Executives
[John Geevo]
Glenn Tilton – Chairman, President and Chief Executive Officer
Kathryn Mikells – Chief Financial Officer
John Tague – Chief Operating Officer
Analysts
Kevin Crissey – UBS
William Greene – Morgan Stanley
Mike Linenberg – Merrill Lynch
Jamie Baker – JP Morgan
Gary Chase – Barclays Capital
Helane Becker – Jesup & Lamont Securities Corporation
Michael Derchin – FTN Equity Capital Markets
Doug Cameron – Dow Jones
Mary Schlangenstein – Bloomberg News
Joshua Freed – The Associated Press
Julie Johnson – The Chicago Tribune
Ted Reed – TheStreet.com
UAL Corp. (UAUA) Q1 2009 Earnings Call April 21, 2009 2:00 PM ET
Operator
Welcome to UAL Corporation's earnings conference call for the first quarter of 2009. (Operator Instructions) This call is being recorded and is copyrighted. Please note that it cannot be recorded, transcribed or rebroadcast without UAL's permission. Your participation implies consent to our recording of this 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, Mr. [John Geevo].
[John Geevo]
Thank you, [Jennifer]. Welcome to UAL's first quarter earnings conference call. Our earnings release and separate investor update were issued earlier this morning, and are available on our website at www.united.com/ir.
Let me point out that information in the press release and the remarks made during this conference call may contain forward-looking statements, which represent the company's expectations or beliefs concerning future events. 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 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 non-GAAP measures to GAAP measures, please refer to the tables at the end of our earnings release. Unless otherwise noted, as we walk you through our numbers for the quarter, we will be excluding certain accounting charges and fuel hedge non-cash net mark-to-market gains. These items are detailed in the table in note six on page 12 at the end of our earnings release.
In addition, this quarter the company has adopted accounting standard APB14-1, which affects how we account for certain convertible debt instruments. The adoption of this accounting standard was retroactively applied to prior periods and has a non-cash impact on our interest expense increasing it by approximately $55 million for the full year 2009, and $48 million for the full year 2008. For additional details on the impact of this accounting change, please refer to question number nine of the Q&A section of our earnings press release.
And now, I'd like to turn the call over to Glenn Tilton, UAL's Chairman, President and CEO.
Glenn Tilton
Joining me today, in addition to John and participating on the call are Kathryn Mikells, our Chief Financial Officer, and John Tague, our Chief Operating Officer. This morning, we reported a first quarter pre-tax loss of $579 million. As expected and well documented by industry associations and many of you on the call, the recession is having a severe effect on demand for travel.
In the face of an extremely challenging economic environment, however, we have managed to offset a significant year-over-year reduction in revenue with over $1 billion in cost savings, all within fuel and non-fuel expense. Our pre-tax loss, while clearly unsatisfactory, was about even compared to the year ago quarter.
As we discussed last quarter, 2008 was a tough year for our industry and one that we are glad to have behind us. That said we have no illusions that 2009, given the current level of demand, is going to be any less challenging. In conversations with our customers, investors and those in our government, however, there is a common thread. All widely agree on the importance of this industry. This industry, without question, enables the global economy.
The irony, of course, is that our industry drives economic and business development in the United States and abroad, in the United States to the tune of more than $1 trillion a year, and contributes in aggregate some 5% of GDP, yet is incapable systemically of earning its cost of capital.
That said, no matter the challenge, terrorism, fuel spikes, or today's recession we continue to provide a vital service. This is a resilient industry with a record of finding creative solutions to manage through difficult circumstances. As a recent example, earlier this month we were very pleased to receive tentative approval on our application to the DOT for Continental to join our immunized trans-Atlantic alliance with Lufthansa and Air Canada.
Despite some competitive opposition, the DOT noted in its order that it shared our view that alliances strengthen service for customers and communities. We expect final DOT approval next month and look forward to Continental officially joining Star Alliance in the third quarter.
Larry Kellner and I, together with our teams, had an opportunity on Friday in Chicago to review the work that we have underway and to reinforce the strong commitment of both teams to make the most of the opportunity that the work presents to our two companies through this enhanced alliance relationship.
In this industry, we're on the front lines of the recession and we're taking the actions necessary to align to the new business reality. The steps we took at United beginning last year when jet fuel was $180 a barrel are serving us well in this current unprecedented financial and economic crisis. Out of crisis, on occasion, comes opportunity and we believe that the work we have done affords us just such an opportunity.
The steps that we and others have taken to reduce capacity in response to record fuel prices with the right decisions then and continue to be appropriate for the current demand environment. At the same time across our company, all our people from the finance team to our frontline employees are driving a fundamental improvement in our business, reducing our costs, raising liquidity, growing ancillary revenue and, what matters most to our customers, delivering great service and on-time performance.
We continue to take steps to improve our performance for our customers and our investors, and that work positions us well to be competitive in what continues to be a challenging economy. As we reported last quarter, we are continuing to make good progress on improving our already strong safety performance, which is of course our first priority regardless of the economic environment.
Our work includes a comprehensive leadership safety program that rewards individuals for outstanding safety performance and awareness. The program was piloted last fall at O'Hare in Dulles and is currently being rolled out to all our stations.
Moving now to capacity and demand environment, we led the industry in the speed and depth of our capacity cuts. Today, we have grounded more than half of our 737 fleet and we'll complete that work to eliminate our oldest and least fuel efficient aircraft this year. Our mainline capacity is down some 13% for the quarter with international capacity down almost 14%. Others, particularly foreign flag-carriers, are now playing what amounts to catch-up to the cuts that we have made. We believe the actions we have taken are the right ones and we're staying our course.
That said we have both the willingness and the flexibility to do more if it's required. We continue to enjoy a passenger unit revenue premium relative to the industry. Like others, we reported a year-over-year unit revenue decline. As you might expect, with our greater exposure to premium and business traffic both domestically and internationally, we've taken a somewhat disproportionate hit.
The work we have done to grow ancillary revenue has been key. New products, such as our Premier Line, as well as more mature products, such as Economy Plus, are performing very well. We are now generating about $14 in ancillary and fee revenue per passenger, an increase of some 60% compared to a year ago. Last month we began the move to a cashless cabin domestically. Such a move will further enable our ancillary revenue strategy.
For example, we can now enable flight attendants to upgrade customers to Economy Plus while onboard. As we the company have consistently said, we focus on the dual components of profit margin. Our revenue is competitive and our strong cost performance is helping to offset the recession is having on our revenues. We continue our focus on improving non-fuel cost performance, even as we dramatically reduce our capacity.
Despite a more than 13% mainline capacity reduction, our non-fuel unit costs decreased by about 1% year-over-year. Our people are delivering excellent cost performance across the company and our goal is to deliver competitive unit cost performance on a consistent basis regardless of the economic environment. As we discussed last quarter and when we issued our guidance, the hedges we put in place last year when fuel prices were on the rise are now rolling off, and we are today benefiting from current lower fuel prices.
