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Executives

Kathryn A. Mikells - VP, IR

Glenn F. Tilton - Chairman, President and CEO UAL Corporation and United Airlines

Frederic F. Brace - EVP and CFO

John P. Tague - EVP and Chief Revenue Officer

Peter D. McDonald - EVP and COO

Analysts

Michael Linenberg - Merrill Lynch

Frank Boroch - Bear Stearns

William J. Greene - Morgan Stanley

Ray Neidl - Calyon Securities (NYSE:USA) Inc.

Daniel McKenzie - Credit Suisse

Jamie Baker - JP Morgan

Bob McAdoo - Avondale Partners LLC

Julie Johnsson - Chicago Tribune

Ted Reed - TheStreet.com

Susanna Ray - Bloomberg

Christopher Hinton - MarketWatch

Kelly Yamanouchi - Denver Post

Jennifer Michaels - Aviation Daily

Mary Schlangenstein - Bloomberg

UAL Corporation (UAUA) Q4 FY07 Earnings Call January 22, 2008 11:00 AM ET

Operator

Good morning and welcome to the UAL Corporation’s Earnings Conference Call for the Fourth Quarter of 2007. My name is Latasha and I will be your conference facilitator today. Following the prepared remarks of UAL's management, we will open the lines for questions from analysts. At the end of the analyst Q&A at approximately noon Eastern Time, we will take questions from the media. [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, Kathryn Mikells. Please go ahead, ma'am.

Kathryn A. Mikells - Vice President, Investor Relations

Thank you, Latasha.

The earnings announcement was released earlier this morning and is available on our web site at www.united.com/ir. Let me point out that the statements in the press release and those made during today's conference call may contain various 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 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.

During the course of our call today, we will be discussing several non-GAAP financial measures. While we do not have any special items in the fourth quarter of 2007, our full-year results for 2007 include a number of special items related to our bankruptcy that increased revenue by $45 million and decreased operating expenses by $44. In 2006, we also had a number of one-time items, including special items related to our bankruptcy that reduced operating expenses by $36 million and a severance charge of $22 million recorded as a non-operating expense, as well as reorganization items associated with our exit from bankruptcy of $23 billion.

As Glenn, Jake and John walk you through our financial results, they will be excluding these items unless otherwise noticed. While not a special item, the change in the Mileage Plus expiration policy from 36 to 18 months as well as the deferred revenue accounting we adapted for the program in 2006 affect our revenue numbers throughout the year. In the fourth quarter, we recognized $121 million of non-cash revenue from the change in the mileage expiration policy. As we have mentioned in our pre-quarter end guidance, $55 million of that related to our normal quarterly amortization this year while $66 million reflected the fact that we actually recorded higher mileage breakage than we had estimated in previous quarters when the Mileage Plus miles expired for the first time under the new policy on December 31st of 2007. This benefit was partially offset by the effect of the change to deferred revenue accounting from the previous incremental cost method. This lowered revenue for the quarter by $61 million. Net-net, the impact for the quarter versus the incremental cost method was an increase in passenger revenue of $60 million. On a year over year basis, these changes resulted in fourth quarter consolidated passenger revenue increasing by $155 million. You can find more information about all these items, as well as a reconciliation of non-GAAP financial measures in the tables at the end of our earnings release. We have also included a new disclosure in the tables to provide greater clarity on the Mileage Plus accounting effect.

And now I would like to return on the call over to Glenn Tilton, UAL's Chairman, President and CEO.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Thanks very much, Kathy, and good morning and welcome to everyone on the call. Joining me and participating on the call today are Jake Brace, our Chief Financial Officer; John Tague, our Chief Revenue Officer; and Pete McDonald, Chief Operating Officer; Graham Atkinson, Chief Customer Officer is also with us this morning and Graham is available to take questions.

Earlier today, we reported our fourth quarter and full year 2007 results, which we think demonstrates a step change in how we are running this company, focused on improving our core revenue and delivering value for all of our stakeholders. We reported a pretax profit of $606 million for 2007, our highest full year profitability since 1999 when notably oil averaged about $20 a barrel, a far cry from the $95 a barrel prices we saw during the quarter. Year over year our pretax income increased by $665 million over 2006, and employee share directly in that value having earned some $110 million in profit sharing.

Our revenue performance for the year building on the momentum of the second and third quarters was among the best in the industry. We are also very disciplined in how we are deploying capacity, aggressively managing our assets so that they produce the best possible return for the company. With load factors near historical high levels, we clearly have a willingness at United to forego a little traffic in favor of better yield. The numbers tell the story. Annual mainline passenger unit revenue increased year over year by some 7.1% for the year and by 13.1% for the fourth quarter. As a result of our actions, our international performance was strong for the year and for the quarter, leveraging our network and our unmatched alliances, as we continue to add new roots and grow this part of our business. During the quarter, we welcomed two significant partners due to Star Alliance, Air China and Shanghai Airlines. With five daily non-stops to China and a sixth beginning in June, when we launched San Francisco/Guangzhou, we provide the best service of any US carrier serving mainline China and these new partners provide critical connectivity for our corporate customers to the important China market.

At the company, we also took decisive action early in the year to turn around our domestic performance and that quickly produced results. By the second half of the year, our domestic performance was keeping pace with the strong results of our international network. In fact, revenue results in every region improved year over year. John will discuss later how we will build on this momentum next year. We maintain our focus on cost control, completing our $400 million cost savings program this year. We are taking significant steps to standardize our work across the company and to train our employees on how to use continuous improvement processes to approach their work differently and to challenge the status quo with the company. Later in the call, Jake will talk some more about how our plans for additional cost savings shape up this year.

Our annual operating profit was about $948 million, more than twice last year's result. For the year, we generated operating cash flow of some $2.1 billion, a 37% increase and a $1.7 billion free cash flow results. We are investing in the business and we are reducing debt. We invested over $450 million in capital projects this year and launched our new international first and business class cabins, which debuted in the fourth quarter making United competitive with the best international carriers and the only US carrier with a truly lie-flat business product. In 2007, we reduced our on and off balance sheet debt by $2.3 billion. We are also using a portion of our cash to provide returns for our shareholders. And tomorrow, we will pay out approximately $250 million to our shareholders in a special cash distribution.

