UAL Corporation Annual Meeting
Speaker's Remarks — June 11, 2009
GLENN TILTON:
Good morning everyone, and welcome once again to UAL Corporation's annual shareholders' meeting.
The last eighteen months have been extraordinarily challenging for our industry, marked by record fuel spikes, recession and a dramatic drop in demand.
For the full year 2008, the industry - and United - posted significant losses as a result of these factors.
In fact, industry losses in 2008 exceeded total industry profits from 1990-2007.
As an industry, and a company, we are no stranger to challenge.
Over the past 20 years we have seen many fellow carriers fail, and our industry has consistently been unable to earn its cost of capital, even in the best years.
That said, this industry - and importantly our company - is resilient.
We do the work to manage our business, regardless of the challenge.
During times like these when much is beyond our control, we stay focused on what we can and must control.
As Kathryn will discuss, ensuring we have the financial capacity we need to weather the challenges we face is essential, and she will discuss the steps we are taking to further reduce our costs and raise liquidity.
As John will discuss, running a good airline, with safety always first, our Focus on 5 agenda gives us the framework we need to make decisions regarding short-term challenges, and keeps us on a course of product and service improvement.
Focus on 5 is making a difference for our customers and our people.
It is providing us opportunity...as we announced last week, to strengthen our fleet.
We look forward to beginning discussions with the manufacturers about bringing new planes to United, for the first time in more than seven years.
We expect these aircraft will create a step-change in our operating performance, and for our customers and our people.
Importantly, we further expect that they will earn a return on our investment.
There will continue to be challenges, and we will continue to work through them and leverage the opportunities we have.
I would like to hand over to Kathryn, who will discuss the work we are doing to compete in the current environment and put United on a path to profitability.
KATHRYN MIKELLS:
Thanks, Glenn, and good morning everyone.
As Glenn discussed, we are operating in an extraordinarily challenging economic environment - United is no stranger to challenge - we are meeting these difficulties head-on, and taking the steps necessary not only to ensure we weather the difficult times ahead, but also to ensure we are in a position to emerge as a stronger carrier when the recovery comes.
We are doing the right work to structurally prepare the company for the challenges ahead - and to maximize our opportunities for the future:
We have implemented difficult but necessary capacity reductions to size seats in the marketplace for lower customer demand - just as other carriers have done.
Unlike other carriers, we have seized this opportunity to completely eliminate our least efficient aircraft fleet - a move that has enabled very significant reductions in maintenance and operating costs for United.
Across the company, all of our people are working together to improve our cost performance.
We are making unprecedented progress against our competitors, closing the gap to those with costs below ours and widening the gap to those with costs above ours.
Most recently, in the first quarter of this year, we actually reduced our non fuel unit costs, while every one of our major competitors increased theirs - some substantially.
And, like the rest of the Focus on 5 scorecard that John will discuss, this was not a one-time accomplishment, it was yet another data point in a clear positive trend for our company - we've been beating our competitors on cost control for the last several quarters, and we have made a commitment to our shareholders and our employees that we will continue our industry leading cost control going forward.
Our continued progress on costs is an investment in our future.
In order for our company to move ahead of the competition, we must ensure our costs are among the best in the industry, importantly, while delivering top notch service to our customers.
When the economic recovery comes, all of the excellent work our employees are doing will be a powerful competitive weapon, allowing us to compete and win in the marketplace.
We are also making structural changes to our fleet that are preparing us to succeed in the future.
Several years ago, when we initiated our new international premium cabin reconfiguration, we intentionally reduced the planned size of our premium cabins by over 20% so that we could better weather economic downturns like the one we are now facing.
While the reconfiguration is not yet complete, we are well on the road to realizing these benefits.
And we are doing so with the best seat product in the US industry.
Our fully lie-flat seats in business class across the international wide-body fleet are unmatched by our competition - we are seeing customer satisfaction scores more than double on the new seats, and we are stealing market share from our competitors in many markets where we fly head-to-head.
A solid cash balance is essential to ensuring we have the freedom to take the actions that are right for our company-- in this difficult environment - and when the economy improves.
We have been relentless - and creative - in our pursuit of cash.
Over the last several quarters, we have raised hundreds of millions of dollars to bolster our liquidity - in fact, we raised almost 500 million in just the most recent quarter.
This cash has not come just from traditional borrowing alone - we have raised substantial cash through more creative means as well.
You'll recall that last year we completed an agreement with JP Morgan Chase,
our Mileage Plus credit card partner, in which we secured about one billion dollars of new cash as an investment in the continuation of our partnership.
The agreement - which now extends through 2017 - is a clear validation of JP Morgan Chase's confidence in United as a strong business partner and a major player in the airline industry for many years to come.
As we are building our cash, we are taking the steps necessary to ensure that we maintain it - working hard to minimize the obligations on our cash.
We have relatively modest debt payments in 2009 - and no major debt maturities in either 2009 or 2010.
To conserve cash, we have reduced our planned capital spending this year, by limiting our spending to our most important customer facing projects and critical infrastructure projects that will give our people the tools they need to succeed.
Last week we announced that we are beginning discussions with Boeing & Airbus to determine if it is the right time for United to consider a new aircraft acquisition to replace our aging fleets.
This action would not have been possible without the great work our people have done to improve the reliability, cost competitiveness and customer satisfaction at our airline.
Our progress on Focus on 5 lays the groundwork for - and is critical to - the case for any new aircraft acquisition.
We must - and will - make this decision based upon the financial realities in which we operate our business.
We will invest in new aircraft only when we are confident we can earn a return on our investment - not only when times are good, but throughout the business cycle.
Just as importantly, our fleet modernization program will only be executed if it does not impede the progress we are making in building our liquidity.
In closing, I want to reiterate the importance of the path we are on with Focus on 5.
Focus on 5 is the road to financial stability and the return to profitability for United.
By focusing all of our efforts on those things we can and must control, and by eliminating work that does not directly support our key objectives, we are directing our energy where it is needed to set us up for success as the economy turns around - and over the long term.
With that, I'll turn it over to John
JOHN TAGUE:
Thanks Kathy and good morning everyone.
United today is a different airline than it was one year ago.
During the course of the last 12 months, we've achieved levels of reliability, service, and cost reduction that represent significant improvements from where we were.
In doing so, we've laid the foundation for where we are going.
Our on-time performance has gone from worst-to-first,
we have dramatically improved the cleanliness and condition of our aircraft, resulting in a significant improvement in our customer satisfaction scores.
While improving quality we have also reduced costs substantially -- 700 million dollars in the last two quarters alone.
Kathy described for you our plans to continue to lead the industry in cost control.
In the years ahead we will build on the great work United's people have already done to make us a stronger competitor - we will deliver cost performance we can all be proud of in 2010 and beyond.
Perhaps most importantly, while we are reducing our costs, customer satisfaction ratings have improved by more than 10 percentage points from 2008.
We are laying the foundation to realize the full potential of United Airlines.
The path, as you've already heard this morning, starts with Focus on 5.
We couldn't be more pleased that our people are sharing in this success.
Our front-line team has earned $18 million so far this year in recognition of our exceptional on-time performance.
Our airline is fundamentally better than it was one year ago.
Running on time with aircraft in good condition sets our team up for success in the eyes of our customers.
Focus on 5 is built on a foundation of safety.
There is nothing more important than the safety of our people and our customers.
United has long been an industry leader, partnering with our union colleagues and the FAA to enhance safety.
For example, next week, we will unveil work at O'Hare that is a prototype for a major ground safety initiative.
Our people have come together - from our pilots, to our folks above and below the wing - working as a team to re-create a gate environment where safety is enhanced and the risk of employee injury and aircraft damage is reduced.
This program is just one example of the many initiatives we are introducing to improve our performance.
It is yet another way we are strengthening the fundamentals of running a good airline.
This enables us to turn our attention to the next level of performance and close gaps where they exist between ourselves and our competitors.