Further our hedge losses are largely covered by the cash collateral we posted late last year. As is our practice, we continue to hedge systematically and are balancing our desire to build our hedge portfolio with our liquidity requirements. The last several quarters we have successfully raised hundreds of millions of dollars in an extremely tight credit market, and the first quarter was no different.
We raised nearly $500 million in new liquidity. We continue to maintain roughly $1.7 billion in unencumbered assets and will continue to leverage those assets for additional liquidity going forward. We have targeted several areas of our business for fundamental improvement focusing on those areas that are most important to our customers. That work today is paying off and our customer feedback and DOT results demonstrate the progress.
We ranked first in on-time performance for the quarter up from fourth a year ago, and we saw our key customer satisfaction measure rise a full ten percentage points compared to last year. As many of you know, we began labor negotiations this month with unions that represent more than 80% of our employees. We are just beginning our opening talks with our unions with a goal of having cooperative discussions resulting in agreements that provide stability, both for our company and for our people.
The discussions have had a professional respectful tenor and tone on both sides with all parties recognizing the process is just beginning and there is much work ahead. We continue to strengthen our leadership team and I'm personally well pleased with how the team is coming together to address the current environment and its challenges and to position United for success.
With that, I'll now hand the call over to Kathryn who will take us through the numbers in greater detail, Kathryn, over to you.
Kathryn Mikells
As Glenn said, the challenges we face this year as an industry are different but no less severe than those we persevered through last year. Importantly, the plan we're executing is the right one for this environment. We're pulling capacity in the face of weak demand, growing ancillary revenue streams, extracting costs from our business, further reducing our capital spending and raising our liquidity.
We clearly made progress on all of these fronts this quarter. Our first quarter results were significantly impacted by the effects of the recession, which were felt across the industry and across the globe. Our loss for the quarter was disappointing. Like last quarter our loss was widened by the settlement of legacy fuel hedges that were put in place as the oil market spiked last year. These hedge losses masked the substantial progress we're making elsewhere, especially in managing down our costs.
As you've heard me discuss before, the cash impact of those fuel hedges is behind us and you can see that our successful financing efforts enabled us to build substantial liquidity this quarter, a pretty significant accomplishment in light of the icy credit markets that we face.
While total revenues for the quarter declined by 22% or about $1 billion, our operating expenses declined by $1.1 billion reflecting the impact of our capacity reduction, our cost control efforts, and significantly lower fuel prices. This enabled a year-over-year improvement in operating income of about $100 million.
And what is always a seasonally weak quarter for us made worse by the shift in the Easter holiday this year we reported a pre-tax loss of $579 million or $4 a share, better than the consensus estimate of $4.45 a share, as our revenue came in at the high end of our March guidance and cost came in significantly better. The revenue environment was clearly very challenging this quarter.
Consolidated passenger unit revenue declined by 11.1% year-over-year. Growth in certain ancillary revenues, such as bag fees and ticket change fees, improved consolidated passenger unit revenue performance by about two percentage points. As John will discuss in more detail in a few minutes, our overall revenue results were driven by significant declines in international premium demand and domestic and international corporate travel.
Cargo and other revenue for the quarter was $331 million down about 27% from a year ago. The most significant driver of the reduction was cargo revenue, which was down about 43% year-over-year due to lower demand, softer yield, lower fuel charges, I'm sorry, lower fuel surcharges, and reduced cargo capacity as a result of our international capacity reductions, particularly in the Pacific.
Cargo revenues have been affected by United's exposure to Trans Pacific export markets where industry cargo demand is down about 50% in Japan and about 25% in other Asian markets as a result of the global recession. Other revenue was also impacted by mileage plus third party revenues, which were down due to lower consumer credit card spending.
Turning to the cost side, as I mentioned, total operating costs were down about $1.1 billion this quarter compared to last year, $729 million from reduced fuel costs and $390 million from lower non-fuel costs. The $729 million decline in consolidated fuel expense reflect settled hedge losses of $242 million that are reported in the fuel expense line, and represents a reduction of nearly 39% that was driven by both our capacity reduction, as well as lower fuel prices.
Including the impact of these settled fuel hedges, average mainline jet fuel expense for the quarter was $2.11 down from $2.89 a year ago, a reduction of 27% contributing to about half of the lower cost we experienced. Our un-hedged fuel price for the quarter was $1.59 per gallon. We recorded an additional $81 million in settled hedge losses in non-operating expense.
The return of collateral we had previously posted with fuel hedge counterparties essentially offset the losses associated with fuel hedges that settled out of the money this quarter allowing us to participate in just under $1 billion in total fuel savings on a cash basis.
The team made great progress reducing non-fuel costs this quarter continuing the momentum we've built since last summer. We know that to succeed in the long run we must have a competitive cost structure and we're pleased by our continued progress in closing the negative gap we have had with some of our peers and widening the positive gap that we enjoy with others.
Non-fuel expenses were down $390 million or almost 12% as we successfully reduced non-fuel costs at about the pace of our capacity reductions. We continue to demonstrate industry leading non-fuel unit cost control with our first quarter mainline non-fuel unit costs down 1.1% on over 13% lower capacity.
Our consolidated non-fuel unit costs were down about 0.5% significantly better than our March guidance and nearly five points better than the early guidance we provided on our conference call last quarter this despite the natural headwind from capacity reductions in excess of 11%.
Our cost savings are coming from across the company from large areas of opportunity to the thousands of little things that our people are doing every day to improve the efficiency and cost effectiveness of our operation. Maintenance costs are being driven down as we fully harvest the opportunity created through the elimination of our 737 fleet.
We're aggressively tackling our distribution costs particularly in commissions. Productivity is improving as we eliminate low value add work and significantly reduce our overhead. As our operational liability improves, our cost effectiveness improves along with it.
Moving to the balance sheet, we've been pleased with our continued success in raising additional liquidity. This quarter we raised nearly $500 million in new cash, including nearly $320 million from previously announced liquidity initiatives. As we announced in our January earnings call, we raised $95 million in an aircraft financing, $160 million associated with the relocation of our Chicago O'Hare cargo facility, and $62 million from equity issuances.
Beyond these initial efforts, we were also successful in closing $174 million in additional transactions late in the first quarter. We raised $134 million in an engine financing transaction, $35 million through the sale of certain leasehold interests in Los Angeles, and an additional $5 million in asset sales. Our progress raising capital stands out when you consider that we're doing so in what is the worst credit market we've seen in a very long time.
We generated positive operating cash flow of $426 million in the quarter and free cash flow, which we define as operating cash flow less capital expenditures, a positive $347 million. In addition to about $335 million in collateral returns associated with the hedges that settled during the quarter, both operating and free cash flow include the return of about $60 million of collateral associated with fuel hedges that will settle during the remainder of 2009, as well as $160 million from the Chicago O'Hare transaction I mentioned.
