession's effect on our business.

And just about everybody has said although we might use the word stabilization, it is very, very difficult to determine.

And I think until we do, we really are answering a hypothetical with respect to your question.

But if in fact the actions that we have taken and the discipline that the industry has demonstrated puts us in a position where we're now square to the realities of the demand environment for a while, then I think we'll be able to recognize the benefits of what we've already done.

In the event that the economy does not show signs of the recovery that we hope we are seeing and you are commenting on, then in fact we simply want to let you know that we are prepared to do more in the event if we must.

I think in that context, we're going to do it based upon our analysis about what is good for United.

And if we can improve the cash margin of the business by reducing capacity, we will reduce capacity.

We will not reduce capacity to compensate for others who deem they should be less aggressive than us.

Okay.

Guys, thanks very much.

No more contributions in the industry.

Okay.

We'll go next to William Greene with Morgan Stanley.

I'm wondering if we can talk a little bit about -- you mentioned in your earlier comments last quarter that you thought you could get about $1.2 billion in ancillaries.

Is that still realistic given the declines we've seen in the passenger counts?

As I said a little bit earlier, we're looking at about $1.1 billion in that regard, which is as you point out to be expected under the circumstances.

Sorry, I missed that.

Not at all.

Kathy, I wonder if you can tell us the agreement that you have with Chase as we look out to, let's say, end of 2009, early 2010, does it allow you to presell more miles, or are you locked in for a couple of years here?

So as you know, last year we did an amendment to our agreement with Chase that this time engaged us to on a one-time basis to presell another $500 million worth of miles.

So our arrangement with them doesn't have built into it on an ongoing basis that we're going to continue to presell more miles.

I would come back a little bit to the comments that I made to Jamie on the credit card processing agreement we had with Chase.

I would simply say we have a longstanding very good relationship with Chase, both on the credit card processing side and on the frequent flyer side with our Mileage Plus program.

They have time and time again proven their willingness to work with us on a constructive basis if and when needed and in a manner that works for us and works for them.

So I continue to think that is a very, very, very strong asset of United Airlines.

Kathy, just on CapEx, you have really cut that back to very low levels and yet, if I understood your comments correctly, you still think there may be more you could do.

I don't know if you meant 2009 or beyond.

But how long can you run this far below depreciation?

So in my prepared remarks, I didn't suggest that we were cutting below the $350 million.

I simply stated we started the year at $450 million and we came down to $350 million.

To some extent I would tell you having to operate in what has been perennially capital-constrained environment has made us get relatively good at this in terms of not starting projects that we think we need to wait for our liquidity situation to enable us to afford, and keeping very close track of our projects -- delaying some, or stretching some out, over a larger, longer I should say, period of time.

So for better or for worse, we've had capital constraints for a number of years, and what I tell you iswe're very focused on where we spend the capital.

Consistent with John's remarks, we have galvanized the entire Company around focusing on only a few goals, and that's absolutely where we're lining up our capital spending.

I understand that it is now at a rate that's modestly lower than what we would see in terms of annual depreciation.

But the other thing I tell you is from a fleet perspective our retirement of the 737 is in part being backfilled with new RJ70s.

And so while those aircraft orders don't show up in our book or our financial statements per se, we're certainly seeing the benefit of that on the product side because it's a very good product [record].

And where we're spending the money is very customer facing and we're clearly seeing the benefit of those capital expenditures in terms of our employee/customer satisfaction results, especially on our international [fleet] product.

So maybe I could just follow up then with Glenn.

How should I think about this?

So you don't get an adequate return.

You've pulled CapEx back to arguably minimal levels.

Where do you go, if you don't want to cut more in capacity and can't cut more in CapEx, but the returns aren't there -- what we do here?

I think John said it and Kathryn complemented John's comment.

We've got to continue to be very smart in how and where we invest precious resources.

And I think that the fact that the customer facing investments in this extraordinarily challenging market environment are still going forward and are still generating significant customer satisfaction improvement by United is appropriate thing for us to be doing right now.

Now, we also mentioned that we were very pleased to see the DOT approval of the Atlantic-plus-plus and global antitrust immunity application approved for Continental to join United in the Atlantic venture, and we hope out in time in a Pacific and Latin American facsimile with different partners.

That type of, if I could call it that, investment, going forward is very smart CapEx free investment that improves the customer offering for our Company.

So in this industry, you simply have to find another way, if it isn't the typical deployment of capital.

And if you think of that relationship that we're evolving with that particular company, with Continental as our partner, and the work that it spans from frequent flyer to common lounges, to airport consolidations, to work on IT, common IT, there is a good bit of work between us that actually is very CapEx efficient for the two of us.

And we want to be very mindful that we don't want to get ahead of that relationship with the dedication of any CapEx that we might regret later on.

I totally get it.

If I could summarize, it sounds like what you're saying is in the absence of any recovery that's meaningful, returns are going to be subpar because you really need the economy.

There's nothing left on the Company specific side you can do to get there.

I think both are true.

I think in a sense what you heard Kathryn and John say is that the industry is now in a make your own margin environment.

In my view, having not been in the industry for a decade, I tell you I think that is a good thing for the industry.

I think it is a very good thing for the industry.

I think discipline on every front, every management front in this industry, is a good thing.

And I don't wish for this economy, believe me.

But I do wish for the disciplined decision that have come with it.

And I actually think that is a very good thing.

Kathryn hit the nail on the head.

This economy recovers, and you take the leverage of the decisions that we've made during this economy, and as we said previously, and facing what we thought was going to be $180 fuel, I think there is going to be tremendous upside to those decisions that we've made under duress.

And the one thing I admire about this industry, this industry knows how to make really tough decisions.

All right.

I appreciate the time.

Thank you.

You bet.

And we'll go next to Helane Becker with Jesup and Lamont.

Thanks, very much, operator.

Thank you for taking my question.

Two questions, actually.

One is, will there be additional charges related to today's announcements with respect to the capacity adjustments that are coming later this year?

So I'm happy to take that.

We have, as you have seen in our disclosures, each quarter as a result of the fact that we're midstream in a fleet retirement program, each quarter we end up having to look at those aircraft that we are retiring and taking some charges associated with it.

And so we have tried to do [additional] disclosures around that.

You are going to continue to see that.

The one charge that you saw in addition to that this quarter was a small impairment charge.

We took a large number of impairment charges last year.

We certainly aren't anticipating on a go-forward basis significant impairment charges.

But we will do our best to try and disclose those in advance of the quarter just to give you visibility to them.

They're obviously not charges that we'll see in an ongoing basis, but are associated with either just the current economic condition that we're facing, or with respect to your specific question, the fleet retirement program.

Okay.

Great.

Thank you.

And then just a follow-up question to the last group of discussions for Glenn.

Based on your earlier comments and the discussions that you've had in response to other questioners, I'm just wondering -- you seem to have no problem raising liquidity and you've talked about your ability to raise capital in really the past year or so, and I'm just wondering with the market capped the way it is and the shares trading the way it is, does it really make sense for you to be a publicly-traded equity?

Could you run the Company successfully with just publicly traded debt?

Helene, that is probably a question for another day over a cup of coffee rather than on the call.

But I think -- I'll go back to where I was a moment ago.

The industry is where the industry is, and frankly the work that the team has done, despite a good many of the macro challenges and the unique challenges that every particular participant in the industry faces, the Management teams continue to do remarkable work despite the challenges of this particular industry.

And my sense is that these times might well give us the opportunity, as John said and Kathy said as well, to make substantive differences in the context of the industry.

It will really serve us well in the years ahead.

Yes, okay.

Thank you very much.

Thank you.

And we'll take our next question from Michael Derchin with FTN Equity Capital.

Hi, everyone.

Just a couple of questions.