As everyone on the call knows, oil hit $100 a barrel this quarter, and our strong revenue performance alone was not enough to counter the impact of the sharp increase that sharp increase had on our margin, and our consolidated fuel costs increased by $359 million, more than 25% from the year-ago period. Despite the challenges from higher fuel and severe weather in December, the worst in our history for the month of December, adjusted pretax profit in the fourth quarter was $7 million better than the fourth quarter of last year.

We are improving our performance overall with a very clear line of sight to the work ahead. Our five-year plan provides a road map for us at United to continue to differentiate ourselves with our best customers and enable further revenue premiums while maintaining competitive industry costs. We are executing against that plan which enables us to create value for our customers, our employees and our shareholders and equips us to build the momentum into 2008, which undoubtedly will present a new set of challenges for the company. Like our customers, our investors have choices, and we are doing the work to ensure that they choose United.

Before I hand the call over to Jake, I want to touch briefly on the topic of consolidation that has been the focus of much speculation and media coverage since our last call. Our position has not changed for some three years now. We believe the industry can benefit from constructive consolidation, and the work we have done improving the company puts us in a very good position to participate in that consolidation as we see fit. As I said to our employees in a recorded message last week, the goal for our company is to make the right choice at the right time, and we'll pursue the best option for our employees, for our investors and other key stakeholders. While we know here in the room that the topic is of great interest to you, it will be inappropriate for us to comment any further than I already have, and I trust you’ll understand that.

So, I'll turn the call over to Jake now who will walk us through more of the numbers in greater detail. Jake, over to you.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Thanks, Glenn and good morning everyone.

We made great financial strives in 2007. We delivered revenue performance that was among the best in the industry. We produced solid cost performance despite inflationary pressures and about a one point reduction in mainline capacity. This performance drove strong gains in both profitability and cash flow which we used to delever balance sheet and for the $250 million special cash distribution Glenn discussed. Our focus on strengthening the core operation led to significant year over year improvements across all of our profitably metrics in 2007. Annual operating profit was $515 million better then the prior year and our operating margin more than doubled to 4.7% despite fuel costs rising $260 million. Our full-year pre-tax margin improved to 3.0% from a negative 0.3% in 2006. For the year, net income was $352 million, $417 million higher than a year-ago. GAAP full year diluted earnings per share was $2.79.

We faced a steep fuel increase in the fourth quarter as Glenn mentioned with our consolidated fuel costs, up $359 million. This equates to more than seven points of margin headwind compared to the fourth quarter of 2006. United led several fuel surcharge and fare increase attempts but as an industry, we were unsuccessful in passing along the full effect of this commodity cost increase. We know the industry needs to pass on its commodity cost to consumers if we are to succeed in realizing a return to shareholders and we at United are taking the appropriate actions to do so. Despite the negative effect of the fuel increase, our pretax loss of $98 million for the quarter was $7 million better than the previous year. We have recorded a net loss of $53 million for the quarter, $10 million better then a year ago, resulting in a basic and diluted loss for the quarter of $0.47 per share compared to a consensus $0.89 loss. We recorded a largely non-cash income tax benefit of $43 million in the fourth quarter based on 44% tax rate.

As Kathy mentioned, Mileage Plus accounting had a significant non-cash impact on consolidated passenger revenue for the quarter but less so for the full year. For the full year, the Mileage Plus accounting change decreased consolidated passenger revenue by $31 million, as $246 million increase in revenue related to the expiration policy was more than offset by $277 million decrease to passenger revenue due to adopting the deferred revenue method versus the previous accounting treatment. On a year over year basis, the same factors increased 2007 passenger revenues by $127 million, contributing less than a point to PRASM growth. Full year mainline PRASM increased 7.1%, while fourth quarter mainline PRASM was up 13.1% from the 2006 period. Excluding all of the Mileage Plus impacts, mainline PRASM was up 6.3% for the full year and 9.2% for the fourth quarter, a very strong performance that sets us apart from our peers. John will go through shortly the turnaround in our domestic market performance and United's consistence strength in the international markets drove our overall revenue performance.

For the year, cargo and other revenue was about $1.8 billion, down from $2.1 billion in 2006 reflecting lower United Aviation Fuels Corp sales of $307 million and lower domestic mail revenue. Fourth quarter cargo and other revenue came in at the top end of our guidance at $468 million. Fourth quarter cargo performance was strong with revenues growing by 16%, as we experienced double-digit yield increases in all of our geographic areas.

Turning to costs, total operating expenses for the full year increased 1.3% while fourth quarter expenses increased 11.5%. Including hedging gains, mainline jet fuel price for the quarter was $2.53, up from $2.01 a year ago. You can find the details of our hedging gains in our press release. For the full year, mainline CASM, excluding fuel, severance and specials came in 3.1% higher year over year. In 2008, we will continue to focus on costs and later in the call, I will go into further detail regarding the outlook. Mainline CASM for the fourth quarter excluding the impact of fuel and special items was up 9.2% on 1% lower capacity as mainline non-fuel operating costs rose by 8.1%. A number of items drove the increase. Aircraft maintenance materials and outside repair costs were $306 million, 27% higher than a year ago, driven by higher airframe heavy maintenance volumes and higher engine maintenance costs. To put the increase in airframe volumes into context, we had 28 heavy maintenance visits this quarter compared with 11 visits in the fourth quarter of 2006. Additionally, we experienced inflationary pressures from our V2500 engine maintenance contracts.