During the first quarter, we made scheduled debt and net capital lease payments of $264 million and spent $79 million in non-aircraft capital largely on customer facing projects, such as our new International Premium Seat Product. We ended the quarter with $11.1 billion in total debt including off-balance sheet obligations and 8.7, I'm sorry, $8.6 billion in net debt.
Our $2.5 billion unrestricted cash balance at quarter end was more than $250 million higher than our guidance and more than $400 million higher than where we ended last year. Our liquidity standing is clearly another important metric where we have closed the gaps with some of our peers.
Now, I'll turn it over to John.
John Tague
We continue to run the company around five major goals built on a foundation of safety, deliver industry leading revenues, achieve competitive cost performance, drive top tier operational performance, improve the cleanliness and workability of our products, all in support of a courteous, caring, and respectful work environment for our people and for our customers.
Achieving these goals is even more important in today's economic environment. The significant decline in unit revenue and demand during the first quarter is clearly one of the biggest issues facing our industry. United's year-over-year unit revenue decline was disappointing, however, our absolute revenue performance was competitive and we continue to enjoy a premium to the industry.
The position we have earned in key business and international markets, such as China, is the right place to be. However, at this point in the cycle, year-over-year performance against these strengths has been challenging. For the first quarter, our unit revenue results were at the top end of our guidance, consolidated passenger unit revenue declined 11.1% year-over-year driven by a 9.2% decrease in yields and a 1.7 point decline in low factor.
As Glenn mentioned, we continue to benefit from the growth in ancillary and fee revenues, as we collected approximately $14 per passenger in the ancillary and fee revenues during the first quarter. This represents an increase of more than 60% year-over-year. We expect full year ancillary and fee revenues of about $1.1 billion in 2009, or $200 million higher than in 2008 on much lower passenger volumes. This is a bit lower then our prior outlook.
While consolidated domestic load factor was about flat for the quarter compared to last year, domestic yields were under pressure as the demand mix deteriorated. Consolidated domestic PRASM for the quarter was down 9.2% year-over-year on a corresponding 9.5% drop in yield. Internationally, PRASM was down 15.4% for the quarter driven both by yield and low factor declines.
The global recession is clearly having a significant impact on premium cabin traffic internationally. In the first quarter, our international premium cabin traffic was down 30% year-over-year resulting in an international premium cabin PRASM decline of 16% compared to an 8% decline in international coach PRASM.
Turning to entity results, in the Atlantic first quarter PRASM declined 13.4% year-over-year as a result of weakness in both London and in the secondary cities in continental Europe. In Germany, however, our capacity actions over the last several months have helped limit the PRASM decline there to mid single digits for the first quarter.
In the Pacific where PRASM declined 16.3% year-over-year, ten points of which was attributable to the premium cabin declines, the largest PRASM declines were in China and Australia. Japan has held up better with a single-digit PRASM decline. However, in comparison to other U.S. carriers, Japan only makes up about 30% of United's total Pacific operation. Our Japan unit revenue performance was impacted by a 13% appreciation in the yen though only 28% of our Japan revenues are yen denominated.
Overall, our Pacific unit revenues were negatively impacted by foreign exchange to the tune of 1.6%, or points, excuse me. While not yet complete, we believe our announced capacity actions continue to be appropriate. We are maintaining our existing 737 retirement schedule with the last of the aircraft to be removed by the end of this year.
Continued industry capacity reductions are constructive and we are seeing moderate additional capacity cuts domestically, and our encouraged by the recent significant capacity reductions announced by international carriers. As these actions are implanted, we expect that they will contribute to an improving industry revenue trend.
Despite the capacity reductions we have made, we continue to maintain the breadth of our network serving roughly the same number of cities as we did in 2008. In the first quarter, we expanded this breadth with new service from Washington D.C. to Moscow and the reinstating of Denver to London service.
In addition, this week we started new service from Washington D.C. to Geneva. Another way we are expanding the breadth of our system is through cooperation with our fellow Star Alliance members. As Glenn mentioned, we are very pleased that the DOT has tentatively approved Continental airlines application to join the anti-trust immunized alliance of United and eight other Star Alliance member airlines.
And it has also tentatively approved United and Continental's request to form a trans-Atlantic joint venture, including Lufthansa and Air Canada. This approval paves the way for Continental to join Star, an essential step to allow Star to compete effectively against the Sky Team. As Kathy mentioned, our cost control for the first quarter continues to be impressive, particularly given the amount of capacity we have reduced.
Nine months ago when we laid out our performance agenda, we declared our intention to lead the industry in cost discipline. We have delivered on that commitment with excellent cost control each of the last three quarters, and we continue to outperform our peers in year-over-year cost control despite deeper capacity cuts.
Our cost discipline is neither temporary nor unsustainable. We have not yet reached our full potential on cost control and you can expect to see encouraging results from us in the future, both in good times and bad. We will not achieve these objectives by simply replicating the business practices of the past. Importantly, we need to have the willingness to envision significant changes to the business model if we are to reach our goals.
On the revenue side, the industry has demonstrated significant value capture in the area of unbundling. We need to be just as creative and aggressive on the cost side. This will involve taking new approaches to major expenses, such as distribution. Our progress in this area has been substantial, as evidenced by a 36% decline year-over-year in United's distribution costs on a 21% reduction in consolidated passenger revenue.
While the progress is significant, more must be done. Cost performance is about seeing the opportunities, building the right team to realize them, driving first class performance management, and operational execution. Our improvement demonstrates our belief that cost leadership is not mutually exclusive to being a leader in operational performance.
By running a good airline, we are able to drive cost benefit from a quality product, and by narrowing our focus to our five fundamental goals we can limit our investments to the areas that support these goals. This disciplined focus and the continuing efforts of all of our employees, was strongly in evidence during the first quarter when we came in number one among the major U.S. carrier in A14 on-time performance.
These results are in line with the commitment we made to you nine months ago to return United to operational leadership in the industry. Our employees are being rewarded for these efforts, and the contributions in running an airline on-time. Through our new incentive programs, frontline employees have earned a bonus as a result of our improved on-time performance in each month in the first quarter totaling $265 per employee.
Our customers, as Glenn suggested, are taking note of the work we have underway at United driving a ten point improvement in our customer satisfaction scores. This is a result, not only of our operational performance, but the steady improvements in the reliability of our onboard product offering and cabin cleanliness and condition. It also reflects the great work my fellow employees are doing to deliver courteous, caring, and reliable service to our customers.
Together, we are running a good airline. We have competitive revenues and costs. We have made tremendous progress operationally and our customers are telling us that they noticed the difference, all encouraging results and affirmation of our focus on five agenda. As we did at this time last year, we are now beginning the planning process for 2010 with a commitment to further enhance the competitiveness of all of our work. Our team is fully capable and aligned around doing just that.
Now back to you, Kathy.
Kathryn Mikells
Moving to guidance, for the second quarter we expect mainline capacity to be down 10% to 11% year-over-year and consolidated capacity to be down 8.2% to 9.2%. For the full year, we expect mainline capacity to be down 9% to 10% year-over-year and consolidated capacity to be down 7% to 8%.
Incorporating the results of this quarter's better than planned performance on non-fuel costs, as well as an expectation of continued good cost control momentum, we've lowered our full year 2009 outlook for mainline unit cost, excluding fuel and profit sharing programs, to be up only 1% to 2% against the mainline capacity reduction of 9% to 10%, a savings of about $150 million from our prior guidance.
Consolidated unit costs, excluding fuel and profit sharing programs, are expected to be up only 1.5% to 2.5% in the face of a consolidated capacity reduction of 7% to 8%. For the second quarter, we expect mainline unit costs, excluding fuel and profit sharing programs, to be up 2% to 3% against the second quarter mainline capacity reduction of 10% to 11%. We expect consolidated unit costs, excluding fuel and profit sharing programs, to be up 2.5% to 3.5% despite a capacity reduction of about 8% to 9%.
Based on April 15th closing forward fuel prices, mainline jet fuel prices are expected to be $2.02 per gallon for the second quarter. This price includes taxes, as well as the cash impact of fuel hedges that settle in the quarter and are recorded in fuel expense. Similar to the first quarter, we expect our posted collateral to effectively offset hedge settlement obligations.
Altogether, based on April 15th closing forward prices, we estimate total expense through the full 2009 year to decline $4.4 billion, including the impact of settled hedges. On the same basis, we expect total consolidated CASM for the full year 2009 to decline about 26%. On top of this cost production, we expect to benefit from the return of about $940 million of hedge collateral in 2009. You can find a detailed description of our hedge position, our detailed field price outlook, and additional guidance information in the investor update that we issued this morning.
In response to the tougher demand environment, we're reducing our capital spending by an additional $100 million from our previous announced plan of $450 million. We now plan to spend only $350 million in non-aircraft capital in 2009 with a significant portion of that going to the international cabin upgrade on our wide-body aircraft.
We continue to work to better our solid liquidity position and have manageable fixed obligations going forward in 2009. We have modest set obligations with no large bullet payments due, no aircraft purchase commitments, no material-defined benefit plans to fund, and even lower year-over-year capital spending.
We're confident in our ability to navigate the current economic environment. We have the flexibility to make additional changes in the business should it become necessary, and the tough work we're doing now should put us in a very good position for a strong rebound when the economy begins to recover.
And with that, [Jennifer], we're ready to open up the calls for questions.
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Kevin Crissey – UBS.
Kevin Crissey – UBS
Distribution, you talked about getting a lot of savings there. Can you talk about, specifically, how you went about that and what opportunities are there in the future?
John Tague
John here, Kevin, we like a lot of folks in the industry have made significant progress on our GDS expenses over the last few years, as well as what I would characterize as good initial progress in terms of OTAs. Our commission expense has been a line item we've been aggressively managing for a few years, particularly trying to move down fixed commission expense in markets, such as Asia.
So, this is really a line-by-line cost of sales commitment we're managing it at the highest level of detail and that's what's driving the results we've experienced, which we think compare pretty favorably to what's occurring at this stage in the industry. But clearly, this is a very large expense item for the industry what we pay for distributing a product that right now doesn't make any money. So, we're clearly focused on targeting this line item.
Kevin Crissey – UBS
I want to go back to your original statement was you had a significant improvement in your prepared remarks. It was significant improvement by I didn't catch over what timeframe because you talked about the GDS expenses that hasn't really changed over the last year or so, has it?
John Tague
Right. So, year-over-year quite a bit of what we've been able to do is commissions, and particularly internationally.
Kevin Crissey – UBS
Again, I don't want to misquote you, but like good initial progress with the OTAs. This seems like a tough time to be negotiating with kind of a distributor when you're short on revenue, not just United, but everyone. What opportunities do you see there? What is the problem? Is it a switch that you'd rather go, obviously, you'd rather have the website. Do you prefer the Kayaks over the OTAs? What is it about the OTA distribution that you see as an opportunity?
John Tague
We're a few years out in being able to renegotiate those contracts and we did make progress last time, but we clearly see an opportunity to further improve the economics there. I accept your point that it is difficult to reduce distribution costs during periods of weak demand. However, I think this gets back to capacity discipline. We've ultimately got a set capacity low enough to be able to have some commercial courage on attacking this distribution cost.
If we're constantly terrorized by excess capacity, chances of improving the economics around these key cost components of the business are not very high. I think when you look at OTAs, they tend to offer less value add to our most profitable customers. Obviously, the large travel management companies are performing a service that we really can't step in and perform, and one that our most profitable corporate customers have determined is of significant value to them.
Kevin Crissey – UBS
Kathy, if I could ask you. Your financings, I was just at an air finance conference yesterday, tough times to raise capital congratulations on getting something done, but it has to be at a pretty expensive rate. Can you talk about how it compares previously and then why we should be, maybe it helps you survive, but why should an investor be excited about the financings that you've been able to accomplish?
Kathryn Mikells
I think overall given with the very difficult credit market and a desire to continue to build liquidity, I think investors should be like we are very pleased that we've been able to continue to raise money. Clearly, given these tight credit markets, the debt that we would be raising is coming at a higher cost than what we would have achieved a couple of years ago, but I think when you look at the level overall, relative to our total debt obligations, I don't think we're putting on additional obligations that are really going to overly penalize the company in terms of those higher debt rates overall.
I think the much more significant accomplishment is the building of liquidity during what's a very difficult time in terms of the revenue environment, and clearly, also a difficult time in terms of just being able to close transactions in this market.
Operator
Our next question comes from Mike Linenberg – Merrill Lynch.
Mike Linenberg – Merrill Lynch
Yes, two questions. My one, actually, is to Glenn. Glenn, with your involvement in the ATA and everything, you have a pretty good sense of what you hear about with the industry and what goes on in D.C. And I was just curious, since the stimulus bill was announced, I thought it was somewhat odd, that, I think, high-speed rail is going to get something like $12 billion or $13 billion.
And the amount that actually was going to the U.S. aviation industry or just airports in the air transportation system was, at most, maybe a third of that, at best. And, just sort of following up, I was told that the reason why the airlines got a lot less is that it had to do with projects that were shovel-ready. And I'm not sure if when you think about high-speed rail in the U.S. if that's even a year or two away from being shovel-ready.
So I was just curious, just based on who you talk to and what you're hearing, why did the industry fare so poorly in this go around?
Glenn Tilton
As a matter of fact, Mike, the airline industry got, effectively zero.
Mike Linenberg – Merrill Lynch
Yes. No, I know.
Glenn Tilton
It's something on the order of $9 billion plus for the vision of rapid-rail and zero for Next-Gen. That circumstance hasn't really gone unnoticed. I don't think it was a function of our not being shovel-ready, as much as it was a function of our being shovel-hesitant.
And there was some doubt as to whether or not there was leadership at the FAA at the point of Stimulus One that could really answer the difficult questions about the complexity of the way forward on Next-Gen. So, in a sense, it was convenient to overlook.
