United, Delta Highlights

Delta
• Reduce international capacity 10%, starting in September and taking further actions to increase revenue, reduce costs, and preserve liquidity. As a result, in the December 2009 quarter, Delta expects system capacity to be down 6%-8%, and international capacity to be down 9%-11%, year-over year.
• In the March 2009 quarter, Delta’s operating expense on a GAAP basis decreased $3.9 billion year over year to $7.2 billion primarily due to a $6.1 billion goodwill impairment charge recorded in the March 2008 quarter and lower fuel expenses, partially offset by the impact of the company’s merger with Northwest Airlines.

On a combined basis, excluding special items,
• operating expense decreased $1.1 billion on lower fuel expense.
• Mainline unit cost (CASM6) excluding fuel expense and special items increased 5% year over year in the March 2009 quarter due to higher pension expense and cost pressure from capacity reductions. These increases were partially offset by lower revenue-related expenses and improved productivity.
• Non-operating expenses increased $96 million in the March 2009 quarter primarily due to debt discount amortization related to purchase accounting.
• The company remains on track to achieve its Single Operating Certificate by the end of 2009. Progress toward gaining acceptance from the FAA for integrated processes is proceeding smoothly and the company is beginning to harmonize processes as formal approvals are received.

Delta’s operating revenue on a GAAP basis grew 40% to $6.7 billion in the March 2009 quarter as a result of its merger with Northwest Airlines. However, on a combined basis, operating revenue declined $1.2 billion, or 15% year-over-year.

On a combined basis:
• Passenger revenue decreased 18%, or $1.2 billion, compared to the prior year period due to the global economic recession and a 6% decline in capacity. Passenger unit revenue (PRASM) declined 12%, driven by a 9% decline in yield and a 3 point decline in load factor;
• Cargo revenue declined 44%, or $146 million. This decline reflects significant weakness in demand and yields due to the global economic recession and declining fuel surcharge revenue, as well as reductions of dedicated freighter capacity
• Generated positive cash flow from operations of over $600.0 million during the quarter
Strong $5.0 billion liquidity balance was unchanged from the end of fourth quarter 2008.
• In the March 2009 quarter, Delta realized approximately $100 million in synergy benefits from its merger with Northwest Airlines.
• Delta generated approximately $600 million in operating cash flow and ended the quarter with $5 billion in unrestricted liquidity, which was unchanged from the balance at Dec. 31, 2008.
• Recognized employees for their efforts with more than $10.0 million in shared rewards so far in 2009 for meeting operational performance goals and thanks to the team for some really great work.
• Employees dropped six percent in the quarter and will go lower after the end of the summer travel season, with most of the 2,500 employees.
• Grounding an additional 40 to 50 aircraft including 30 regional jets. This will include grounding all remaining B747 200 freighter aircraft at the end of this year. The freighter operation posted a loss of $150 million on revenues of between $400 to $500 million.
“As we look out at the regional carrier reductions,” said Anderson, “those reductions, given the size of the fleet, will probably have minimal impact on staffing across the airports in the regional carrier network and the extent to which it does have any impact will once again work to mitigate that as best we can with our regional carrier partners.
• Coastal hubs, which are Atlanta and JFK are outperforming the interior hubs, into Europe impacting its international traffic. It is pleased with its reduced fare initiative to build traffic at Cincinnati in place for just over a month. Cincinnati had the highest fares in the U.S. “In general we’re very, very happy with the response that we’ve gotten to the lower fare structures in Cincinatti,” said EVP of Network and Revenue Management Glen W. Hauenstein, who added the local Cincinnati enplanement base is up double digits now versus where we were pre-restructuring. Aviation Consultant Mike Boyd told the Wall Street Journal’s Middle Seat Terminal: a traffic surge due to fare cuts doesn’t mean that Cincinnati will be off the chopping block as Delta keeps a close eye on capacity with the merger. “They tried it a few years ago with their ‘Simplifares’ experiment,” said Boyd. “Traffic spiked at CVG, but total revenues dropped. If that happens with this latest effort, there’s no blaming Delta for downsizing the operation,” Boyd told the Terminal in an e-mail when the Cincinnati fare cuts were first announced.

Guidance
• Expects 4-6 percent margin in both Q2 and for the full year.
• Mainline unit expense – excluding fuel and pension – will rise 3-5 percent in Q2 and 4-6 percent for the full year
• System capacity will drop 6-8 percent domestically in Q2 and 8-10 percent for the year. International capacity will be down 5-7 percent for the next quarter and the year. Mainline capacity will drop 8-10 percent in Q2 domestically and 5-7 percent internationally. For the year, the two international metrics will be 5-7 percent in both Q2 and full year.