One on the European Commission anti competition investigation into Star.

I guess I'm confused about what they mentioned potentially excessive cooperation.

I thought antitrust immunity allows you to sit down and do things like what you've been doing for quite some time.

What are they looking at?

Can you shed any color on that?

I'll let John attempt to do that, but before he does, I'll tell you that you shouldn't feel unique in being somewhat confused by --

First of all I'd start out by telling you also a few years ago SkyTeam received a similar letter from the Commission, and looking back I think what the Commission is evaluating is whether the remedies that were associated with their initial approvals are going to be adequate in their view on a going-forward basis.

And I think this quasi using the inflammatory words of airline cartel is an exaggeration and mistake in reporting outcome.

So, look, I don't want to say that this is routine, but it is a step in the process that we expected, and we fully expect to implement the joint venture that was approved by our Department of Transportation.

Okay.

Thank you.

Can I ask one more question just about the Pacific?

It is striking that your RASM is a lot worse than Delta's, at least in the first quarter in that area.

You haven't obviously talked about it.

But one of the things that strikes me is just the way they're operating their Pacific, which really is a hub and spoke kind of classic in Narita, whereas you guys are doing a lot of overflying.

And I'm wondering if that's -- if theirs continues to work, if their strategy, I guess, continues to work better than say the overfly strategy, is that something you can re-examine and maybe go back to a more classic hub?

It is only in the last 90 days that having the most non-stop service to mainland China is suddenly a disadvantage.

Right.

So, look, there are two different strategies.

We think we're very well served by having a significant hub in San Francisco, which is obviously the western-most collection point for the Asia operation.

I think one structure you could say is probably inherently a little more defensive and one is offensive.

We think that our structure throughout the cycle is the right one for us.

But we fully expect that the competitive challenges of a Delta are different than the competitive challenges of a Northwest.

However, we are continuing to develop our strength out of the San Francisco hub and capitalize on our historical presence ex Japan, which is substantial and we think is valuable.

So we are quite confident.

In addition to that, we are going to produce what we think is clearly the market leading premium cabin product.

So the systems have been very different.

Our Japan source of sale is not substantial.

So it is a very different architecture between the two systems.

There are pros and cons to both, but we're very happy with where we sit competitively.

Do you have sixth freedom rights and fifth freedom rights ex Japan?

Yes, we are utilizing those today, just in a progressively smaller manner than we have in the past.

I think one of the issues you're also going to have around Narita going forward is what is going to develop as [Onida] and that may change the attractiveness of a Narita hub on a going-forward basis.

Thanks very much.

The other thing I'll say, simplest point of difference I can give you is that every major interior point in the US on the United system is served in a single connect as the major destinations we have in Asia versus a double connect on the alternative strategy.

Thanks very much.

Thank you, ladies and gentlemen, this concludes the analysts and investor portion of our call today.

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

Tilton for closing comments.

Thanks very much, Jennifer.

We appreciate the questions and we really appreciate the discussion.

As you've heard from both John and Kathryn, we are driving fundamental improvement in our business and that's what we're focused on.

We're delivering competitive revenue in a challenging environment, as we discussed, excellent cost control for each of the last three quarters.

At the same time, we are focused on improving the service that we deliver to our customers, and our metrics prove that point as well.

In closing, before we leave the analysts, I would also like to say that we're focused on improving our deliverable to you.

John Gebo and his team are working very hard to make certain that the materials that we provide you at the end of a quarter are best in class -- they are helpful to you, they're transparent, they are detailed and they're formatted in a way that lends value to this call.

So on this call you needn't ask those questions that we've already [bagged] and answered in the package we've given to you.

So thank you, John and his team, for doing that.

If any of you, and I know you will, have comments on the changes that we've made to this quarter, let John and Gerald and the team know, because we certainly want to get your feedback on that.

So with that, we'll conclude this portion of the call and turn it over to you.

Thanks, operator.

We'll open it up for questions from the media.

Thank you, we will take calls from the media.

(Operator Instructions).

And we'll take our first question from Doug Cameron with Dow Jones.

Hello, everyone, can you hear me?

Yes, we can.

Splendid.

If you can give me a little more color or any sort of breakdown given the fall in premium traffic?

You say in the release that that is obviously a function of both falling business demand as well as people migrating backwards.

So I wonder if you would give a little bit of color on the split there and also what perhaps you might be doing with your corporate travel customers to encourage people back to the front?

Well, this is John here.

I think this is a natural result of the economy that we are in right now.

Clearly we don't want to do something in terms of the way we priced that is simply going to reduce realization on what is probably a relatively constant demand set until the economy improves.

So look, this is expected on our part.

We just need to get into an environment where we see not only some strength in the economy, but frankly the corporation's ability to maintain this degree of discipline is not permanent.

Eventually you got to get back to trying to build your business again and we expect that that will occur.

Okay.

Thank you.

And we will take our next question from Mary Schlangenstein from Bloomberg News.

Thank you.

Mr.

Tilton, when you were referring to whether or not there has been a bottoming of the decline in demand, I wasn't really clear -- did you say that you have not seen evidence of that yet?

We agree with what everybody else has said, is there's no conclusive evidence to that effect.

It's not a function of not seeing some markets that look as if that may in fact be true and I think one of our colleagues said so today.

But he also said that it's too difficult to call now.

And I think that there is no conclusive evidence that that's true.

Okay.

So are you continuing to see it get worse?

Or is it just flat at this point?

John here, Mary.

I think, look, there is significant deterioration in the revenue environment that has largely been due to a weak volume and weak yields on close in demand, i.e., the corporate market.

Given the very nature of the source, it follows logically that it is very difficult to predict revenues on a forward-looking basis right now for the industry.

I think you saw that to a certain extent simply on the range of outcomes that carriers had in their revenue guidance in the first quarter, when we all pretty much firmed up the guidance in mid March, there's been a pretty wide dispersion as how to carriers performed against that guidance, which is indication that even those that predicted in the middle of the month, some were high and some were low.

When you look at that type of occurrence in the marketplace, I'm one to give you a false degree of precision around what we see from a forward perspective.

Mary, let me go back to something that Doug was asking about.

Our product is -- in the context of Doug's question -- is a business tool.

And it's an affordable business tool.

And having been on the other side of this relationship for the majority of my business career, I can tell you that it's a very desirable business tool.

Businesses that are doing business from the center of the United States to Beijing or to Shanghai, or to Incheon are not keen to have their valuable business talent managers experiencing any discomfort from what against that to which they have grown accustomed for very long.

So we continue to invest, as Kathryn said, in upgrading that valuable business tool.

And we have confidence that it's a very resilient business tool.

And at the first indication of some confidence with business travel managers, it is something they will want to return to the tool kit of their business travelers.

Okay.

Last week, Gerard Arpey said he believed the businesses could turn the business travel tap back on very quickly and build it back up very quickly.

Southwest was saying they thought it wouldn't happen very quickly that it would take a longer amount of time.

Did you see it one way or the other?

Do you expect once it does come back, it will be a quick resumption?

That is really, Mary, an illustrative question of a point I was trying to make to the prior question.

Each of us has a different network and each one of us has different business customers who will respond to different signals from the economy.

If you're a long haul international carrier, which both we and American are, that degree of importance of that business tool I referred to you a moment ago, it is very important.

So moving those folks back up to the front of the airplane is a very important decision for them to make and it has real consequence.

You may know I just -- since I delivered a speech in Beijing and I delivered a speech in Tokyo, I just got back from Beijing.

I could tell you 13 hours out to Beijing from Chicago, it's a business experience.

But if you're sending somebody out there that you hope is going to generate revenue for you, you want them to arrive relaxed and ready to do so.

Now that is different if your business traveller or business customer is limited to domestic US.

Right.

Thank you very much.

You bet.

We will take our next question from Josh Freed with the Associated Press.

Hi, I'm wondering if you could say a little more about that European Union probe, especially in the context of some of the remarks from representative Oberstar recently and some of the other talk about reregulation?

I'm wondering if that context it seems like the European Union probe is possibly more than an exercise and might lead to a very different environment for the kind of joint venture that you're hoping to get going over the Atlantic.

I think maybe what I would ask that you do is to consider the context of which we discussed the economic realities of this industry and ask yourself if that seems like an effective cartel to you.

Right.

Right.

Well, it's, regardless of how I see it, I mean, the bottom line--

You mean regardless of the facts?

The point being that I'm wondering if this represents more of a threat to your joint venture prospects than what you've seen in the past.

We think not.

We think the inquiries are in the normal course.

Can you say anything about the idea of a bag fee for international flights -- does that strike you as a good idea, is that something you're going to start tomorrow, what are your thoughts on that?

We can't comment on any prospective pricing action of the Company.

But you know what we have done in the past relative to unbundling the products, and we philosophically think that is the right way to go.

Thank you.

We go next to Julie Johnsson with Chicago Tribune.

John, just to follow up, are you saying philosophically you think that introducing baggage fees for international flights is the right direction to go?

No, I think what I was saying you will know we're doing when we announce it, and prior to that I can't comment on it.

However, we're a believer in unbundling.

Great.

Glenn, there has been some discussion today of how the industry will look when we come out of the trough and I was wondering if you could just walk us through a little bit about your plans to reposition United for the rebound.

What's this airline going to look like a couple of years out?

Well, I think, Julie, if we take the last question that you had, with respect to the revenue environment, I think it will be a very creative revenue business model with more customer choice, more customer options, and more unbundling of goods and services between the airline and marketplace.

So I think that will take place.

I think that the industry will be more disciplined than it has been in the past.

I think that the experience of going from the specter of $180 jet, which was actually $147 crude, which means that at $200 crude the crack spread would have been even beyond $200, created a discipline, a fiscal discipline in the industry that has served the industry well in the recession.

And I'm hopeful that fiscal discipline will carry over into the next economy, which certainly would be better than this one.

So I think that it will be a more financially responsible industry than it perhaps it has been in up cycles in the past.

I think it will be an industry that really understands the value of investing in that which the customer is willing to give you a return on that investment.

What that customer is willing to give you a return for.

We'll continue to invest in product that the customer values and the customer is willing to compensate us for.

And I think that will be a component of the industry or a definition of the industry going forward that's a little different than perhaps in the past, as well.

Well, that's the industry, but what about United Airlines.

All of the things are true for United Airlines.

We would like to actually lead the industry in those areas.

Okay.

All right.

Great.

Thanks.

You bet.

And we'll go next to Ted Reed with TheStreet.com.

Thank you.

So to an extent my question has been approached, but my question is you are now the third largest airline, you don't have any airplanes on order, your revenues are down 20% -- I wonder if you're shrinking too much in preparing for this future in the industry and despite your commitment to discipline in the industry, you've become a much smaller company in an expanding world/ That's my question.

John here, I apologize we couldn't hear 100% of that, but I think -- tell me if I'm rephrasing this.

You wonder if we are shrinking too much to participate fully when the economy returns, is that -- ?

Yes, in general, you're shrinking.

Across a whole host of industries, and even our own over the last 10 years, it certainly hasn't been proven that bigger leads to better returns for customers or for shareholders.

So we are interested in building the best United for our employees, our investors, and our customers, and we are confident that our strategies align with that outcome.

All right.

Thank you.

And our last question we will go to John Pletz with Crain's.

My question has been answered, thanks.

What?

His question had been answered.

Oh, okay.

Thanks very much.

And he was the last question.

Thank you.

We appreciate very much, operator.

We can conclude the call.

Yes, thank you, ladies and gentlemen, this does conclude the call for today.

You may disconnect your lines at this time.