Mike, we now have leadership at the FAA. We are aligned as an industry with that leadership. We're speaking with really once voice, relative to the fact that a good bit of Next-Gen is really Now-Gen ready, and should have been included in Stimulus One. And if there is a Stimulus Two, I think its chances of being included in Stimulus Two would be very good.
That said, if we have to go through the normal appropriation process, we will, and we're having very constructive conversations about exactly what the immediate level of investment should be to get us started on Next Generation technology for ATC.
Mike Linenberg – Merrill Lynch
Okay, good, thank you. And then just my second question and I think that this is probably for John. John, I think, over the last two or three weeks, we've seen at least one, if not two attempts to raise fares. And I believe, actually, United may have participated in at least one of the initiatives. Can you give us a sense of are you seeing maybe pockets of some strength out there that would support a potential fare increase, or maybe we're reading the tapes wrong here. Anything that you can say on that front would be great.
John Tague
As you know I can't say a lot. I think in times like this, we have to focus on getting the most value we can, particularly out of the peak periods. And that's the theme of these increased attempts over the last few weeks, most of which, as you pointed out, have not been successful.
Operator
Our next question comes from Jamie Baker – JP Morgan.
Jamie Baker – JP Morgan
Hey, good afternoon, everybody. Kathryn, I realize January of next year is obviously quite a ways away and a lot can happen between now and then. But I am starting to think about the processing agreements with both Chase and American Express. The Chase agreement seems straightforward enough, with the January reset.
But your 10-K is a little less clear on AMEX. Do they have any flexibility to impose a holdback if month-end cash isn't above $2 billion? And also, for both agreements, is there a limit to how much of the remaining $1.7 billion in unencumbered assets that you can pledge?
Kathryn Mikells
That's a terrific question, Jamie. Thanks very much for asking it. I'm going to take the two items separately. So one thing I would mention is, let's get back to our agreement with Chase, on our credit card processing deal as you, I think, are very well aware, we have posted the non-cash collateral with Chase. And we have that arrangement with them, as you mentioned, through January.
We'd already started discussions with them to address that on a longer term basis. And as you know, Chase is the bank that participates with us in our co-branded credit card. So we have a pretty strong alignment with them, and I think a very good, longstanding relationship in terms of working closely together to get the answers that work very well for us and work very well for them.
The cash collateral that we have posted against that credit card agreement is not counted when we count our unencumbered assets. And so right now, we've stated that we have got $1.7 billion in unencumbered assets at that point in time. And that is excluding anything that we would have already posted with Chase to cover any potential future credit card reserves that otherwise would be required.
Jamie Baker – JP Morgan
Okay.
Kathryn Mikells
I'm going to turn, then, to talk about American Express. We recently redid our arrangement with American Express on credit card processing and we're in a multi-year deal with them. As part of that arrangement, we actually have a similar but not exactly the same tiering level with respect to the central reserves that trigger off of our unrestricted cash balance.
We closed this quarter, as you know, with unrestricted cash, a little over $2.4 billion. That was above what would be our [inaudible] level with American Express, and so at this time as a result of the cash balance, no reserve would be required. But one thing I would point out that that agreement enables us, is the flexibility to actually post non-cash collateral, should we at any point be in a position where reserves are required.
So I think, with respect to both of our credit card processing agreements we're in a very good place with respect to liquidity. I think the substantial unencumbered assets that the company had built over the past years is serving us very well in this environment and giving us flexibility, and enabling us to raise liquidity.
Operator
Our next question comes from Gary Chase – Barclays.
Gary Chase – Barclays Capital
Wanted to ask a couple of questions on the cost and finance side, the cash position for the quarter, as you gave guidance on March 20th, it did come in quite a bit better than you were projecting. Just curious if you give us a little color for what drove the $300 million in upside? Did some of that financing close late in the quarter, when you thought it wouldn't or was that an operating issue?
Kathryn Mikells
I'm very happy to give you additional color on that. This is Kathryn. It was a combination of things. And clearly the biggest was closing financing at the very end of the quarter. In this icy credit market it's pretty tough for us to actually count on closing financing, even ones that we have in the pipeline and underway. And so, while we knew we had things in the pipeline at the time that we gave guidance, we weren't willing to quote-unquote "count on them," and as a result we didn't include them in the guidance that we gave.
So our engine financing transaction closed at the very end of the quarter. We also closed the sale of our leasehold interest in Los Angeles at the very end of the quarter in a small, additional asset sale. And so it was really those things that drove the biggest positive variance in terms of the guidance that we had provided.
Secondarily, right at the end of the month, fuel prices had gone up a little bit. I had mentioned in my comments earlier kind of the collateral return that we had seen associated with, on the one hand, the positions that we closed in the quarter, and on the other hand, some of the positions that were still open. And so that, again, caused a little bit of movement in terms of our cash balance.
Gary Chase – Barclays Capital
Okay, and then a similar question, I guess. The cost outlook came in quite a bit better than what you were forecasting in that update, as well. And if I look at what you're doing with the remainder of the year – and there were sort of two levels of surprise. In the update on March 20th, you beat what you were forecasting in January.
That surprise appears to be carried through the remainder of the year judging by the guidance you've given today, but then there was also an additional surprise where from the March 20th update, you came in quite a bit better than what you were projecting and that does not seem to be carried through. So can you just give us a little flavor for what was going on there, what was moving around?
Kathryn Mikells
I would be very happy to. The flavor that I would give it is actually things – everything is carrying through and a little bit more than that.
If you look at some of the things that were going on in the first quarter, we actually came in at the high end of our capacity guidance. We didn't move our capacity guidance for the full year. In fact, main line is down a half a point for the full year relative to where we were before.
And so when you think about it on a full year basis for the remainder of the year, we're actually getting a little bit more headwind in terms of the capacity reduction that we're seeing. Overall we've pulled down our guidance for the full year in an amount that's about $150 million in terms of absolute on non-fuel costs that I mentioned.
About $100 million of that comes from the first quarter. If we look for the remainder of the year, we've clearly identified another $50 million in sustainable cost improvement. Not really coming from any single line item, but really coming from across the board.
Gary Chase – Barclays Capital
And it's not revenue related, this is operational?
Kathryn Mikells
A couple of things that I'd point out though, the little bit of revenue related that we may be seeing in kind of 2Q through 4Q is really offset by the additional kind of headwind from a little larger capacity reduction again because 1Q came in at the high side and we haven't moved a full year.
So you know, that really isn't coming into impact for us. And we, as John mentioned, really do have a very good cost management and controls tracking accountability and when we alter our guidance, we're very careful that we're actually counting all the dollars and cents across all the line items to give us a very high degree of confidence that we're going to be able to deliver that performance.
Glenn Tilton
I'd just add to what Kathryn said and John certainly said in his remarks. It's both operational and overhead-related.
Gary Chase – Barclays Capital
Okay, and just one last one, sorry. A few of you mentioned in the prepared remarks that, and it was in the release, that you have both the capacity and willingness, or ability and willingness to reduce capacity further if that becomes warranted.