Purchased service expense was $366 million, up 14.7% year over year, as we invested $20 million on information technology deployment and also made investments of about $15 million in efficiency and revenue improvement initiatives. Navigation charges were also up due to increased international volume. Salaries and related expense line grew 5.7% year over year driven by accruals for profit sharing which increased by approximately $45 million year over year along with $5 million in increased labor costs related to the December storms. Finally, other operating expense was $56 million higher year over year reflecting both tough comps from 2006 and storm related costs. As we mentioned in our call last year, we had two insurance settlements in the fourth quarter of 2006 that lowered expenses by $23 million. December storm related costs increase this line by approximately $10 million and we also recorded $5 million in non-cash assets write-downs in this line.

We closed the quarter with one last reminder of the challenges we face from our constrained ATC environment when you add bad weather to the equation. We experienced winter storms in both Chicago and Denver, and as a result, last month contained more severe weather days than any December on record for United and more than three times the number of severe record days we faced in 2006. The storms in the month contributed to fourth quarter mainline CASM, excluding fuel and special items, coming in 1.7 points higher than guidance. The storm lowered ASMs, higher staffing, glycol and other storm related costs added about 0.7% to CASM. Another 0.6% of a percent of the CASM increase was due to increased profit sharing as stronger revenue performance and lower than expected fuel price resulted in earnings better than we anticipated.

Moving to below the line, I would only remind you that our non-operating costs were lower than normal this quarter as they included the $41 million gain we recorded due to the sale of our interest in Arinc. We generated strong cash flow for the year with operating cash flow increasing 37% to $2.1 billion and free cash flow, excluding the effect of aircraft re-financings increasing 39% to $1.7 billion. We are focused on strengthening our balance sheet and took a number of actions during the year to reduce debt and lower financing costs, including refinancing and paying down our credit facility by $1 billion in February, refinancing several aircraft transactions in our Denver muni bonds at more attractive rates, and paying down our credit facility by an additional $500 million in December. All told, we reduced on and off balance sheet debt by $2.3 billion in 2007; yet, we ended the year with $3.6 billion in unrestricted cash and short-term investments. The company expects to reduce net financing costs by approximately $120 million on an annual steady state basis through the transactions it implanted in 2007.

In the fourth quarter, traditionally our weakest from a cash flow perspective, we generated $132 million in operating cash flow, but had negative free cash flow of $98 million due to the rapid rise in fuel price and a year over year increase of $120 million in CapEx to $230 million. We also paid down nearly $700 million in on and off balance sheet debt in the quarter, including the $500 million reduction of our credit facility I mentioned a moment ago. We ended the year with total debt of $11.5 billion and net debt of just under $8 billion.

Now, I'll turn it over to John to discuss our revenue performance.

John P. Tague - Executive Vice President and Chief Revenue Officer

Thanks, Jake.

United's full year and fourth quarter passenger revenue performance was among the best in the industry, no matter how you cut the numbers. For the full year, mainline PRASM was up 7.1%, and for the fourth quarter mainline PRASM increased 13.1% year over year. Total revenues in the fourth quarter were up 9.7%, while passenger revenues were up 11.6%. We aggressively managed to this outcome, taking decisive action in the face of unprecedented fuel cost. We used all of the tools available to drive improved revenue performance throughout the year, leading the industry in reducing capacity domestically, while seizing the opportunity to expand internationally with new service to Hong Kong and Frankfurt out of Los Angeles and Rome, Rio de Janeiro and Beijing from Washington DC. We leveraged the constructive tension we created between supply and demand to extract even more value through aggressive inventory management practices and disciplined pricing behavior.

As we close the book on the year, I'm pleased to report that our revenue performance is strong across the board with every region having improved significantly. In the first quarter, our domestic results were disappointing. Coming off of that performance, we took definitive action to realign our capacity with current market demand, setting the stage for a substantial turnaround in our domestic performance. United's mainline domestic results through the reminder of the year leave no doubt that our approach to capacity clearing [ph] and revenue execution is working.

International markets continued their impressive performance in the fourth quarter, a trend we saw consistently throughout the year. The Atlantic region was a standout performer in both the full year and the fourth quarter with some of the highest unit revenue growth in the industry, despite significant capacity growth. For the full-year, Atlantic PRASM was up 13.8% on a 6.8% increase in capacity. For the quarter, Atlantic PRASM was up 18.3% on a 7.1% increase in capacity. Pacific PRASM for the fourth quarter of 2007 was up 12.7% on a 4.8% growth in capacity. While capacity in Latin America declined modestly by 1.4% in the quarter, it helped PRASM improve by 14.1% versus the prior year. Overall international PRASM was up 11.6% in 2007 and 14.9% in the fourth quarter. Full year domestic mainline PRASM increased 4.5% from 2006. In the fourth quarter, domestic mainline PRASM increased 12.3% year over year on a 5% reduction in capacity. Looking at our regional performance, full-year PRASM increased 2% year over year on capacity growth of 3.6% and 4.9% increase in stage length. Fourth quarter regional affiliate PRASM increased by 9% over the prior year on basically flat capacity and a 10.6% increase in yield.

Our willingness to be conservative with capacity deployment gives us a strong platform to launch and sustain fare actions that are necessary to offset rising fuel costs. We have not hesitated to use that platform as evidenced most recently by the introduction of the domestic fuel surcharge effort and our continued efforts to increase it even further. Capacity discipline breeds commercial discipline. Establishing this foundation makes compensatory pricing possible and enables more value to be driven through aggressive revenue management practices. In our pursuit of industry leading revenue performance, United is challenging legacy practices and improving on execution by developing new tools and technology solutions, overhauling our performance management strategies, refining our segmentation tactics, while strengthening and redesigning our organizational model. In today's world, success requires new approaches and superior execution, market-by-market, day-by-day. This work clearly shows in our results and importantly we know there is more opportunity and we have established an ambitious agenda to realize it. United is taking the actions necessary and needed to mitigate the negative effects of the business cycle.

Moving to our revenue outlook, we continue to expect strong unit revenue improvements in the first quarter. Today, we are adjusting our capacity a little bit further as we firm up our schedules and Jake will provide you with more detail on this later in the call. With domestic capacity well matched to demand and our continuing focus on executional excellence, we have good reason to feel good about our domestic performance, and we are well positioned to generate competitive revenue results in 2008. I would like to add that in setting our original capacity plan for 2008, we took into consideration the likelihood of a softening economy. We are certainly watchful of development since then, but remain encouraged by our revenue outlook. Should further adjustments be required, you know that we will act responsibly and decisively.