United
• Reduced its full-year outlook for mainline non-fuel CASM, excluding profit sharing programs and certain accounting items, to an increase of only 1.0% to 2.0% year-over-year, a reduction of approximately $150 million from prior company guidance. The company also reduced its non-aircraft capital expenditure plan for 2009 by $100 million, from $450 million to $350 million.
• Reported an 11.1% decline year-over-year in first quarter consolidated passenger unit revenue per available seat mile (PRASM), at the top end of the guidance range we provided in March.
• Maintained its momentum on cost control, with mainline non-fuel unit cost per available seat mile (CASM) for the quarter, excluding certain accounting charges, down 1.1% year-over-year despite a reduction in mainline capacity of 13.1% year-over-year. Mainline CASM including fuel and excluding non-cash, net mark-to-market fuel hedge gains and certain accounting charges was down 11.2% year-over-year. GAAP mainline unit cost, including these items, was down 13.1%.
• Reduced its full-year outlook for mainline non-fuel CASM, excluding profit sharing programs and certain accounting items, to an increase of only 1.0% to 2.0% year-over-year - a reduction of approximately $150 million from prior company guidance. The company also reduced its non-aircraft capital expenditure plan for 2009 by $100 million, from $450 million to $350 million.
• Saved $729 million, or 38.7%, in consolidated fuel costs year-over-year, including the impact of settled hedge losses reported in fuel expense. On a cash basis, including collateral returns on all settled hedges, the company saved $982 million in fuel expense.
• Raised nearly $500 million in new cash in the first quarter through various transactions, including aircraft and engine financings, airport facility relocations, equity issuances and asset sales.
• Closed the quarter with a solid unrestricted cash balance of $2.5 billion, restricted cash of $255 million, and total cash of $2.7 billion. In addition, fuel hedge collateral was $570 million.
• Achieved a No. 1 ranking in on-time performance among the five major U.S. network carriers for the quarter, with 80.5% of flights arriving within 14 minutes of scheduled arrival time. The company paid $265 in on-time incentive payments to each of more than 40,000 front-line employees during the quarter under its new on-time incentive program. The company's first quarter on-time ranking improved from fourth place last year to first place this year.
• Increased the performance of our key overall customer satisfaction measure by more than 10 percentage points, with improvements in satisfaction scores across the travel experience.
• United is expanding its new safety program beyond the pilot programs at O’Hare and Dulles which allows individuals to be rewarded for outstanding safety and performance which is now being rolled out across its network.
• Ancillary revenue and fees have increased to a total of $259 million this quarter. These revenues consist of Travel Options products such as Economy Plus upsell, Premier Line and Award Accelerator, as well as ticket change fees and first and second bag fees. On a per passenger basis, ancillary revenues and fees have increased by about 60% this quarter to approximately $14 per passenger.
There is not a consistent industry practice among airlines regarding the recording and classification of ancillary and other revenues, said the company. Some ancillary revenue products, such as premium seat upsell revenues, are consistently recorded by most airlines as passenger revenue. Certain other ancillary revenue products, such as first and second bag fees and ticketing and change fees, are classified by some other carriers in other revenue. For United, first and second bag fees and ticketing and change fees are recorded in passenger revenue. Increases in these fees resulted in a two percentage point improvement in consolidated PRASM year-over-year.
• For the quarter, consolidated PRASM declined 11.1%, consolidated yield declined 9.2% and consolidated load factor declined 1.7 points year-over-year, as the decline in overall traffic, and in particular premium and business demand, impacted the company's passenger revenues domestically and internationally. Growth in certain ancillary revenues, including bag fees and ticket change fees, improved consolidated PRASM by 2 percentage points year-over-year.
• Regional affiliates contributed $659 million to the bottom line, while regional passenger revenues dropped 7.8 percent, PRASM declined 12.3 percent and ASMs dropped 13.1 percent. Regional affiliate expenses declined 13.9 percent to $671 million.
• Cargo revenue for the quarter decreased 43.1% year-over-year as a result of lower demand, softer yields, lower fuel surcharges and reduced international capacity. Cargo revenues have been affected by United's exposure to trans-Pacific export markets, where industry cargo demand is down approximately 50% in Japan and approximately 25% in other Asian markets as a result of the global recession.
• The company ended the quarter with an unrestricted cash balance of $2.5 billion, a restricted cash balance of $255 million and total cash of $2.7 billion.

Guidance
Mainline capacity is expected to be down 9.0% to 10.0% year-over-year for the full year 2009. Despite these large capacity reductions, the company expects mainline CASM, excluding fuel, profit sharing programs and certain accounting charges, for the full year 2009 to be up only 1.0% to 2.0% year-over-year, a reduction of approximately $150 million from prior company guidance, as United continues its progress on cost control.

As a part of the company's cash conservation efforts, the non-aircraft capital expenditure plan has been reduced by $100 million, from $450 million to $350 million for the full year 2009. The company expects scheduled debt and capital lease payments of $665 million for the remainder of 2009.
Total non-fuel operating expense declined by $387 million year-over-year in the first quarter, excluding certain accounting charges, or about 11.8%, as the company continued its efforts to reduce costs as capacity declined.

Salaries decreased $82 million as a result of capacity reductions combined with the previously announced reductions in management and staff personnel.
Aircraft maintenance materials and outside repairs decreased $92 million, about 29%. We continue to be pleased with the progress we're making in reducing maintenance costs, and the lower volumes driven by our elimination of the B737 fleet are driving significant savings.

Purchased Services and Other Operating Expenses decreased by a combined $113 million, or about 18%, greater than our capacity reduction, reflecting our continued focus on reducing costs in this challenging environment.

Excluding non-operating fuel hedge impacts, non-operating expense was $121 million for the quarter, $8 million higher than a year ago and about $6 million above our guidance. While relatively flat year-over-year, there were two major moving parts within the numbers: