聯合航空 (UAL) 2011 Q1 法說會逐字稿

Good morning.

Welcome to United Continental Holdings earnings conference callfor the first quarter of 2011.

My name is Michelle, and I will your conference facilitator for today.

Following the initial remarks from management we will open up the lines for questions.

(Operator Instructions).

This call is being recorded and is copyrighted.

Please note that no portion of the call may be recorded, transcribed or rebroadcast without the Company's permission.

Your participation implies your consent to our recording of the 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, Nene Foxhall and Tyler Reddien.

Please go ahead.

Thank you, Michelle.

Good morning everyone.

Welcome to the United Continental Holdings first quarter 2011 earnings conference call.

Joining us here in Chicago to discuss our results are President and CEO Jeff Smisek, Executive Vice President and Chief Revenue Officer Jim Compton, Executive Vice President and Chief Financial Officer Zane Rowe, and Senior Vice President, Finance, and Treasurer, Gerry Laderman.

Jeff will begin with some overview comments, after which Jim will review capacity and revenue results.

Then we will follow with a discussion of cost structure and the balance sheet.

Jeff will make a few closing remarks and then we will open the call for questions, first from analysts, then from the media.

We would appreciate if each of you with questions would limit yourself to one with one follow-up.

With that I will turn it over to Tyler.

Thank you Nene.

Our earnings release and separate investor update were issued this morning and are available on our website at IR.UnitedContinentalHoldings.comLet me point out that information in this morning's earnings press release and investor update and the remarks made during the conference call may contain forward-looking statements, which represent the Company's current expectations or beliefs concerning future events and financial performance.

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 by United Continental Holdings, United Airlines, and Continental Airlines 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 nonGAAP to GAAP measures please refer to the tables at the end of our earnings release, a copy of which is available on our website.

As with last quarter we will present our first quarter 2011results on a combined basis for United Continental Holdings.

All prior period results discussed today including comparisons against prior periods will be based on unaudited pro forma results for the combined company, and include estimates of the impact of purchase accounting.

For additional details please refer to our investor updates issued during the fourth quarter of 2010 and the first quarter of 2011 which are also available on website.

In the quarter we made several accounting changes that reclassified expenses that had previously booked as net of revenue to now be booked on a gross basis.

In order to ensure meaningful year-over-year comparisons, prior periods have been adjusted to reflect the impact of this change, additional details of this reclassification are available in our investor update issued this morning.

Unless otherwise noted, as we walk you through our numbers for the quarter, we will be excluding special charges, merger related expenses, and/or fuel hedge noncash net mark to market gains and losses.

These items are detailed in our earnings release.

Now I would like to turn the call over to Jeff Smisek, President and CEO of United.

Thanks Tyler and Nene, good morning and thank you all for joining us.

I would like to thank my coworkers for delivering solid operational and financial performance this quarter.

Our team faced a lot of challenges this quarter, and I appreciate all of the hard work my coworkers did to navigate the tough times.

I would particularly like to thank my more than 1,000 coworkers in Japan and my coworkers who fly to and from Japan, who overcame personal challenges to help our customers and keep our operation going safely and reliably after the earthquake and tsunami.

Today we reported a net loss of $136 million for the first quarter, or a $0.41 loss per share, an improvement of over $45 million as compared to the same period last year.

Fuel prices remain very high and volatile.

During the first quarter, they rose to levels not seen since 2008.

We saw our first quarter fuel expense excluding the impact of hedges rise $725 million compared to the same period of 2010.

These are very tough times.

But we need to be successful for our coworkers, customers, and shareholders no matter what fuel prices are.

Our focus remains unchanged.

Offering clean, safe and reliable air transportation, and generating sustained profitability throughout the business cycle.

In light of the challenge posed by fuel and the tragedy in Japan, our merger is even more valuable, as it provides the platform to weather the tough times with flexibility and resiliency.

The new United network is a potent asset.

Our service is not only global but globally diverse, with broad presence in the Atlantic, Pacific and Latin markets, allowing us to optimize our aircraft to best fit the current and expected demand of each market.

We run our airline with the business traveler in mind, and our business travel mix provides more stable demand even in times of rising fares.

We also have some of the best partners in the business through our joint ventures across the Atlantic and Pacific and in the Star Alliance.

United ended the quarter with a combined unrestricted cash balance of $8.9 billion, giving us the flexibility we need to make smart strategic decisions, and the ability to muscle through these tough times.

During the first quarter, the new United had solid operational performance with 80% of our combined mainline domestic and international flights arriving on time.

Given the storms we had this winter I am pleased with our nearly 98% completion factor.

We are committed to delivering reliable service to our customers, and doing so while improving efficiency.

During the first quarter, we removed an average of 2.5 minutes of block time from our United subsidiaries mainline flights.

Even with this reduction the United subsidiary was able to improve its on time arrival performance year-over-year.

By reducing block time we improve our network's efficiency and our fleet utilization while reducing costs.

Our efforts to improve efficiency certainly don't end there.

In the new fuel reality, we are pursuing jet fuel savings through a variety of operational initiatives.

Prior to merging, both United and Continental had fuel saving initiatives in place, and now together we are able to identify, analyze, and share the most successful initiatives of each carrier and implement those across the new United.

One example of a best practice initiative under way is the more consistent use of ground power, versus using the APU or the auxiliary power unit.