And now, I would turn it over to you, Pete.

Peter D. McDonald - Executive Vice President and Chief Operating Officer

Thanks, John.

From an operational perspective, 2007 was a challenging year with bad weather compounding issues from the constrained ATC environment impacting the industry's ability to meet customers’ expectations. Throughout the year, we focused on improving our operational reliability in this environment and we made significant progress toward this goal. By using standard work practices, we are improving our operating efficiency and our department of transportation rankings. For the 12 months ended November 2007, the latest results available, we ranked third among the six network carriers in on-time Arrival: 14, moving up from the fifth position last year. We improved from fourth place to third place in mishandled baggage. We also had the fewest involuntary denied boardings of any network carrier based on the last available results from September 2007, and we had the fewest number of chronically delayed flights, metrics we know are important to our customers.

I would like to thank my fellow employees who did great work putting our customers first in an environment extremely challenged by weather and ATC issues. Our employees in the field will share on the results of their work and will soon be paid $110 million in profit sharing having already earned some $40 million throughout the year from success-sharing payments, our incentive plan tied to meeting reliability, customer satisfaction and financial goals. Including the 20 million distribution our employee stockholders will receive tomorrow, our employees will receive $170 million in cash payments related to our 2007 performance. We are building on our work, executing against plans in place to further improve reliability for our customers. This year, we will be increasing ground time and adding three spare aircraft, increasing our ability to both recover from irregular operations and reduce cancellations due to mechanical issues.

I will hand the call back to Jake who will talk more about our guidance for 2008.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Thanks, Pete.

Speaking of guidance for first quarter and the full-year of 2008, last quarter, we guided 2008 mainline domestic capacity down 3% to 4% for the year. We are now pulling down mainline and consolidated capacity by another half a point. The result is a decrease in mainline domestic capacity of between 3.5% and 4.5%. I'd remind you that this reduction is on top of a decrease of 3.3% in mainline domestic capacity in 2007. For the full year, we expect year-over-year mainline capacity to range between a decline of 0.5% and an increase of 0.5%.

In the first quarter of 2008, we expect both mainline and consolidated capacity to be flat to up 0.5%. Mainline CASM, excluding fuel and specials, is expected to increase 3% to 3.5% year over year for the first quarter of 2008 and 1.5% to 2.5% for the full year. Year-over-year CASM increases are largely driven by higher maintenance expenses, both due to higher engine and airframe volumes, as well as increased components and materials costs. In addition, purchased service expense will also be up due to increased investment in IT systems. Our plan for the year and our guidance reflects a $200 million non-fuel cost reduction program that is helping offset inflationary cost pressures. We are also targeting a reduction of about $40 million from reducing consolidated fuel consumption. You can find our fuel and hedge position guidance in our earnings release.

With that Latasha, let's open the call for questions.

Question and Answer

Operator

Thank you.

First we will take questions from the analyst community, then we will take questions from the media. The question-and-answer session will be conducted electronically. [Operator Instructions]. And your first question comes from the line of Michael Linenberg with Merrill Lynch. Please proceed.

Michael Linenberg - Merrill Lynch

Yes, good morning, all. I guess two questions, the recent change in the pilot retirement age from 60 to 65. What sort of impact, if you don't mind, I realize it’s early and maybe I haven't crunched the numbers, but maybe you can just give us a feel for how that plays out on financials, both the P&L and cash flow?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Sure, Mike; it’s Jake here. We... because we don't have the client benefit plans, we don't see a really big benefit from that. We do get about $15 million benefit in 2008 due to post retirement medical expenses going down and that's [inaudible].

Michael Linenberg - Merrill Lynch

Okay.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Pretty modest.

Michael Linenberg - Merrill Lynch

Okay, okay. And then impact on, maybe with more senior pilots at a higher wage rate?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Yes, there is some of that, and it is offset by training benefits in not having to train... train people up through the 60s as well. So, we think it's… our view is it is pretty modest for us. We don't get a huge benefit from not having retirement expenses obviously, and we do have higher people on average, higher seniority people on average. But it's pretty much a push to 2008 other than the $15 million I mentioned.

Michael Linenberg - Merrill Lynch

Okay. And then just my second question, it is to Glenn and maybe John, just sort of the initial thoughts on Lufthansa taking a stake in JetBlue as they are one of your close partners? And then sort of a part two to the question, Lufthansa has indicated that down the road there may be an opportunity to put JetBlue into Star, what are your thoughts about having a Star carrier in the New York market? I mean do you see that as an opportunity to enhance your positioning in the Northeast?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Well, Michael [inaudible] whether or not ultimately it’s strategic to Star I think remains to be seen. A lot of other things have to play out [inaudible].

Michael Linenberg - Merrill Lynch

Okay, very good. Thank you.

Operator

Your next question comes from the line of Frank Boroch with Bear Stearns. Please proceed.

Frank Boroch - Bear Stearns

Hi. John, may be you could remind us in the first quarter of '07 the Mileage impact on revenue I think was almost $100 million. As we look forward, should we be thinking of something similar or should be a little bit less that on a year-over-year basis, right?

John P. Tague - Executive Vice President and Chief Revenue Officer

Actually in total, the Mileage Plus adjustment depressed our revenue performance in the first quarter and we are scurrying to find what the number was.

Kathryn A. Mikells - Vice President, Investor Relations

Frank, this is Kathryn. In the table in our press release, the new table that I referenced, and it depressed our revenue, off the top of my head, I think by about $100 million. And the big number was coming off of the just the impact of the deferred revenue accounting treatment relative to the incremental cost method. And you may recall that in the first quarter of 2007, we still had one month where the method was new to us, and so we did take sort of a larger charge than we would think we would take on a normal ongoing basis. The one thing that I'd caution you to is, assuming consumer behavior year to year is the same, in an upward yield environment, we will always have an increase year over year in terms of the negative effect, just as a result of the way we account for it always looking to add the liability at what's reflecting kind of the current fare environment.

Frank Boroch - Bear Stearns

Okay, great. And may be one for Jake. Could you give us an update on the initiatives to set up the internal P&L for the Mileage Plus and any progress on the MRO discussions?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Let me start with the MRO. We... as we mentioned have multiple proposals in hand and we are continuing to work through those proposals with our advisors. One of the proposals came in and was… it was not in the form contemplated, but was still a very interesting proposal, and so its taking us a little bit longer to get through the analysis of that because again it was not… it was not consistent with what we were originally seeking, but it was a creative proposal, and we thought it warranted the time to spend on it to really understand it better and we are going through that. So, we are a little bit behind the timetable I talked to you about on the last call, but we are still making progress on the MRO transaction. As it relates to the Frequent Flyer Program, we are... we've made good progress on that. We are in a position where we said we would be, where we are going to be able to have that business, have its own P&L beginning earlier... beginning January 1. We haven't closed the books on it yet for the month of January, but we are in a position where when we close the quarter we are going to have a P&L for that business. We are evaluating what that... what we should do with that P&L and what we should do with that business. You've heard my bias on that before and so we're just progressing down that path on the same timetable we told you last quarter.

Frank Boroch - Bear Stearns

Great. Thank you.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Okay.

Operator

Your next question comes from the line of William Green with Morgan Stanley. Please proceed.

William J. Greene - Morgan Stanley

Yes, hi. I'm just wondering if you can let us know with regard to M&A, do you have any provisions in labor deals that would give them sort of a veto or do they need to be discussed with them and do you need to get permission from them or you pretty much open to negotiate how you see fit?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Let me speak again. I'll let Jake speak to the front end of the question, remind all of you that we have two labor directors. So, in the course of the discussions that you might appropriately imagine, Bill, that we have with our Board, it includes, of course, those two labor directors, that is a transparent discussion. I think to follow-on is to how we communicate the current circumstances as a big company has to discuss, we also brief other representatives from our other unions that are not represented on the Board. And with that I'll turn over to Jake with respect to contractual issues because as you know we have more than, of course, one unit.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Right. And so the contractual issues, the short answer is there is not a veto right to regarding entering into a transaction. Having said that, we have to abide by the provisions in all of those contracts that have things like successorship clauses and the like in there and what you can do and how you have to operate a merged company. But there is nothing that we see that would amount to a contractual veto. We do, as Glenn said, talk to our unions and make sure that they know what's going on so that none of this is going to be surprise to them but there is not a contractual issue that we have other than the successorship and typical contractual language that is in most labor contracts.

William J. Greene - Morgan Stanley

Okay. And then if I can switch to a capacity question, is there a reason why you are not cutting regional capacity more? You’ve cut the mainline quite significantly. I would just think in this fuel environment that perhaps regional would be less compelling, but maybe I’ve got that wrong.

John P. Tague - Executive Vice President and Chief Revenue Officer

John here. If you look at what we've done to reduce domestic capacity over the last several years, the regional has been a very good tool for us to maintain the depth and breadth and quality of our schedules by reducing gauge domestically. So, I think that while we are not going to grow that system substantially in the future, it has been very, very effective to us by reducing capacity and maintaining schedule integrity.

William J. Greene - Morgan Stanley

All right. Thanks for your help.

Operator

Your next question comes from the line of Ray Neidl with Calyon Securities. Please proceed.

Ray Neidl - Calyon Securities (USA) Inc.

Good morning, everyone.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Hey, Ray.

Ray Neidl - Calyon Securities (USA) Inc.

Hey, I don't want to put words into your mouth, but I just want to make sure that I am clear what you were saying about demand. It looks like you are saying that demand both domestically and on all your international routes looks pretty strong going to the first quarter which is going to enable you to get some yield momentum there. Is that pretty much what you think?

John P. Tague - Executive Vice President and Chief Revenue Officer

Ray, John. Yes, we like what we see in the first quarter and we expect continued strong year-over-year performance in terms of unit revenues and I think it would be accurate to see that flowing mostly from yield improvements.

Ray Neidl - Calyon Securities (USA) Inc.

Okay, great. And my second question is regarding the Frequent Flyer Programs. You have changed the terms as other airlines are changing, they are tightening up the programs. What do you foresee for the future of Frequent Flyer Programs, not only in terms of maybe an asset spin off, but I think if you kept them within the parent company, what is that going to do for the airlines going forward? Is that… are we going to see a lot of changes going forward there?

John P. Tague - Executive Vice President and Chief Revenue Officer

John here, I will start. We see significant opportunities to improve these businesses. We don't think they're fully mature, so we're looking at growth opportunities. We're seeing good performance in the credit card, but we know we can do more, and we think that the reflection of the financial statement is a good catalyst for us to continue to provide more and more discipline around the economics of these programs as we're much more accurately reflecting the true cost of doing business. So, I think regardless of where we come out in the discussion that Jake had earlier, we can improve the performance of these programs financially and we're very focused on doing it.

Ray Neidl - Calyon Securities (USA) Inc.

Great. Thank you.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

I think, Ray, one thing I would add to that, if you think of the sequencing of the decision, it really behooves us and our shareholders to focus on improving the performance of Mileage Plus before we present it to market in the event that we were to take that decision, because we would like to be able to transparently represent to the market its true value as we perhaps take the next step.

Ray Neidl - Calyon Securities (USA) Inc.

Great. And we'll be able to see those results broken up, when did you say, Jake, in next quarter or so?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

I said we would have them next quarter, right. We've not decided whether we're going to disclose those or not, but I said I was biased too, but we haven't made that decision yet.

Ray Neidl - Calyon Securities (USA) Inc.

Great. Thank you.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Okay.

Operator

Your next question comes from the line of Daniel McKenzie. Please proceed.

