Kathryn Mikells' Message to Employees — Third Quarter Results
Dear fellow employee,
This morning we issued our financial results for the third quarter. I would like to walk you through some of the highlights from our quarterly results and give you an update on our recent successes raising cash in the financial markets.
In the third quarter, we reported a net loss of $63 million or $0.43 per basic share excluding non-cash hedge gains and other charges. While a loss is always disappointing, this represents more than a $200 million improvement over our results in the third quarter of 2008, and was better than Wall Street analysts’ estimates. If we look at just the revenues and expenses from our operations, we generated an operating profit of $123 million, an improvement of $273 million over last year. We are starting to see signs of a recovery with the revenue environment improving compared to last quarter. We are pleased with the progress we are making across our scorecard from operational performance to customer satisfaction to cost control. This is work that will position United for success and margin leadership as the economy improves.
Thanks to the good work you are doing, we are making considerable progress in the metrics that matter most to our customers and our investors, from on-time performance to cost control. Our non-fuel operating expenses were down $214 million compared to a year ago, and coupled with lower fuel costs, our total mainline unit cost was down nearly 25% compared to last year. Importantly, mainline non-fuel unit cost, after excluding certain accounting charges, was down 1.6% despite a mainline capacity reduction of 8.2%. This marks the third consecutive quarter where we have been able to lower year-over-year mainline non-fuel unit cost in an environment of declining capacity.
For a business in an industry with high fixed costs, our ability to eliminate waste and inefficiency and find smarter ways to do business while improving our product and service is an impressive accomplishment. We continue to be an industry leader in unit cost control and are on our way toward making this an important competitive distinction.
While the revenue environment continues to be challenged by the significant reduction in travel demand, we are starting to see some signs of improvement. While total revenue was down about 20% this quarter compared to last year, this represents about a 5 percentage point improvement when compared to the second quarter of 2009. We have a long way to go, but we are beginning to see encouraging early signs among business and premium travelers, both domestically and internationally.
During the quarter and into the first week of October, we were active in the capital markets, raising approximately $1.5 billion to strengthen our cash position and to take advantage of a favorable refinancing opportunity for some of our existing aircraft debt.
As we have discussed, the current recessionary environment and the price shocks resulting from large fluctuations in crude oil and jet fuel have heightened the need for airlines to have strong levels of cash on hand to weather these difficult periods.
The $1.5 billion we raised in the third quarter and early fourth quarter will add nearly $1.0 billion to our cash balance and the refinancing we accomplished will reduce our debt payment obligations in 2010 and 2011.
We’re also making significant enhancements to our product and service offerings. In addition to completing our international premium reconfiguration on two out of three widebody fleets, we have also launched new products such as Premier Baggage and Premier Travel that will generate new ancillary revenue.
Last week we also announced that we are taking significant new steps to enhance our Mileage Plus program, improving the value proposition for our most loyal customers, including new hotel and car redemption options and unlimited elite domestic upgrades.
Next week, we look forward to welcoming Continental into the Star Alliance. Continental brings 63 unique destinations to our network and our customers.
Our performance all across the company has been strong and is a testament to your dedication and ability to deliver some of the best results in the industry. Your hard work is making a difference and I want to thank you.
We are beginning to see signs of a recovery in our economy. The work we are doing positions us well to outperform as the economy recovers, and puts us in an excellent position to be a strong competitor in the months and years ahead.
Kathryn Mikells
EVP and CFO