The early results of this initiative shows savings of 200,000 gallons of jet fuel a month, and we estimate we can save 7.5 million gallons of jet fuel on an annual run rate basis once all APU initiatives are implemented.

As we have said before, United believes in capacity discipline.

Put simply, with high fuel prices we have raised our fares which reduces demand.

As a result, we reduce capacity to match the lower demand.

United has continued to demonstrate capacity discipline with our full year 2011 capacity reductions, the first of which we announced on our last quarter earnings call in January, and was followed by further reductions in March.

The current capacity plan for 2011 is roughly flat as compared to 2010, with consolidated domestic capacity down between 2% and 3%, and consolidated international capacity up between 3% and 4%.

We are committed to responding appropriately to changes in the US and global economies, and we will consider further capacity reductions in light of high fuel prices.

Shrinking our capacity cannot occur in isolation, and we are faced with the sobering reality of needing to resize the entire business.

These changes are never easy, but are necessary as we must reduce our costs as we reduce our capacity.

Being disciplined with our capacity doesn't mean we won't grow.

Rather, we will continue to grow, when and where it makes sense.

In this volatile environment, however, every new route requires an even stronger business case.

Although our merged network, customer base and financial flexibility are important, integrating the two carriers is a critical component of achieving our goal of sustained profitability and capturing our synergies.

I am pleased with the progress and pace of our integration to date.

Beginning in mid-May, our customers will begin to experience more airport process and branding harmonization, starting first at our hubs and moving to our outstations over time.

We will also introduce more seamless self-service capabilities.

For example, at airports where United and Continental are located together, customers will be able to use kiosks to check in and print boarding passes for flights with either airline.

Around the same time we will launch consistent boarding processes.

We will also make it easier for customers to shop for flights and find their reservations, no matter which website they go to.

We realize these will be small changes to start but in order to fully meet our customers' expectations for consistent and seamless service, we need to integrate our IT platforms and cross train many employees, and that process takes considerable time.

Our network optimization is underway and in the first quarter we began the early stages of cross fleeting or swapping United and Continental aircraft, to better match supply and demand across our United and Continental subsidiary networks.

We have completed nearly 900 cross fleeted mainline departures since February,examples of which include United flights between our Houston hub in Lima and Continental flights between our Denver and San Francisco hubs and Las Vegas.

Cross fleeting is a valuable tool, allowing us to use the right gauge aircraft to maintain market coverage, and better match supply and demand to make sure that we receive compensatory pricing for our product.

We will continue to roll out additional markets with cross fleeting as the year progresses, with the peak departure volume coming in the summer months.

Many of our customers want to know what the new United Loyalty program will look like.

We have put considerable thought into the design of the new program, are excited by the changes we intend to roll out later this year.

We expect to announce details of the program in the third quarter as we prepare for 2012 implementation.

Stay tuned for further information.

All I will tell you right now is that it won't be your grandfather's frequent flyer program.

In the meantime, we have made significant progress on some of the important technical integration points, including the ability to link miles and status between our customers Mileage Plus and One Pass accounts, and we have aligned our mileage redemption levels and fees across the new network.

We continue to work closely with our work groups to bring them together.

During the first quarter we reached our first tentative agreement with United subsidiary coworkers, the United maintenance technicians and related employees.

We have successfully reached tentative or ratified agreements with United's maintenance technicians and Continental's maintenance technicians, flight attendants, ramp employees, dispatchers and SEM engineers.

In addition the AFA and the IAM are moving forward with the certification process for representation of the combined companies flight attendants, which once the single union is selected by our employees, will allow us to begin negotiations for a joint collective bargaining agreement for the entire flight attendant population.

We also continue to make progress in our negotiations for our joint collective bargaining agreement with our pilots.

I remain committed to reaching agreements that are fair to our coworkers and fair to the Company.

And I want to reach those agreements promptly.

My coworkers and I are working together to provide the best service to our customers, to integrate our two subsidiaries, to run our operations safely and efficiently, and to be profitable.

This quarter was a difficult one,and we expect more challenges ahead.

But as long as we work together, and keep our eye on the prize, we will build the world's leading airline.

With that, I will turn the call over to Jim and Zane to walk through the revenue environment and financial results.

Thanks, Jeff.

I join Jeff in thanking our coworkers who faced a variety of challenges this quarter, and worked hard to respond quickly and appropriately.

Our first quarter revenue results show continued steady improvement, on a year-over-year basis United and Continental's combined consolidated unit revenue was up 9.9% year-over-year.

Main line PRASM in the first quarter was up 10.2% year-over-year, driven primarily by strengths and yields and regional PRASM improved 8.8% year-over-year.

Yield improvement is the main story this quarter.

With our aggressive pricing and inventory management strategies offsetting much of the recent rise in fuel.

First quarter unit revenue growth was particularly strong in the mainline domestic, Pacific and Latin entities.

With double-digit year-over-year PRASM and yield gains in all three markets.

Mainline domestic PRASM increased 11.8% as compared to first quarter 2010 results.

This strong improvement was due in part to the 20% improvement in mainline domestic premium cabin PRASM.

First quarter mainline international PRASM was up 8.6% driven by yield improvements of 13.6% versus 2010 due to continued strength in the premium cabin and successful increases in fuel surcharges.

The Pacific continued to improve this quarter, and Pacific PRASM was up 13.4%, notwithstanding the impact of the tragic events in Japan during March.

China and Australia saw the biggest gains in revenue performance with double-digit improvements in PRASM and yields as compared to 2010.

We have all been affected by the tragic earthquake, tsunami and nuclear crisis affecting Japan since mid-March.

United had a long standing presence in Japan, with a hub at Tokyo's Narita airport for 25 years, and we have felt the adverse impact these events have had on local demand.

We estimate these events reduced first quarter passenger revenue by approximately $30 million.

In response to the near term decline in demand, we have reduced our trans-Pacific flying to Japan by approximately 10% in April, and 14% in May.

Despite the tragedy in Japan, United's diversified network in Asia continues to drive strong results.

Latin unit revenue also performed well this quarter, and were up 15.4% year-over-year, an improvement in line with last quarter's robust PRASM growth.

Latin premium cabin PRASM and yield growth grew over 25% year-over-year.

South America saw double-digit growth in PRASM of 12% and yields up 17%.

The Caribbean market saw extremely strong year-over-year growth with PRASM up nearly 20%, and yields up 19%.

Trans-Atlantic PRASM was disappointing, up only 1.3%.

Yield was up 8.5% versus 2010 and load factors fell over 5 points to 71%.

Europe saw a significant increase in industry capacity compared to last year.

And unfortunately, markets such as London and Germany were unable to sustain their improving year-over-year PRASM performance this quarter.

Corporate revenue continues to improve as with prior periods.

The improvement has been slow but steady.

Recovery has been largely driven by yield improvements with volume increases not yet materializing.

This quarter corporate yields were up more than 17% when compared to 2010.

We he continued to run our airline with the business customer in mind as we further develop the world's most comprehensive airline network, we will continue to optimize our flight departure times, frequencies, gauge and connectivity options, so we will be the carrier of choice for our corporate customers.

This quarter brought a variety of unforeseen hurdles for the airline industry, including the natural disaster and nuclear crisis in Japan, geopolitical instability in the Middle East, and rapidly rising fuel prices.

United has responded on several fronts.

Since February 1, we have implemented a variety of fare and fuel surcharge increases and ticketing rule restructuring to both the domestic and international markets across the industry.

Notable in the first quarter there have been seven successful domestic system economy cabin fare increases, and two successful domestic system premium fare cabin increases.

On the international side, fuel surcharges are the most effective tool for passing through higher fuel prices.

Current international fuel surcharges have increased by 26% in the Atlantic, 42% in Latin, and 47% in the Pacific since the start of the year.

While fare increases and the strength of demand obviously help our bottom line, they are only one side to the revenue strategy.

As we progress through integration, we are able to share best practices of inventory management and demand forecasting.

We now have more data, new tools, and the right team in place to be more successful when managing our inventory.

Capacity discipline continues to play a central role in our effort to ensure our revenue stream affects our cost of delivering our product.

In March, United announced reductions to our prior 2011 full year capacity guidance, reducing our expected growth by 1 to 2 points to roughly flat versus 2010.

We now expect our full year domestic capacity to be down 2% to 3%, and our full year international capacity to be up 3% to 4%.

We are continuously evaluating the demand environment, and will make additional adjustments to our capacity if needed to achieve our goal of sustained profitability.

We continue to invest in our onboard product.

During the first quarter we announced our plans to retain Economy Plus seating, and expand it to the Continental fleet.

This industry leading product which offers up to five extra inches of leg room and personal space in the front rows of the economy cabin, drives loyalty to United and is a product for which our customers are willing to pay a premium.

Additionally, during the quarter we announced that we signed a letter of intent to offer Wi-Fi on more than 200 Continental Boeing 737 and 757 aircraft through our partnership with LiveTV.

We continue investing in the premium cabins on our international aircraft as well, where many of our most loyal and valuable customers sit.

During the first quarter we completed converting the Continental international Boeing 757 fleet with flat bed seats in business first, and now have flat bed seats in our premium cabins of 118 aircraft of the new United's international fleet,with more flat bed seats flying today than any other US carrier.

As we integrate the two carriers one key area of focus is our growing portfolio of ancillary products and services.

Our customers have shown us time and again that they are willing to pay for products and services which enhance or customize their travel experience.

In 2011 we expect to generate more than $2 billion in ancillary revenues.

We measure our success in this area with a variety of metrics, one of which is ancillary spend per passenger.

Again, this quarter we saw solid improvements in this metric with average ancillary spend of over $16 per passenger, an increase of nearly 15% year-over-year.

The growth was due in part to recent introductions of new products such as fare lock, which allows customers to purchase the option to lock in a fare before ticketing, and from improving how and when we offer our more mature product like Economy Plus.

As part of the integration, we are evaluating which ancillary products will best serve the combined company, and are working to improve how we will deliver those travel options to our customers.

We have been a leader in ancillary revenue generation and innovations, and we expect to continue as the leader in the future.

We have many exciting products on the drawing board.

On April 1, we implemented our antitrust immunized joint venture with ANA across the Pacific.

As with our trans-Atlantic joint venture with Lufthansa and Air Canada, the joint venture with ANA is based on revenue sharing, which will begin later this year.

And gives us the ability to coordinate pricing, schedules and sales efforts, driving revenue synergies.

Upon the launch of this partnership we began publishing harmonized prices and fuel surcharges between the US and Japan.

We are in the process of colocating pricing functions for United and ANA, and have implemented sales force training in Japan.

Our customers now enjoy improvements in our Frequent Flyer program, including the ability to earn the same number of miles for a flight on ANA as they would on United.

We look forward to working with ANA in the coming years to grow our joint leadership position in this market.

Now turning to the outlook for April PRASM.

Based on our current outlook, we estimate United's mainline and consolidated PRASM will be up approximately 9% for April year-over-year.

Impacting these revenue results is the shift in Easter holiday travel from March last year to April this year, and the revenue and capacity impact of the Icelandic volcano eruption, which disrupted trans-Atlantic travel for nearly two weeks during April 2010 which offsets each other.

Again, in addition we expect the revenue impact of the Japan earthquake to April PRASM was about one percentage point to the negative side.

Again this PRASM estimate is preliminary, based on the data we have for April thus far.

With that, I will turn the call over to Zane.

Thanks, Jim.

I first want to thank the team for all of their hard work in what has been a challenging quarter, with the tragedy in Japan, severe weather, and significant increases in fuel prices.

We saw an improvement in earnings year-over-year despite these headwinds, due to the tremendous efforts of the entire team.

United's consolidated operating expense increased approximately 10%, or $747 million year-over-year in the first quarter, primarily due to the sharp increase in fuel prices.

Consolidated fuel expense excluding hedges increased $725 million year-over-year, a 35% increase.

Our hedge portfolio helped reduce the impact of the volatility in oil prices,offsetting $154 million of this expense increase for the quarter.

Consolidated unit costs for the first quarter increased 8.6% year-over-year, and mainline unit costs increased 8.2%.

Holding fuel rate and profit sharing constant, first quarter consolidated and mainline unit costs were up 1.5% and 1.6% respectively.

We faced inflationary pressures in a number of areas this quarter.

The most pronounced of which were in maintenance and revenue related expenses.

Maintenance expense increased 23% year-over-year, as we incurred a larger number of heavy checks and experienced step increases in certain of our engine contract rates.

This contributed about a point of the year-over-year CASM increase.

We expect to see a similar trend in the second quarter with maintenance volumes leveling out closer to 2010 levels starting in the third quarter.

With the increase in revenue during the quarter, we saw an associated increase in revenue related expenses which contributed about 0.7 of a point of year-over-year CASM growth.

These and other pressures were offset by cost saving initiatives and early merger synergies, such as reduced overhead and procurement savings.

Merger and integration related expenses were $79 million in the quarter.

About half of which is associated with Information Technology expense and an IT contract termination.

Their remainder includes employee severance, relocation and retention payments, and accelerated depreciation associated with assets to be retired.

Our pretax loss for the first quarter of $134 million represents a negative 1.6% pretax margin, an improvement of about a point of margin year-over-year.

While our results reflect a small improvement from last year, the loss still highlights the need to do more work in order to achieve our financial goals.

Moving on to the balance sheet.

We ended the first quarter with an unrestricted cash and short-term investment balance of $8.9 billion.

We reduced total debt during the quarter, paying over $650 million in debt and capital lease obligations.

This includes the redemption of the UAL 5% convertible notes issuance for $150 million, and prepayments of $194 million.

During the quarter the Company generated $1 billion in operating cash flow.

Gross capital expenditures were $268 million which included the delivery of two Boeing 737-800 aircraft.

In the first quarter we also contributed $122 million to our employee retirement plans.

As Jeff mentioned, fuel prices have risen significantly over the past two months, reaching a recent peak of nearly $142 per barrel.

We will adapt to higher fuel prices with appropriate adjustments in our business, along with the capacity reductions Jim discussed, we are also taking steps to better align our cost structure to the size of the airline.

As a result, we expect our full year nonfuel consolidated CASM excluding profit sharing expense to be up around 2%, while reducing capacity by 1.5 points from our prior expectations.

We anticipate second quarter nonfuel consolidated CASM to be up 3.5% to 4.5% year-over-year.

We have approximately 58% of our second quarter fuel consumption hedged at an average jet fuel equivalent price of $114 per barrel, and approximately 36% of our fuel consumption in the second half of 2011, hedged at an average jet fuel equivalent price of $125 per barrel.

Based on the forward curve as of April 18th, we expect our consolidated fuel price to be $3.09 per gallon in the second quarter,a year-over-year increase of 29% and $3.14 per gallon for the full year, an increase of nearly 34%.

Our gross capital expenditures are expected to be about $300 million in the second quarter, and $1.1 billion for the full year.

We continue to invest in fuel savings initiatives.

We are installing winglets on additional aircraft and are adding performance improvement packages to our 777 fleet, both of which drive fuel savings.

In addition to the two Boeing 737s we took delivery of in the first quarter, we will induct a Boeing 737-900ER in the second quarter, and a 737-800 in the third quarter.

These aircraft will all be equipped with winglets, as well as customer pleasing amenities, such as Boeing's new sky interior and DirectTV in every seat back.

We sold four Boeing 737-500 aircraft in the first quarter, and are in discussions to sell additional aircraft later this year, we continue to pursue efficiencies across our fleet, and as we further integrate the two carriers, we will be able to operate the combined network with fewer aircraft.

We are evaluating additional retirements and aircraft sales of our older Airbus and Boeing aircraft, as we complete our fleet plan.

We have received a revised delivery schedule for the 787 Dreamliner from Boeing, and now expect our first 787 to be brought into service in the first half of 2012, with a total of six aircraft to be delivered that year.

The 787 is a game-changing aircraft that is substantially more fuel efficient than current generation widebody aircraft.

Moreover, we are taking delivery of these aircraft several years before our North American competitors, which results in a multiyear competitive advantage over other carriers.

These aircraft can be used as replacement aircraft, to upgauge or down gauge certain markets, or to pursue new market opportunities.

Overall, we have significant flexibility in our fleet plan to resize our fleet to match the operating environment, with nearly half of our mainline fleet either unencumbered or coming off lease by 2015.

We remain committed to improving our balance sheet.

We have $1.2 billion of scheduled debt and capital lease payments in the second quarter, including $726 million of the 4.5% convertible notes that can be put to the Company in June, which we expect to settle in cash.

We have another $850 million of scheduled debt payments in the second half of the year, totaling approximately $2.6 billion for the year.

As Jeff mentioned the integration efforts are moving along well.

We continue to expect to achieve 25% of our total annual estimated growth synergies during this calendar year.

The synergies will ramp up during the course of the year, with two-thirds of our expected benefit being realized in the second half of the year.

While synergies in the first quarter are relatively small given the early stage of the integration process, we did set the groundwork to deliver substantial benefits through the remainder of the year, and much of the value that we expect in 2011 is based on actions that we have already taken.

For instance, we are making significant progress finalizing the full management team for the combined company, and currently expect more than $50 million of cost savings from elimination of duplicate functions.

We have colocated 36 of our airport facilities eliminating redundant space, and we have also locked in nearly $30 million of procurement savings.

On the revenue side, synergies will ramp up over the course of the year as we continue the process of network optimization through cross fleeting, a single revenue management system, and harmonizing our ancillary revenue products and services.

Revenue synergies ramp up much more significantly in 2012, as we expect to achieve our single operating certificate, and move to one reservation system, which allows us to use a single code on all of the flights, a key enabler to achieving the full potential of revenue synergies.

The merger of United and Continental provides us with the financial strength to deal with the challenges in the business.

Our focus on running a clean, safe and reliable operation combined with the synergies of the merger creates the platform for our success as the world's leading airline.

While we have a lot of hard work ahead, our team of more than 80,000 at the new United will work together to reach our objective of sustained profitability.

With that, I will turn the call back over to Jeff.

Thanks, Zane.

This has been a challenging quarter.

And with high jet fuel prices we expect the coming quarters will also be challenging.

But I am confident that the new United will be successful for our coworkers, for our customers, and for our shareholders.

To do that in this environment, we have to make tough decisions.

And we have shown that we are willing to make them and make them swiftly, so we can achieve sustained profitability.

With that, I will turn the call back over to Tyler to open it back up for questions.

Thank you, Jeff.

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

Please limit yourself to one question, and if needed one follow-up question.

Operator, please describe the procedure to ask the question.

Thank you.

(Operator Instructions).

Our first question comes from Kevin Crissey from UBS.

Please go ahead.

Hi, thanks.

Two quick ones, I think.

How are you going to measure the synergies going forward?

I guess this is probably to Zane.

And how can we think about that, is it in terms of margin, margin versus the industry?

It always seems to be a rough number, a year, two years out, versus what you might have done as an independent company?

Kevin, this is Zane.

I think it is a valid question.

Ideally you will see the difference in our margin versus the industry.

We have as you would expect detailed plans in what both carriers were anticipating in accomplishing in our business plans separately, and obviously have the detail as we integrate the two companies.

Ultimately on the revenue side you would expect to see that as a RASM improvement in our relative position to the industry, and then on the cost side we would expect a similar performance.

Our goal is to be as transparent as possible in the process and guide you through it.

Would your current plans before the merger, et cetera, be basically industry average, that is the implied assumption by that, because we always hear later on is oh well, we did great a few years ago, and then suddenly, that you hear American's story about a few years ago we were outperforming and now are underperforming, and there is always a reason why things aren't really what you would expect?

Sure Kevin, I think that is a valid concern which is why we are using the plans I think you saw prior to the merger both carriers actually doing a little better than the industry average, and those are both into the embedded plan.

Okay.

And I guess the second question was, I just want to confirm the April RASM I got, the May was better for JetBlue.

Did you say May is better as well for you guys?

Kevin, this is Jim.

We are not commenting on May.

We mentioned that April will be up 9% based on our estimate right now on the consolidated basis.

Okay.

Terrific.

Thank you.

Our next question comes from Jamie Baker from JPMorgan.

Please go ahead.

Hey, good morning everybody.

A quick question to start on Japan.

Obviously the local market quite weak.

I realize you don't have as large a connecting complex in Tokyo as other, butI am curious if flow demand has changed at all since the events of mid-March?

Just trying to get a feel whether connecting passengers are avoiding Japan?

Jamie, this is Jim.

We have seen less connecting traffic over Tokyo.

I think with the network balance itself obviously as we see that go to Asia on some of the other routes, nonstop and so forth.

We have seen not just the local demand, but a drop in connecting traffic over Tokyo.

Thanks for that, Jim.

And second, this is probably directed to Jeff.

I am looking at the size of your frequent flyer base, and I have got to wonder if you are mining all of that data as effectively as other consumer companies might?

Would you be willing to allow a nonairline to take a minority interest in Mileage Plus?

Let me answer your question in two pieces.

The first is no, we are not mining it as effectively as we will be mining it in the future.

We are investing in better customer relationship management tools.

And you will see us mine it a whole lot more.

And I won't comment about future plans for Mileage Plus.

Alright.

Well at least I got the a chuckle out of you.

That is better than on the American call.

Thanks a lot.

Our next question comes from Gary Chase from Barclays Capital.

Please go ahead.

Good morning, everybody.

Good morning, Gary.

Do you guys have a set, I mean is there any synergy that you think has made its way into the numbers to date, or do you think that is all upside from here?

Gary, there is a small amount in the first quarter, I would call it, less than $30 million and the rest of it as we have planned through the year increases as we progress through the year.

Okay.

And then you have been pulling down, this one is for Jim, I think.

You have been pulling down capacity pretty broadly on the domestic front.

Since there hasn't been as much change in the international plan yet all of your commentary certainly coincides with what we are hearing around the industry, that if there is a place where it would seem to make more sense it would be internationally.

Can you elaborate a little bit on what the numbers that you are implying the 4% reduction as you move into the back half.

Know you broke it down between domestic and international.

Can you give us a little bit more flavor for how that might spread between the international regions?

Gary, this is Jim.

A lot of the announced it starts at about 1% in May which is, and heading toward about a 4% versus what we thought we would be planning on doing in the fourth quarter.

What happens on the beginning part is basically not flying to some markets that we intended to do.

So for instance, Cairo.

And so recognizing obviously the issues in the Middle East, and the demand associated with that.

As I mentioned, we were disappointed with the RASM, PRASM growth in the first quarter in the trans-Atlantic.

Clearly not as strong as about the 8% we saw in the fourth quarter with 1.3% growth in the first.

We are actually comfortable with our relative performance in that area, with the positive RASM growth, but it did highlight that I think there are things we could do.

What we are focusing on that fourth quarter internationally about 3.8% in areas like the trans-Atlantic is reducing frequency, stay a week, and opportunities like that.

Similar to kind of what our strategy was back in 2009 when we were facing some of the demand issues from the recession, and so forth.

So the balance I think is about, it is a balance between international and domestic, and as you mentioned the domestic side what we do is look across the whole network, trying to make sure that we are kind of optimizing the challenges across the network, so you see a broad drop on the domestic.

But clearly the international we are comfortable with where we sit for the demand in the peak seasons of the summer, and it focuses on the fourth quarter.

And then probably more in the Atlantic than some of the other regions that are performing better, is that safe?

Yes, I think yes, absolutely in the trans-Atlantic, again our RASM performance in Latin and Pacific we were very comfortable with, and so we are trying to address some of the issues in the Trans-Atlantic.

Thanks very much, guys.

Our next question comes from Bill Greene from Morgan Stanley.

Please go ahead.

Jim can I ask you to kind of compare and contrast the experience this year with 2008 and the runup with fuel?It seems like the airlines are all saying demand is okay, we are passing through a lot of this, and the investors are clearly saying, I am not sure that is something you will be able to continue.

Maybe if we think about what you saw in patterns in 2008 versus what you are seeing now maybe that would be helpful to shed some light?

I think the most significant pattern versus 2008 it is an improving economy.

The demand picture is an improving demand picture versus a declining demand picture.

And where thatplays out is we are seeing better corporate revenue driven by the corporate yield side, so I think that is probably the biggest difference between the two periods is the demand profile is an improving demand profile from the economy's perspective versus 2008.

So it is really being driven by the business traveler?

Absolutely.

Okay.

And then if we look at some of these new rules coming out from DOT on the ancillary stuff, and sort of disclosure of fees and what not, one of the things you guys did in 2008 very well was add a lot of fees.

Do these rules change the trajectory of growth there?How do we think of where we are in how ancillaries sort of play out going forward?

Bill, this is Jeff.

No the new rules don't affect the trajectory of ancillary revenues whatsoever.

And where are we in the development of them?

Sort of halfway through, or more to go, or pretty much we have played this story out as best we can, and now it is just sort of pricing from here?

I think we have a considerable number of new products in the pipeline.

I can't comment about them right now, but you will be seeing a whole lot more products coming out of the new United.

Thanks for your time.

Our next question is from Hunter Keay from Wolfe Trahan.

Please go ahead.

Thank you.

Good morning.

Good morning, Hunter.

Realize you guys are obviously starkly different than some of the low cost carriers out there, who pursue maybe a little more incentive to pursue an unbundled product.

Have you considered bifurcating a little bit your customer base, in terms of offering a supremely unbundled product for some of the more price sensitive discretionary travelers, like everything fromcharging for sodas, to carry-ons, to international first bag, and then obviously exempting some of your more loyal customers on the business side, the premiums and the elites, and offering them a much more bundled product, which could then maybe incentivize people to fly you guys to become exempt from some of the fees?

Is there any kind of thought to sort of running an airline within an airline if you will in terms of how you target ancillary revenues?

Hunter, this is Jeff.

I think that you will see us doing considerably more targeted offers to our customers.

And that plays into a lot of issues also in the realm of distribution as well, and advances in technology, and advances as I was mentioning to Jamie in customer relationship management.

You I think you will see continued not only disaggregation of the product, but reaggregations of the product with different products and services targeted at specific customers, based on their specific history, and I think that there is a lot of technological sophistication that we will be having here at the new United, that will help us improve our revenue.

Hunter, this is Jim, I would just add to Jeff we are actually hear that from customers, that they want to build their travel experience to a certain extent, and your question is a great question, because then what it does is it opens up many opportunities, as Jeff mentioned unbundled, but the customers are asking for that.

What we are seeing is based on the products that we have rolled out so far, that travel is an experience that people want to participate in.

Thanks for that.

I appreciate that.

And I would like a little more color if you would on the JV, kind of what happened with the revenue true-up, why you are compensating JV partners for their underperformance?It seems like kind of a perverse incentive.

I am wondering if we will see that potentially occurring in the trans-Pacific JV, and I am just wondering if I overestimate the value of the joint ventures, not to mention the supposed benefit of antitrust immunity?

This is Jim.

We don't disclose, we are not disclosing kind of the sharing portion of the JV.

I would tell you that we work obviously very closely with again our relative performance in the trans-Atlantic for instance versus the industry we are extremely comfortable with.

And so the benefits of the JV we are experiencing, we see them and so forth, and so we are very confident as we build this.

We are early in it and we work with our partners on optimizing the revenues and the JV, both from a capacity point of view, the harmonization of policies and fees, to make more seamless to the customer, and we will roll that methodology out into the Pacific, so we are actually very comfortable with how the JVs are developing as we go forward.

Alright, thank you.

Our next question comes from Duane Pfennigwerth from Evercore Partners.

Please go ahead.

Hi, good morning.

Thanks for taking the question.

Just quickly on Pacific RASM, and I apologize if you talked about this in the prepared remarks, but can you talk about what March was relative to the 13% that you posted for the quarter?

We don't break out the monthly piece of the quarter, but clearly significantly off of what the other previous two months to give net $30 million revenue hit in the, due to the tragic events in Japan to the earthquake.

So driving to the 13 significantly down in March from the January and February growth rates.

Okay.

Thanks.

I know it is sort of tricky to do at this point.

But if we look at Atlantic and Pacific, in your estimation when should that growth start to accelerate again?

When do we get beyond one, the more difficult comps, I guess two, supply issues in Atlantic by some competitors, and then three, when does Pacific start to recover?

A little bit on the Pacific.

If we look at our bookings in the trans-Pac US Pacific, or to Japan, we are actually seeing bookings now, net bookings equal to what they were prior to the earthquake.

Now I say that, we clearly had since March 11 a dropoff in bookings, so we are digging from a hole.

But the net bookings are actually close to back to where they were pre-earthquake.

We are actually starting to see some of the demand come back.

Obviously the booking curve, we lost a lot of time in the booking curve, so it will obviously effect April as I mentioned, and May, but we are seeing them come back at rates in the US, the Pacific, prior to the earthquake.

The trans-Atlantic I think as we manage toward the peak of the summer, we are comfort arable with where our capacity is at, and we adjust capacity in the fourth quarter and the fall with the expectations based on what we saw in the first quarter here.

Great.

One last follow-up.

On the bookings with respect to the Pacific from a RASM perspective, is that similar?

When would you expect sort of RASM growth acceleration from maybe what we are seeing here in March /April?

I would just say that it is hard to predict that.

I just don't have kind of a good feel for that, because we are monitoring the market.

There is a lot of change going on, and we did lose obviously over the last month a lot of the booking curve for the next couple of months.

Okay.

Thanks very much for that detail.

Our next question comes from Glenn Engel from Bank of America Merrill Lynch.

Please go ahead.

Good morning.

Question on Economy Plus.

Continental could have done Economy Plus and never did.

I don't know what changed about your thinking, seeing the United network that makes you now decide it makes sense when it didn't before?

Glenn, this is Jeff.

What really was changed in Economy Plus is the ability to merchandise it better than United had done before historically.

When we had looked at it at Continental, those were in the days before more sophisticated web-based merchandising, and merchandising at airports, or even onboard.

We are confident given the performance of Economy Plus historically at United coupled with the breadth of the fleet and the other product offerings, coupled with the merchandising efforts that this will be a profitable product for us, ignoring the loyalty benefits.

The loyalty benefits alone are quite profound, customers really do like Economy Plus, especially on longer haul missions.

It is a very attractive product, so we believe it will be a winner for us.

Secondly, when I looked at your RASM the first quarter it just seems to have outperformed in pretty much every single region, and yet the merger benefits you claim really haven't started yet.

What is really driving the gains at this point in time?

Well, as Zane mentioned, both networks have done very well from a revenue performance.

It is really the two best networks from a revenue performance, so we are building off of two really terrific networks.

In addition to that, I think I am going to be, I am very proud of the team, and I think that as we kind of brought folks together, you have two really strong performing networks, there is a reason for that, not just the networks, both the scheduling and the pricing, and revenue management of the sales forces on my side, but they have really come together and what you are able to do is take best practices from both companies.

So, I do believe that that is some of the, kind of we are beginning to experience that all, initially but again, it is two strong networks coming together with the best practices on a lot of the things that we have been able to start to do already.

Glenn, this is Jeff.

I think you hit the nail on the head here.

That is why we are so excited about this merger.

I think we have got a very exciting future ahead of us.

Thank you.

Thank you, ladies and gentlemen.

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

We will now take calls from the media.

(Operator Instructions).

Our first question comes from Bloomberg.

Please go ahead.

Hi, gentleman, this is Mary Jane Credeur from Bloomberg.

You ended the quarter with $8.9 billion in cash, and I believe that was up from $8.7 billion at the end of Q4.

Can you tell us a little bit about your cash strategy, and what is the plan for deleveraging versus what you are going to hang on to for fuel and integration and other costs?

Hi, Mary Jane.

While we are pleased with our relative position as well as our cash balance, we have talked about the opportunity through the course of the year with $2.6 billion of debt obligations to improve that balance sheet, and as we have discussed we are focused on doing that while we integrate the two companies.

And could I ask about the Japan impact.

How much of the impact is coming from the European carriers upgauging to the US, and shifting away from Japan?

This is Jim.

I think it is hard to kind of pinpoint what that impact is, because I am not exactly sure what you are referring to.

There has been some capacity shift from Europe to the US in the form of gauge and so forth, but it is difficult to measure that at this point.

Okay.

Thank you very much.

Our next question comes from Josh Freed from The Associated Press.

Please go ahead.

--getting much of the fuel increase, so it sounds like not all, so is the plan to eventually get to where fares offset all of those fuel cost increases, or does some of that come out of margin inevitably?

Well, Josh, this is Jeff.

That would be our goal.

We have had not only high fuel prices but quite volatile fuel prices, and so we have tried to chase them but that is a subject to market demand.

Unfortunately, we are not a cost based business, we are a demand based business, and we don't set the prices, the market sets the prices.

Clearly we have been adjusting our capacity appropriately to the higher fare levels, because there is certainly for the more elastic customers, higher prices, fewer people fly.

But we need to be in a position not only from a revenue perspective, but also from a cost perspective, to be able to make money no matter what the jet fuel prices.

And you mentioned the need to resize the business.

Obviously some resizing happens anyway because of the merger.

So were you suggesting that there is, I don't know, larger staff reductions and that kind of thing than you were considering before, because of this environment you are in?

Are we going to see more layoffs than were already planned because of all this?

Let me first say that furloughs and voluntary layoffs are clearly a last resort at United.

As we take out capacity we need to take out costs.

We have a lot of fixed costs.

We will take out as many of the variable costs as we can, because if we reduce capacity our unit cost is going to go up, and that is a natural result.

In terms of personnel, we want to operate as efficiently as we can but to the extent that we need fewer folks, we are going to first rely on voluntary programs, early outs, attrition, and retirements.

And so eventually if you do get to a stage where there are additional layoffs, do you have a timeframe in mind for that?

Do you feel like we will know more on that a month from now?

Three months from now?

How long does this process play out?

No, I don't have a timeframe for you.

Alright.

Thank you very much.

Our next question comes from Doug Cameron from Dow Jones.

Please go ahead.

Good morning everyone.

Glad to hear, Jeff, that the planning for the Chicago/Edinburgh route is far advanced with the 787s arriving.

Just, you mentioned the 757 sales.

Are 78s seen as potential replacements for 757s?

And I wondered given that you previously identified Oakland and Legos, whether you can give us any geographical updates on where these six plains will be used when you get them?

We will run a special charter to Edinburgh for you, so not to worry, you just have to buy the whole airplane.

My family will buy the whole airplane.

As Zane mentioned, I think, as he was talking, the 787 is a very flexible aircraft for us.

Not only is it incredibly customer pleasing, and I think we will have a true competitive advantage, because we have a multiyear head start on our North American competitors on the airplane.

It is also very efficient.

Has good legs, so we can go pretty far distances, and we can use it to both upgauge markets like a 757 market, or downgauge markets, for example taking out a larger aircraft and using the 787.

That clearly is an aircraft that we will use principally internationally.

We only have six of them coming in next year, so there are a limited number of places we will be using them.

We have for example publicly announced that we would like to start a Houston-Auckland nonstop on that aircraft, and because of the delay of the 787 we delayed the start of that route, because that is a route that is a high connect route, and we need a fairly highly fuel efficient aircraft for that route, and lower operating costs, and the 787 fits that bill.

You will see it operated out of our gateway hubs, and over time we have 50 of them on firm order, in addition we have got 25 A-350 XWBs coming.

I was just out in Toulouse a couple of weeks ago looking at that aircraft, and our plans for that aircraft and I am very excited about getting it.

It will be a superb airplane.

Are the 757s going to Fed Ex by the way?

Say that again, I am sorry?

Are the 757s going to Fed Ex, the ones you have sold?

I am sorry, I didn't understand the question.

The 757s that you have sold, are they being sold to Fed Ex?

This is Gerry.

We haven't announced any sales of 757s.

Sorry, I must have misheard.

Apologies.

Our last question comes from Julie Johnsson from The Chicago Tribune.

Please go ahead.

Hi, guys.

Just a follow-up on the earlier question about resizing the business.

Zane had mentioned $50 million savings from duplicative management positions.

Does this signal a management lay off for the quarter?

No, Julie, this is Jeff.

No, no, look we have always talked from the very beginning in the merger you will have duplicative management and clerical people, and this is just what we had planned to do all along from the outset of the merger, in terms of sizing the management and clerical team, to run the combined carrier efficiently.

Yes.

But the size it appears would be shrinking.

I am saying that the number that Zane mentioned was what we had planned all along.

Alright, great, thanks.

Okay.

With that, we are out of time and we will conclude.

Thanks to all of you for joining us on the call today.

Please call Media Relations if you have any further questions, and we look forward to talking to you next quarter.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

You may now disconnect.