Daniel McKenzie - Credit Suisse

Yes. Hi, good morning. Thanks. Just a couple of quick questions here. I'm wondering if you can provide some color on where the incremental domestic capacity is coming out as we look ahead to 2008?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

So, I would say that it's pretty smooth across the system, generally with more coming out of O'Hare than the system average and less coming out of San Francisco than the system average.

Daniel McKenzie - Credit Suisse

Got it. And does that mean that United won't be required to rely on pilots supply over time with these incremental capacity reductions?

Peter D. McDonald - Executive Vice President and Chief Operating Officer

Well, I would say... this is Pete McDonald. In response to that, we obviously had a change as we talked about earlier with the retirement... mandatory retirement age on December 13th, which gives us the ability to hold on to some pilots, so that we don't have to rely on over time, and our plans do not include relying on over time as we go forward.

Daniel McKenzie - Credit Suisse

Okay, great. Thanks a lot. I appreciate it.

Operator

Your next question comes from the line of Robert Barry with Goldman Sachs. Please proceed.

Unidentified Analyst - Goldman Sachs

Hi, everyone. This is actually Chris filling in for Rob. Just a couple of quick questions. First with respect to your regional revenue disclosures, can you provide any more color as to sort of what would be a normalized regional disclosure in the Atlantic or the Pacific if you were back out some of the Mileage plan related items?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

You can... we don't have that… we haven't prepared that disclosure but I can give you the key to doing that which is we'd spread the mileage revenue in proportion to the passenger revenues, so --

Unidentified Analyst - Goldman Sachs

Okay.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

So, it's all proportional.

Unidentified Analyst - Goldman Sachs

Fair enough. When you look across your hubs, any particular standouts? If you were to look at Denver, Chicago, Dallas in terms of demand, in terms of I should say performance in the fourth quarter, what were you seeing across your hubs?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

We're seeing good distribution and performance trends, which I think is simply indicative of good capacity planning. Overall we're... we don't really see any outliers, good or bad, in the current domestic trends.

Unidentified Analyst - Goldman Sachs

Okay. And then just a quick one, on fuel you guided to about 250 to 260 for the quarter and then you came in at about 253. Anything... what was... how did you get that good guide?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Yes, there where two things. This is Jake, there were two things that drove that. One is with the sort of spike in fuel prices near the end of the year that put our hedges that applied to 2008 further in the money than we thought they would. And as you know we do a mark-to-market at the end of the quarter, so that drove a piece of that. Then the other is we had higher than expected… we share in the trading profits of Morgan Stanley, who is our fuel supplier, and we had a bigger than expected share of those trading profits again because of the volatility and high prices in the fuel.

Unidentified Analyst - Goldman Sachs

Okay. Great thank you.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Thank you.

Operator

Your next question comes from the line of Jamie Baker with JP Morgan. Please proceed.

Jamie Baker - JP Morgan

Hey, good morning, everybody. Glenn, I may have inadvertently irritated one of my managements last week by asking a bit too bluntly whether they expected to generate a return for stakeholders this year. So I'm... let me try to ask the same question but a little bit more delicately. Stakeholders obviously entrust you with capital, they expect to generate a return on that capital. But I'm curious how United does intend to generate a return, what you actually quantify as acceptable in terms of short-term and long-term returns, and how you measure your progress towards hitting those internal return targets?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Jamie, this is Jake.

Jamie Baker - JP Morgan

Hi, Jake.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

We clearly are focused on generating shareholder returns, something that is pretty alien to this industry and we've obviously been somewhat controversial in some of the things that we approached to do it. We have not publicly disclosed target ROIC. Obviously, we are looking at our internal projects and we have a internal hurdle rate that exceeds what I think you would say is a good ROIC. So we put all of our project decisions through an economic analysis and financial analysis that I think would support the creation of shareholder returns, and then we are very focused on all of the other levers we can pull in order to generate shareholder returns. So, we are... that's why we are... that is why we did this special dividend distribution that we are going to do tomorrow. That is why we are moving down the path on MRO and Frequent Flyer Program and that's why we are so vocal about consolidation for a while. So, we are very focused on it, we have not disclosed a specific ROIC target, but we run the business to generate returns for shareholders.

Jamie Baker - JP Morgan

I appreciate that. My editors probably wouldn't allow me to use the term alien to the industry, they’ll… I happen to agree with you. Secondly, I understand how the minimum block hour guarantee works within the pilot contract, but are there any other similar provisions within other groups contract that would affect your ability to downsize further?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

We have kind of I think… we have some no furlough… some dates that if you are hired before a certain date you can't be furloughed. Those I don't think are realistically binding where we are today. I think the short answer is, there are some technical things out there, but the short answer is I think we have the flexibility that we need. The other thing you will find in our pilot contract we have as a constraints, which is actually not a binding constraint, is that we have to... we can't operate any more regional jet block hours than we have mainline block hours, but that's not… that's not a binding constraint as I said.

Jamie Baker - JP Morgan

Okay. I just wanted to make sure. Thank you, very much.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Jamie, I would like to add one thing to what Jake said about the manner in which we are running the business and the conversation we are having with the Board. When we put together the five-year plan that you are all familiar with and we've been discussing already on the call, we went out in time and we established the objective, the goal for the company to generate a satisfactory rate of return in this business that is commensurate with returns for general industry, which as everybody on the call knows, this industry has not been able to do. And then we asked ourselves, the management team, what would we have to do and what would we believe possible to put ourselves in a position to be able to generate comparable rates of return. And then we worked back from that goal. So, in some sense, that may provide you with context with some of the decisions we made between now and to the end of the five-year period that frames our plan.

Jamie Baker - JP Morgan

I appreciate that. I mean you mentioned going out in time five years. I think the challenge comes in convincing stakeholders that time isn't running out. I don't happen to believe that it is, but if you look at… or talk to your investors, many seem to be concerned that the clock is ticking not so much for United necessarily but simply for the industry here.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Well, I think, Jamie, that is a point is there actually is a conclusion within reach and I think that then plays well into consolidation discussion.

