United Airlines (UAL) Issues Investor Update; Q1 PRASM Fell 1.5% to 2.3%

April 8, 2014 5:27 PM EDT Send to a Friend

United Airlines (NYSE: UAL) announced the investor update:

Investor Update

Issue Date: April 8, 2014

This investor update provides guidance and certain forward looking statements about United Continental Holdings, Inc. (the “Company” or “UAL”). The information in this investor update contains preliminary financial and operational results for the Company for first quarter 2014.

Capacity

The Company’s first-quarter 2014 consolidated system available seat miles (“ASMs”) decreased an estimated 0.3% as compared to the same period in the prior year. UAL’s first-quarter 2014 consolidated domestic ASMs decreased approximately 1.2% and consolidated international ASMs increased an estimated 1.0% versus the first quarter of 2013.

The Company’s operations were significantly impacted by winter storms in the first quarter, and in total UAL canceled approximately 35,000 flights, of which approximately 30,000 were regional flights. Weather-driven cancellations reduced year-over-year capacity by approximately 2 percentage points in the quarter.

Revenue

The Company’s first-quarter 2014 consolidated passenger revenue per available seat mile (“PRASM”) decreased between 1.5% and 2.5% versus the first quarter of 2013. Weather-related cancellations, particularly those on our regional partners, reduced first quarter 2014 consolidated PRASM by approximately 1.5 percentage points.

The Company expects its first-quarter 2014 cargo revenue to be between $200 million and $220 million and expects its first-quarter 2014 other revenue to be between $1.09 billion and $1.11 billion.

Non-Fuel Expense

UAL expects its first-quarter consolidated cost per ASM (“CASM”), excluding profit sharing, third-party business expense, fuel and special charges, to increase 3.0% to 4.0% year-over-year.

The Company expects to record approximately $195 million of third-party business expense in the first quarter 2014. Corresponding third-party business revenue associated with third-party business activities is recorded in other revenue.

Fuel Expense

UAL estimates its consolidated fuel price, including the impact of cash-settled hedges, to be between $3.16 and $3.21 per gallon for the first quarter 2014.

Non-Operating Expense

The Company estimates non-operating expense to be between $180 million and $200 million for the first quarter 2014.

The Company excludes non-cash gains/losses on fuel hedges from its non-operating expense and non-GAAP earnings.

Profit Sharing and Share-Based Compensation

For 2014, the Company will pay approximately 10% of total adjusted earnings as profit sharing to employees for adjusted earnings up to a 6.9% adjusted pre-tax margin and approximately 14% for any adjusted earnings above that amount. Adjusted earnings for the purposes of profit sharing are calculated as GAAP pre-tax earnings, excluding special items, profit sharing expense and share-based compensation program expense. Share-based compensation expense for the purposes of the profit sharing calculation is estimated to be $29 million for the first quarter 2014.

Capital Expenditures and Scheduled Debt and Capital Lease Payments

The Company expects between $730 million and $750 million of gross capital expenditures in the first quarter 2014. UAL’s gross capital expenditures exclude fully reimbursable capital projects.

The Company expects debt and capital lease payments to total approximately $640 million in the first quarter 2014.

Liquidity Position

UAL ended the first quarter 2014 with approximately $6.0 billion in unrestricted liquidity comprised of approximately $5.0 billion of unrestricted cash, cash equivalents and short-term investments and $1 billion in undrawn commitments under its revolving credit facility.

Company Update

First Quarter 2014 Operational Update

Estimated 1Q 2014 Year-Over-Year %
Change Higher/
(Lower)

Capacity (Million ASMs)

Mainline Capacity

Domestic

24,371 (1.0%)

Atlantic

10,391 1.5%

Pacific

9,414 1.4%

Latin America

5,622 (0.9%)

Total Mainline Capacity

49,797 0.0%

Regional1

7,419 (1.8%)

Consolidated Capacity

Domestic System

31,508 (1.2%)

International System

25,708 1.0%

Total Consolidated Capacity

57,216 (0.3%)

Traffic (Million RPMs)

Mainline Traffic

Domestic

20,723 (0.1%)

Atlantic

7,371 (2.2%)

Pacific

7,632 (1.0%)

Latin America

4,610 1.1%

Total Mainline Traffic

40,337 (0.5%)

Regional Traffic1

6,046 0.8%

Consolidated Traffic

Domestic System

26,555 0.1%

International System

19,826 (0.9%)

Total Consolidated Traffic

46,383 (0.3%)

Load Factor

Mainline Load Factor

Domestic

85.0% 0.8 pts.

Atlantic

70.9% (2.8) pts.

Pacific

81.1% (1.9) pts.

Latin America

82.0% 1.6 pts.

Total Mainline Load Factor

81.0% (0.4) pts.

Regional Load Factor1

81.5% 2.1 pts.

Consolidated Load Factor

Domestic System

84.3% 1.1 pts.

International System

77.1% (1.5) pts.

Total Consolidated Load Factor

81.1% 0.0 pts.