Glenn, you noted that returns aren't what you'd hoped they would be not just for United, but for at an industry level. How should we think about what the trigger point is for you so what would make the difference between what's appropriate now? Is that predicated on an assumption that revenue improves? That it simply doesn't get worse? What is it that would trigger additional capacity reaction by United?
Glenn Tilton
I think all of your questions both of ourselves and of our peers, those that have already reported their results and have had their conference calls are focused on whether or not we're seeing the bottom of this recession's effect on our business.
And just about everybody has said although we might use the word stabilization, it's very, very difficult to determine. And I think until we do, we really are answering a hypothetical with respect to your question.
But if, in fact, the actions that we have taken and the discipline that the industry has demonstrated puts us a position where we are now square to the realities of the demand environment for a while, then I think we'll be able to recognize the benefits of what we've already done.
In the event that the economy does not show signs of the recovery that we hope we are seeing and you are commenting on, then, in fact, we simply want to let you know that we are prepared to do more in the event that we must.
John Tague
I think in that context though, we're going to do it based upon our analysis about what is good for United and if we can improve the cash margin of the business by reducing capacity, we will reduce capacity. We will not reduce capacity to compensate for others who deem that they should be less aggressive than us.
Glenn Tilton
No more contributions to the industry from United.
Operator
Our next question comes from William Greene – Morgan Stanley
William Greene – Morgan Stanley
Yes, I'm wondering if we can talk a little bit about, you mentioned in your earlier comments last quarter that you thought you could get about $1.2 billion in ancillaries. I that still realistic given the declines we've seen in the passenger counts?
John Tague
Yes, I said a little bit earlier. We're looking at about $1.1 billion right now in that regard, which I think as you point out to be expected under the circumstances.
William Greene – Morgan Stanley
Oh sorry, I missed that then, okay. And then, Kathy, I'm wondering if you can tell us, the agreement that you have with Chase as we look out to, let's say, end of '09 early 2010, does it allow you to pre-sell more miles or are you kind of locked in for a couple of years here?
Kathryn Mikells
So as you know last year we did an amendment to our agreement with Chase which at the time enabled us to on a one-time basis pre-sell another $500 million worth of miles. So our arrangement with them doesn't have built into it on an ongoing basis that we're going to continue to pre-sell more miles.
I'd come back a little bit to the comments that I made to Jamie on the credit card processing agreement we have with Chase. I would simply state that we have a long-standing, very good relationship with Chase, both on the credit card processing side and on the frequent flyer's side with our Mileage Plus Program.
They have time and time again, I think proven their willingness to work with us on a constructive basis if and when needed and in a manner that works for us and works for them. So I continue, I think, to think that is a very, very, very strong asset of United Airlines.
William Greene – Morgan Stanley
Okay, and then Kathy just on CapEx, you have really cut that back to very low levels and yet if I understood your comments correctly, you still think there may be more you could do. I don't know if you meant 2009 or beyond, but how long can you run this far below depreciation?
Kathryn Mikells
In my prepared remarks I didn't suggest that we were cutting below the $350 million; I simply stated we started the year at $450 million and we came down to $350 million.
To some extent I would tell you having to operate in what's been a perennially capital constrained environment has made us get relatively good at this in terms of not starting projects that we think we need to wait for our liquidity situation to enable us to afford and keeping very close track of our projects. Delaying some or stretching some out over a larger, longer I should say period of time.
So for better or for worse, we've been capital constrained for a number of years and what I tell you is we're very focused on where we spend the capital. Consistent with John's remarks, we have galvanized the entire company around focusing on only a few goals and that's absolutely where we're lining up our capital spending.
I understand that it is now at a rate that's modestly lower than what we would see in terms of annual depreciation, but the other thing I tell you is from a fleet perspective, our retirement of the 737 is in part being back-filled with new RJ 70s.
And so while those aircraft orders don't show up on our books and in the notes to our financial statements per se, we're certainly seeing the benefit of that on the product side because it's a very good price for our customers. And where we're sending the money is very customer facing and we're clearly seeing the benefits of those capital expenditures in terms of our improved customer satisfaction results especially on our international premium products.
William Greene – Morgan Stanley
So maybe I can just follow up then with Glenn. How should I think about this? So you don't get an adequate return. You've pulled back CapEx to what are arguably minimal levels. Where do you go if you don't want to cut more capacity? You can't cut more in CapEx, but the returns aren't there, what do we do here?
Glenn Tilton
I think John said it and Kathryn really complimented John's comment. We've got to continue to be very smart in how and where we invest precious resources. And I think that the fact that the customer facing investments in this extraordinarily challenging market environment are still going forward and are still generating significant customer satisfaction improvement by United is the appropriate thing for us to be doing right now.
Now, we also mentioned that we were very pleased to see the DOT approval of the Atlantic Plus-Plus and global antitrust immunity application approved, for Continental to join United in the Atlantic venture, and we hope out in time in a Pacific and Latin America facsimile with different partners.
That type of, if I could call it that, investment going forward is very smart CapEx-free investment that improves the customer offering for our company. So in this industry, you simply have to find another way, if it isn't the typical deployment of capital.
And you think of that relationship that we're evolving with that particular company, with Continental as our partner, and the work that it spans from frequent flier to common lounges, to airport consolidations, to work on IT, common IT, there's a good bit of work between us that actually is very CapEx efficient for the two of us. And we want to be very mindful that we don't want to get ahead of that relationship, with the dedication of any CapEx that we might regret later on.
William Greene – Morgan Stanley
I get it. I guess just if I could summarize, though, it sounds like what you're saying is, in the absence of any kind of a recovery that's meaningful, returns are going to be sub-par because you really need the economy, there's nothing left on the company-specific side that you can do to get there.
Glenn Tilton
I think both are true. I think in a sense, what you've heard Kathryn and John say, is the industry is now in a make your own margin environment. In my view, not having been in the industry for a decade, I'll tell you I think that's a good thing for the industry. I think it's a very good thing for the industry.
So I think discipline on every front, every management front in this industry, is a good thing. And I don't wish for this economy, believe me, but I do wish for the disciplined decisions that have come with it, and I actually think that's a very good thing.
And then Kathryn hit the nail on the head. This economy recovers and you take the leverage of the decisions that we've made during this economy and, as we said previously, and facing what we thought was going to be $180 fuel, I think there's going to be tremendous upside to those decisions that we've made under duress. And the one thing I admire about this industry; this industry knows how to make really tough decisions.
Operator
Your next question comes from Helane Becker – Jesup & Lamont Securities Corporation.
Helane Becker – Jesup & Lamont Securities Corporation
So two questions, actually, one is will there be additional charges related to today's announcements, with respect to the capacity adjustments' letter coming later this year?