From a revenue perspective, there is no question that the challenges for us and the industry are significant.
The economic environment is difficult across the board.
Our position as the largest US carrier to markets such as China and Australia is the right one for the long term.
Currently a number of factors ranging from economic weakness to flu pandemic is creating pressure.
In the face of these challenges, we continue to take action to improve our revenue performance.
This includes aircraft configuration adjustments and changes to our network, enhanced by the excellent work we've done to grow our ancillary revenues.
This is an area where we have been a clear industry leader, starting with the creation of Economy Plus.
Our ancillary revenue strategy is based on giving customers choices... selecting the products they value and are willing to pay for.
In addition to giving customers what they want, we expect to generate more than
one billion dollars in ancillary revenue this year.
“Choice” is driving other improvements as well.
Last month, we successfully launched our new fresh "Choice" menu and premium beverage offering.
Customer response has been extremely positive, as evidenced by
meal satisfaction ratings that are 30 to 60 points higher.
We are creating an organization where success begets success.
All of our good work earns us the opportunity to consider new aircraft.
We will move forward only when we are confident that we will generate a return on our investment.
This program could well define our international widebody strategy for the next 25 years, enabling us to successfully compete in a global marketplace.
New aircraft will drive progress up and down our Focus on 5 agenda - improving operating costs, fuel efficiency, environmental impact and reliability.
Our customers will benefit from a modern fleet laying the groundwork for improved revenues and new market opportunities.
Our agenda and our focus are clear; deliver industry leading performance that we are proud of and our customers value.
With that, I will turn it back to Glenn.
GLENN TILTON:
Thank you, John and Kathryn.
As they've both said, we are strengthening the business - and we are making excellent progress reducing our non fuel costs.
We have been successful in raising liquidity and leveraging our assets to best advantage.
The competitive environment changed dramatically in the last year, following the close of the Delta-Northwest merger, creating the world's largest airline.
Our partnership with Continental presents a significant opportunity for our people and our customers.
Alliances create jobs, bring traffic to our network and provide service opportunities that would not otherwise exist for our customers.
Just last week, Continental moved into Terminal 1 at O'Hare, which will enable our customers to make connections easily when Continental joins us in the Star Alliance later this year.
Today, the world's largest carriers enjoy anti-trust immunity.
We must be able to compete on a level playing field.
We are taking the necessary steps to align our business to face the current market realities, but there are steps we need others to take as well.
This industry has been challenged for almost 30 years in failing to meet the most basic success metric for any business - covering the cost of capital - with devastating consequences for employees and shareholders.
We need to be able to invest in people, planes and product, and we need to find a way to earn our cost of capital…as any publicly traded company should.
We need to be able to make business decisions that enable US carriers to compete in today's global environment and our country needs a modernized aviation system.
We have asked the new Administration to take the lead, working with Congress, the DOT and the FAA to partner with us to develop what our country requires to be competitive -- a comprehensive plan for the aviation sector that will deliver a long-term step change solution to enable efficient and effective aviation.
Moving from a ground-based to a satellite-based system will enable more flights to safely occupy the same airspace, meaning that the on-time performance improvements we are seeing today would still be a reality even with triple the capacity.
We will continue to take the steps to improve our company, and partner with government to improve infrastructure and remove regulatory restrictions that prevent us from functioning like a global business.
This is an important industry, and we at United play an important role and we will continue to do so.
We are taking the right steps to compete and succeed for our employees,
our customers and our shareholders,
and I would like to thank you for your support and loyalty to United.
We will continue to face tough realities...our decisions will continue to be based on fact, and analytical rigor.
As we have done throughout our restructuring and going forward, we remain committed to balancing the needs, sometimes conflicting needs,
of our investors, our employees and our customers.
The work described to you today, is about making United a strong and profitable company.
That is what we are doing.
We create and seize opportunities at the right time.
And, as I said, we focus on that which we can and must control.
There will continue to be challenges and we will continue to work through them, with focus and discipline.
With that, Paul will now continue the meeting with the voting results.