1. Regional results reflect flights operated under capacity purchase agreements

Company Update

First-Quarter 2014 Financial Update

Estimated
1Q 2014
Year-Over-Year %
Change

Higher/(Lower)

Revenue (¢/ASM, except Cargo and Other Revenue)

Mainline Passenger Unit Revenue

11.68 11.80 (2.0%) (1.0%)

Consolidated Passenger Unit Revenue

12.85 12.98 (2.5%) (1.5%)

Cargo Revenue ($M)

$200 $220

Other Revenue ($B)

$1.09 $1.11

Operating Expense1 (¢/ASM)

Mainline Unit Cost Excluding Profit Sharing & Third-Party Business Expenses

14.42 14.59 (0.4%) 0.8%

Consolidated Unit Cost Excluding Profit Sharing & Third-Party Business Expenses

15.34 15.52 0.3% 1.5%

Non-Fuel Expense1 (¢/ASM)

Mainline Unit Cost Excluding Profit Sharing, Fuel & Third-Party Business Expenses

9.71 9.81 2.0% 3.0%

Consolidated Unit Cost Excluding Profit Sharing, Fuel & Third-Party Business Expenses

10.27 10.37 3.0% 4.0%

Third-Party Business Expenses ($M)

$195

Select Expense Measures ($M)

Aircraft Rent

$225

Depreciation and Amortization

$410

Fuel Expense

Mainline Fuel Consumption (Million Gallons)

746

Consolidated Fuel Consumption (Million Gallons)

916

Consolidated Fuel Price Excluding Hedges (Price per

Gallon)

$3.16 $3.21

Consolidated Fuel Price Including Cash-settled

Hedges (Price per Gallon)

$3.16 $3.21

Non-Operating Expense ($M)

Non-Operating Expense1,2

$180 $200

Income Taxes

Effective Income Tax Rate

0%

Capital Expenditures ($M)

Gross Capital Expenditures incl. Purchase Deposits

$730 $750

Debt and Capital Lease Payments ($M)

$640

1.Excludes special items
2.

Excludes non-cash gains/losses on fuel hedges

Share Count

These share count charts are based upon several assumptions including market stock price and number of shares outstanding. The number of shares used in the actual earnings per share calculation will likely be different from those set forth below.

1Q 2014
(Estimated)
Basic Share Count Diluted Share Count Interest Add-back

Net Income

(in millions) (in millions) (in $ millions)

Less than or equal to $0

368 368 $

$1 million—$42 million

368 369

$43 million—$70 million

368 378 1

$71 million—$113 million

368 390 3

$114 million—$329 million

368 392 4

$330 million or greater

368 396 8

Non-GAAP to GAAP Reconciliations

UAL evaluates its financial performance utilizing various accounting principles generally accepted in the United States of America (“GAAP”) and non-GAAP financial measures, including net income/loss, net earnings/loss per share and CASM, among others. Non-GAAP financial measures are presented because they provide management and investors the ability to measure and monitor UAL’s performance on a consistent basis. CASM is a common metric used in the airline industry to measure an airline’s cost structure and efficiency. Pursuant to SEC Regulation G, UAL has included the following reconciliation of reported non-GAAP financial measures to comparable financial measures reported on a GAAP basis. UAL believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence. UAL believes that adjusting for special charges is useful to investors because they are non-recurring charges not indicative of UAL’s ongoing performance. UAL also believes that excluding third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel sales and non-air mileage redemptions, provides more meaningful disclosure because these expenses are not directly related to UAL’s core business. In addition, UAL believes that excluding non-cash (gains)/losses on fuel hedges from non-operating expense is useful because it allows investors to better understand the impact of settled hedges on a given period’s results.

Estimated
1Q 2014
Low High

Mainline Unit Cost (¢/ASM)

Mainline CASM Excluding Profit Sharing

14.81 14.98

Special Charges (a)

Mainline CASM Excluding Profit Sharing & Special Charges (b)

14.81 14.98

Less: Third-Party Business Expenses

0.39 0.39

Mainline CASM Excluding Profit Sharing, Third-Party Business Expenses & Special Charges (b)

14.42 14.59

Less: Fuel Expense (c)

4.71 4.78

Mainline CASM Excluding Profit Sharing, Third-Party Business Expenses, Fuel & Special Charges (b)

9.71 9.81
Low High

Consolidated Unit Cost (¢/ASM)

Consolidated CASM Excluding Profit Sharing

15.68 15.86

Special Charges (a)

Consolidated CASM Excluding Profit Sharing & Special Charges (b)

15.68 15.86

Less: Third-Party Business Expenses

0.34 0.34

Consolidated CASM Excluding Profit Sharing, Third-Party Business Expenses & Special Charges (b)

15.34 15.52

Less: Fuel Expense (c)

5.07 5.15

Consolidated CASM Excluding Profit Sharing, Third-Party Business Expenses, Fuel & Special Charges (b)

10.27 10.37

Low High

Non-operating Expense ($M)

Non-operating expense

$180 $200

Less: Non-cash (gains)/losses on fuel hedges

$48 $48

Non-operating expense, adjusted (b)

$228 $248

(a)Operating expense per ASM – CASM excludes special charges, the impact of certain primarily non-cash impairment, severance and other similar accounting charges. While the Company anticipates that it will record such special charges throughout the year and may record profit sharing, at this time the Company is unable to provide an estimate of these charges with reasonable certainty.
(b)These financial measures provide management and investors the ability to measure and monitor the Company’s performance on a consistent basis.
(c)Both the cost and availability of fuel are subject to many economic and political factors and are therefore beyond the Company’s control.


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