Kathryn Mikells
I'm happy to take that. We have, as you've seen in our disclosures, each quarter is a result of the fact that we're, you know, mid-stream in a fleet retirement program. Each quarter we end up having to look at those aircraft that we are retiring and taking some charges associated with it, and so we have tried to be very focused in our disclosures around that. You're going to continue to see that.
The one charge that you saw, in addition to that this quarter, was a small impairment charge. We took a large number of impairment charges last year. We certainly aren't anticipating on a go-forward basis significant impairment charges, but we will do our best to try and disclose those in advance of the quarter just to give you visibility to them.
They're obviously not charges that will see on an ongoing basis, but are associated with either just the current economic condition that we're facing or with respect to your specific question on the fleet retirement program.
Helane Becker – Jesup & Lamont Securities Corporation
And then just a follow-up question to the last group of discussions for Glenn, you know, based on your earlier comments and the discussions that you've had, in response to other questioners, I'm just wondering, you seem to have no problem raising liquidity.
I mean, you've talked about your ability to raise capital in really the past year or so and I'm just wondering, with the market capped the way it is and the shares trading the way it is, does it really make sense for you to be a publicly traded equity? Could you run the company successfully with just publicly traded debt?
Glenn Tilton
You know, Helane, that's probably a question for another day over a cup of coffee rather than on the call, but I think – I'll go back to where I was a moment ago. The industry is where the industry is and, frankly, the work that the team has done despite a good many of the macro challenges and the unique challenges that every particular participant in the industry faces, the management teams continue to do remarkable work despite the challenges of this particular industry.
And my sense is that these times might well give us the opportunity, as John said and Kathy said as well, to make substantive differences in the context of the industry. It will really serve us well in the years ahead.
Operator
Your next question comes from Michael Derchin – FTN Equity Capital.
Michael Derchin – FTN Equity Capital
Just a couple of questions, one on the European commission anti-compensation investigation into Star, I guess I'm confused about what they mentioned potentially excessive cooperation. I thought antitrust immunity allows you to sit down and do things like what you've been doing for quite some time. What are they looking at; can you shed any color on that?
Glenn Tilton
I'll let John attempt to do that, but before he does, I'll tell you that you shouldn't feel unique in being somewhat confused by –
John Tague
First of all, I'd start out by telling you also that a few years ago SkyTeam received a similar letter from the commission and looking back, I think what the commission is evaluating is whether the remedies that were associated with their initial approvals are going to be adequate, in their view, on a going forward basis.
And I think, you know, it's sort of a quasi using the inflammatory words of airline cartel is an exaggeration and a mistake in reporting outcome. So, look, I don't want to say that this routine, but it is a step in the process that we expected and we fully expect to implement the joint venture that was approved by our Department of Transportation.
Michael Derchin – FTN Equity Capital
One more question just about the Pacific? It is striking that your RASM is, you know, a lot worse than Delta's, at least in the first quarter in that area and you have obviously talked about it. But one of the things that strikes me is just the way they're operating their Pacific, which really is a hub-and-spoke kind of classic in Narita, whereas you guys are doing a lot of over flying.
I'm wondering if theirs continues to work, if their strategy I guess continues to work better than, say, the over fly strategy, is that something you can re-examine and maybe go back to a more classic hub?
John Tague
Well, it's only in the last 90 days that having the most non-stop service to mainland China is suddenly a disadvantage. So, look, they're two different strategies. We think we're very well served by having a significant hub in San Francisco, which is obviously the western-most collection point for the Asia operation.
I think one structure you could say is probably inherently a little more defensive and one is offensive. We think that our structure throughout the cycle is the right one for us, but we fully expect that the competitive challenges of a Delta are different than the competitive challenges of Northwest.
However, we are continuing to develop our strength out of the San Francisco hub and capitalize on our historical presence ex Japan, which is substantial and we think valuable. So we're quite confident. In addition to that, we're going to produce what we think is clearly the market leading, the premium cabin product.
So the systems have been very different. Our Japan source of sale is not substantial, so it's a very different architecture between the two systems. There are pros and cons to both, but we're very happy with where we sit competitively.
Michael Derchin – FTN Equity Capital
Do you have sixth freedom rights and fifth freedom rights ex Japan?
John Tague
Yes, and we are utilizing those today, just in a progressively smaller manner than we have in the past. I think one of the issues you're around going to have around Narita going forward is what's going to develop at [Hineta] and that may change the attractiveness of Narita hub on a going forward basis.
The only other thing, look, it's the simplest thing point of difference I can give you is that every major interior point in the U.S. on United system is served in a single connect of the destinations we have in Asia versus a double connect in the alternative strategy.
Operator
Thank you, ladies and gentlemen. This concludes the analyst and investor portion of our call today. Before we take questions from the media I would now like to turn the call back over to Mr. Tilton for closing comments.
Glenn Tilton
Thank you very much [Jennifer]. We appreciate the questions and we really appreciate the discussion. As you've heard from both John and Kathryn we are driving fundamental improvement in our business and that's what we're focused on.
We're delivering competitive revenue in a challenging environment, as we discussed excellent cost control for each of the last three quarters. At the same time we are focused on improving the service that we deliver to our customers and our metrics prove that point as well.
In closing, before we leave the analysts I'd also like to say that we're focused on improving our deliverable to you. [John Geevo] and his team are working very hard to make certain that the materials that we provide you at the end of the quarter are best in class.
They are helpful to you. They are transparent. They are detailed and they're formatted in a way that lends value to this call, so on this call you needn't ask those questions that we've already bagged and answered in the package that we delivered to you.
So thank you [John] and his team for doing that, and if any of you and I know you will, have comments on the changes that we've made for this quarter let [John] and [Gerald] and the team know because we certainly want your feedback on that.
So with that we'll conclude this portion of the call and turn it over to you.
Thanks operator, we'll open it up for questions from the media.
Operator
Okay, thank you and we will now take calls from the media. (Operator Instructions) Our first question from Doug Cameron – Dow Jones
Doug Cameron – Dow Jones
Just I wonder if you can give me a little more color or any sort of breakdown given the fall in premium traffic. You say in the release that it's obviously a function of both falling business demand as well as people migrating backwards, so I wonder if you can give a little bit of color on maybe the split there and also what perhaps you might be doing with your corporate travel customers to encourage people back to the front?
John Tague
John here, I think this is a natural result of the economy that we're in right now. Clearly we don't want to do something in terms of the way we price that's simply going to reduce realization on what's probably a relatively constant demand set until the economy improves.
So look, this is expected on our part you know we just need to get into an environment where we see not only some strength in the economy but frankly corporations' ability to maintain this degree of discipline is not permanent. Eventually you got to get back to trying to build your business again and we expect that that will occur.
Operator
Our next question comes from Mary Schlangenstein – Bloomberg News.
Mary Schlangenstein – Bloomberg News
Mr. Tilton you were refereeing to whether or not there's been a bottoming of the decline in demand. I wasn't really clear did you say that you have not seen evidence of that yet?
Glenn Tilton
We agreed with what everybody else had said, that there's no conclusive evidence to that effect. It's not a function of not seeing some markets look as if that may in fact be true and I think one of our colleagues said so today, but he also said that it's too difficult to call now. And I think that there is no conclusive evidence that that's true.
Mary Schlangenstein – Bloomberg News
So are you continuing to see it get worse or is it just flat at this point?
John Tague
John here, Mary, I think, look, the significant deterioration in the revenue environment has largely been due to a weak volume and weak yields on close in demand, i.e. the corporate market. Given the very nature of the source it follows logically that it is very difficult to predict revenues on a forward-looking basis right now for the industry.
I think you saw that to a certain extent simply on the range of outcomes that carriers had in their revenue guidance in the first quarter when we all pretty much firmed up the guidance in mid-March. It's been a pretty wide dispersion as to how carriers performed against that guidance which is indication that even those that predicted in the middle of the month some were high and some were low.
When you look at that type of occurrence in the marketplace I'm one to give you a false degree of precision around what we see from a forward perspective.
Glenn Tilton
You know, Mary, let me go back to something that Doug was asking about. Our product is, in the context of Doug's question, is a business tool, and it's an affordable business tool. And having been on the other side of this relationship with the majority of my business career I can tell you that it's a very desirable business tool.
Businesses that are doing business from the center of the United Sates to Beijing or to Shanghai or to Inchon are not keen to have their valuable business talent managers experiencing any discomfort from what – against that to which they have grown accustomed for very long.
So we continue to invest, as Kathryn said, in upgrading that valuable business tool and we have confidence that it's a great resilient business tool. And at the first indication of some confidence with business travel managers is something that they will want to return to the tool kit of their business travelers.
Mary Schlangenstein – Bloomberg News
Last week Jerard Arpey said that he believed that businesses could turn the business travel tap back on very quickly and build it back up very quickly. Southwest was saying they thought it wouldn't happen very quickly, that it would take a longer amount of time. Do you see it one way or another, or do you expect that once it does come back it'll be a quick resumption?
Glenn Tilton
That's really, Mary, an illustrative question of a point I was trying to make to the prior question. Each of us has a different network and each one of us has different business customers who will respond to different signals from the economy.
If you're a long haul international carrier, and both we and American are, that degree of importance of that business tool that I referred to you a moment ago, it's very important. So moving those folks back up to the front of the airplane is a very important decision for them to make.
It has real consequences. You may know, I just – since I delivered a speech in Beijing and I delivered a speech in Tokyo. I just got back from Beijing. I can tell you 13 hours out to Beijing from Chicago it's a business experience that you're sending somebody out there that you hope is going to generate revenue for you, you want them to arrive relaxed and ready to do so. Now it's a little different if your business traveler or your business customer is limited to the domestic U.S.
Mary Schlangenstein – Bloomberg News
Right, thank you very much.
Operator
Our next question comes from Josh Freed – The Associated Press
Joshua Freed – The Associated Press
I wonder if you could say a little more about the European Union probe, especially in the context of some of the remarks from Representative Oberstar recently and some of the other talk about re-regulation. I'm wondering if in that context it seems like the European Union probe is possibly more than an exercise and might lead to a very different environment for the kind of joint venture that you're hoping to get going over the Atlantic?
Glenn Tilton
I think that maybe what I would ask that you do is consider the context in which we have discussed the economic realities of this industry and ask yourself if that seems like an effective cartel to you?
Joshua Freed – The Associated Press
Right. Right. Well, regardless of how I see it, I mean the bottom line is –
Glenn Tilton
You mean regardless of the facts?
Joshua Freed – The Associated Press
The point being that I'm wondering if this represents more of a threat to your joint venture prospects than maybe what you've seen in the past?
Glenn Tilton
We think not and we think that the inquiries were in the normal course.
Joshua Freed – The Associated Press
All right, and can you say anything about the idea of a bag fee for international flights? Does that strike you as a good idea, is that something you're going to start tomorrow, what are your thoughts on that?
John Tague
We can't comment on any perspective price match of the company but you know what we've done in the past relative to unbundling our products we philosophically – I think that's the right way to go.
Joshua Freed – The Associated Press
All right, thank you.
Operator
Our next question is from Julie Johnsson – The Chicago Tribune
Julie Johnsson – The Chicago Tribune
Just to follow up are you saying that philosophically you think that introducing baggage fees for international flights is the right direction to go?
John Tague
No, what I think I was saying is you'll know what we're doing on it when we announce it and prior to that I can't comment; however, we are a believer in unbundling.
Julie Johnsson – The Chicago Tribune
Oh, okay, great, Glenn there's been some discussion today of how the industry will look when we come out of the trough and I was wondering if you could just walk us through a little bit about your plans to reposition United for the rebound? What's this airline going to look like a couple of years out?
Glenn Tilton
I think Julie, if we take the last question that you had, with respect to the revenue environment, I think it'll be a creative revenue business model with more customer choice, more customer options and more unbundling of business services between the airline and the marketplace.
I think that will take place. I think that the industry will be more disciplined than it has been in the past. I think that the experience of going from the specter of $180 jet which is actually $147 crude, which means that at $200 crew the crack spread it would have been even beyond $200.
It created a discipline, a fiscal discipline in the industry that has served the industry well in the recession and I'm hopeful that that fiscal discipline will carry over into the next economy which certainly will be better than this one.
So I think it will be a more financially responsible industry than it perhaps has been in up cycles in the past. I think it'll be an industry that really understands the value of investing in that which the customer is willing to give you a return on that investment.
So what that is what that customer is willing to give you in return for, will continue to invest in product that the customer values and the customer is willing to compensate us for. And I think that will be a component of the industry or a definition of the industry going forward that is a little different than perhaps in the past as well.
Julie Johnsson – The Chicago Tribune
Well, that's the industry but what about United Airlines?
Glenn Tilton
All those things are true for United Airlines. We'd like to actually lead the industry in those areas.
Operator
Our next question comes from Ted Reed – The Street.com
Ted Reed – The Street.com
And to an extent my question has been approached, but my question is you're now the third largest airline. You don't have any airplanes on order. Your revenues are down 20%. I wonder if you're shrinking too much in preparing for this future in the industry in spite your commitment to discipline within the industry, you've become a much smaller company in an expanding world and that's my question.
John Tague
Ted, John here. I apologize, we couldn't hear 100% of that but I think to – tell me if I'm rephrasing this you wonder whether we are shrinking too much to participate fully when the economy returns is that?
Ted Reed – The Street.com
Yes, in general you're shrinking, yes, that's right, John.
John Tague
Well I think if you look across a whole host of industries and even our own over the last ten years, it certainly hasn't been proven that bigger leads to better returns for customers or for shareholders. So we are interested in building the best United for our employees, our investors and our customers, and we are confident that our strategies are aligned with that outcome.
John Tague
Thank you. We appreciate it very much. Operator, we can conclude the call.
Operator
Yes, thank you ladies and gentlemen. This does conclude the call for today. You may disconnect your lines at this time.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!