Jamie Baker - JP Morgan

Agreed, okay. Hopefully, this is the year.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Thanks, Jamie.

Operator

Your next question comes from the line of Bob McAdoo with Avondale. Please proceed.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Hey Bob, we know who you are.

Bob McAdoo - Avondale Partners LLC

Okay. Good, thanks. You talked a little bit on the domestic capacity thing about where its come out and whatever. How much of that 5% or 6% or whatever is the change of gauge impact as opposed to actually pulling down departures, any sense on that?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

One sec here. The year-over-year ASM change that's reflected in the guidance is a point lower that the change in departures. So, nominal change year over year in gauge. I think most of that work was really done in '03 to '06 timeframe Bob.

Bob McAdoo - Avondale Partners LLC

Okay. And you did say that in terms of regionally that O’Hare was taking a bigger cut than some of the others.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

That's correct.

Bob McAdoo - Avondale Partners LLC\

Yes, okay. And one other thing, on the $2.74 fuel price assumption that has been given, we've obviously had the price of a barrel oil going up and down by, what, over $13 here in the last couple weeks. Where was that number struck forever, what's the assumption, the oil assumption behind that, or how do go back getting those numbers?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

We did that on the 17th.

Bob McAdoo - Avondale Partners LLC

So, we’d look at what the curve looked like on the 17th or something?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Yes, exactly. Look at the forward curve on the 17th and then make whatever appropriate adjustments from there. It has been quite volatile on the...

Bob McAdoo - Avondale Partners LLC

Obviously, you could even say, gee, it's 99, you could say it's 87, and it's… in the last week or two, that’s –

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Yes, we’ve been moving around, and that’s a fair question. So, we called that number on the 17th, and obviously the markets have moved a lot since then.

Bob McAdoo - Avondale Partners LLC

Okay. Thanks.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Okay.

Operator

Thank you, ladies and gentlemen. This concludes the analyst and investors portion of your call today. Before we take questions from the media, I would now like to turn the call over to Mr. Tilton for closing comments.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Thanks everybody on the call for your questions and for the discussion. In closing, as I mentioned to our employees in my recorded message this morning, we are doing the work that we said we would as we exit our restructuring. We are executing our plan to strengthen our core airline, create value for customers, shareholders and employees as we have discussed. 2007 has been a year of real progress for United. Our customers saw the launch of a new international product, the company's most significant product upgrade in ten years, a benefit for the many other products and service investments underway as a company. Jake mentioned we also paid down debt, something that benefits all stakeholders, increased operating profit by some $0.5 billion, provided a cash distribution to shareholders, and will be paying out, as Pete mentioned, $170 million of cash payments related to our 2007 performance.

So, in closing, the work that we have done enables us to look at the future with confidence, to compete, to seize opportunities as they are presented to us, and make the right choices at the right time for our customers, our shareholders and our employees. And with that operator, we are now ready to take questions from the media.

Operator

Thank you. We will now take questions from the media. [Operator Instructions]. First question comes from the line of Julie Johnsson with Chicago Tribune. Please proceed.

Julie Johnsson - Chicago Tribune

Hi, guys.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Hi, Julie.

Julie Johnsson - Chicago Tribune

I am just wondering if you could walk us through your thoughts on fleet planning on particularly in light of the capacity outlook that you've given for '08. Are you looking at potentially parking planes or shedding planes that have come off lease on the domestic side or are you looking to add long haul aircraft as you grow your international capacity?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Hi Julie, it’s Jake. We have no plans to do anything with our fleet right now. We have the flexibility to because we have a number of unencumbered aircraft and a number of aircraft coming off of lease to adjust our fleet downward if we want to, but right now we are staying where we are. As it relates to intermediate term, we have an interest in the next few years for perhaps some international wide body capable aircraft. We don't have any on order but that's something that we are beginning to explore relatively modest number but we do think we have some opportunities there. And then longer term we are very interested in replacing our narrow bodies with a new generation narrow body aircraft that neither manufacturer is offering as of yet although we're encouraging them to because we think that's the right way to replace what is a pretty large narrow body fleet for us.

Julie Johnsson - Chicago Tribune

And so that's something that wouldn't take place until, whatever, well into the next decade, it sounds like?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Yes, it will be well into the next decade.

Julie Johnsson - Chicago Tribune

Yes. The other question, you mentioned, referenced capacity coming out of O'Hare, could you just walk us through your thinking on that and why O'Hare versus Denver or Dallas?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

That's simply a shift year over year principally on aircraft gauge. We on a constant basis move capacity back and forth between the hubs. Based upon current performance trends, I wouldn't really read anything into that in terms of any disappointment with the Chicago performance.

Julie Johnsson - Chicago Tribune

Okay. Great, thanks.

Operator

Your next question comes from the line of Ted Reed with TheStreet.com.

Ted Reed - TheStreet.com

Thank you. John, I'd like to ask... I don't understand why your PRASM performance is so strong apart from the capacity restraint, and I wonder if there is any pricing initiatives that you can describe? Particularly, Continental said that they were restoring Saturday night stay over requirements on some grounds, and I wonder if you are doing anything like that?

John P. Tague - Executive Vice President and Chief Revenue Officer

So, Ted, I had difficulty hearing you, but I think I got the general question was why our RASM performance was strong relative to industry in addition to the capacity constraints that we have. I think as you referred to with Continental, we too are working very, very hard to segment the market where we can with minimum stays, Saturday night stays, differential pricing between airports and a number of others tactics, but I think it goes beyond that. We're segmenting markets, flights, customer types through a much greater extent in our revenue management behavior than we ever had before. And I think we're really just refining and honing the quality of our execution and we see significant opportunities in the future to do that. And frankly, we are benefiting from having built an extremely good team in this area and I think that's evident in the results.

Ted Reed - TheStreet.com

All right, thank you. Secondly, I'd like to ask, is there any sequencing involved between selling assets like MRO and Frequent Flyer and consolidation? Must one occur before the other or are they related in any way?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Hey Ted, it's Jake. The... they are not directly related. I think if you looked at the situation and said, what would you want to happen if you could make it happen, you'd want to do consolidation before you did any sort of an MRO or a frequent flyer transaction because that would increase the scale of the business and increase the value of the business that you would be executing on. Now having said that, it doesn't make sense for us to just wait for consolidation to happen or not happen, that we don't control that one way or the other. So, we have been moving down the path for both MRO and for the Frequent Flyer program, and we will see if consolidation happens before we are ready to execute on one of those transactions then that would be good and if it doesn't, then we are going to proceed with our strategic plan.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Ted, as I said during the analyst call, Jake is exactly right. As I said during the analyst call, preparing for both is sort of mutually beneficial to us. Being in a position to understand the intrinsic value of both of those businesses in the event that we were to include them in a consolidating event would be to our benefit, and be to the benefit of the process of integration. And that process of integration is where a good bit of synergy value is either captured or not. So, we think it's advisable for us to prepare for either eventuality regardless of how it ends up sequencing.

Ted Reed - TheStreet.com

So, I get you're open to the possibility that one or the other consolidation may or may not occur that there is chance that it may not occur?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Yeah, that's right. That's exactly right.

Ted Reed - TheStreet.com

All right, thank you.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

You bet. Thank you.

Operator

Your next question comes from the line of Susanna Ray with Bloomberg. Please proceed.

Susanna Ray - Bloomberg

Good morning. I am wondering if you kind of update the timeline on the [inaudible] MRO operation. You said it delayed, can you expand upon that?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Sure Susanna, this is Jake. What I’d said is we got multiple proposals, very interesting proposals from both strategic and private equity investors. One of the proposals we got in was not of the same… not the straight purchase of the MRO with what we were seeking, but a more complicated transaction that we hadn’t anticipated. And so we are undertaking the work to understand what that transaction would look like and that is taking us a little longer than we thought. We thought we are going to be in a position where in the first quarter we would no one way or another where what we are doing with the MRO now I don't think that will happen in the first quarter.

Susanna Ray - Bloomberg

Okay. So, second quarter or longer than that?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

I don't think it will happen in the first quarter.

Susanna Ray – Bloomberg

Okay. Second question is I'm wondering how the continued domestic downsizing is affecting your Ted unit?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Ted size remains relatively constant. You may see some modest changes in aircraft utilization, but we haven't done anything particular over there.

Susanna Ray - Bloomberg

Okay. All right thank you.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Christopher Hinton with MarketWatch. Please proceed.

Christopher Hinton - MarketWatch

Hi, good morning.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Good morning.

Christopher Hinton - MarketWatch

I was just wondering if you could talk a little bit about your international exposure and how much a part of your future earnings growth you think that would be, you could maybe give a percentage of that? And then if you were to do a consolidation deal and talk a little bit about how much growing international markets… excuse me, markets that you play, but first may be a deal that [inaudible] capacity further?

John P. Tague - Executive Vice President and Chief Revenue Officer

Yes this is John. We don't disclose forward-looking earnings by annuity or otherwise. The international performance has continued to be very important to the company. The system is performing very well relative to its performance in a number of years. So, we are encouraged by the quality of international network, we think it's unmatched and it's performing very well.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

This is Jake. What I would like to add there is that in the context of consolidation, the international growth opportunities that a consolidated carrier would have are one of the most attractive aspects of that. The US airlines in their fragmented state are unable to compete effectively on a global stage and consolidation would better enable us to do that. That is a very important point related to consolidation. W e think that in a consolidating transaction there are some very interesting growth opportunities in the international arena.

Christopher Hinton - MarketWatch

And when you say unable to compete, are you speaking in terms of pricing or having direct flights to important hubs overseas?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

No, I think -- what I was going to add to Jake's comment is if you consider consolidation in the context of open sky treaties and you step back a little bit and examine that which has happened either the Atlantic market or some of the Asia markets post the negotiation of liberalizing treaties within various sovereigns, you can see that the market internationally is changing quite dramatically and a consolidated US carrier I think would, as Jake said, would be far better positioned to compete in that environment than any of the incumbent carriers are today.

Christopher Hinton - MarketWatch

And frankly, foreign airlines are moving much faster to seize the opportunity of consolidation than the US has.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

You can begin the thoughts that both John and Jake have spoken to you just by starting with [inaudible] and working back from that market reality. I think that it's estimated revenue is $30 billion. If you take a $30 billion company and work from that as a legitimate competitor, you've got a frame of reference. If you think the announcement here recently that Singapore Airlines is going to fly from Houston to Moscow to Singapore, you have an understanding of the flexibilities are now beginning to accrue to international competitors.

Christopher Hinton - MarketWatch

Right. And it also sounds like revenue structure as well will be benefited, is that safe to say?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

For the consolidated carrier?

Christopher Hinton - MarketWatch

The revenues… yes, exactly, consolidated… foreign consolidation.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Maybe both revenue synergies and there will [inaudible].

Christopher Hinton – MarketWatch

And finally, you spoke about the 247 fuel charges looking forward based on the 17th, was that January 17th?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Yes, that was January 17th.

Christopher Hinton - MarketWatch

Okay. I just wanted to double check. Thank you.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

All right. Thank you.

Operator

Your next question comes from the line of Kelly with Denver Post. Please proceed.

Kelly Yamanouchi - Denver Post

Hi. I just wanted to find a little more about whether you plan to discontinue routes with your domestic capacity cutbacks, whether your gate leases will be affected or your workforce and how Denver would play into that?

John P. Tague - Executive Vice President and Chief Revenue Officer

Yes, these changes… John, here… moderate, Kelly. I don't... we obviously discontinue routes from time to time and add routes from time to time and I wouldn't expect this to be any different, but no particular story there. And as a consequence of that, we don't foresee anything other than the ordinary course of facility changes as a result of this.

Kelly Yamanouchi - Denver Post

Okay. I was just wondering if you have any more information on how you plan to cut your non-fuel cost further next year?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

We have a number of projects underway and Pete may want to jump in here, but we are in the process of putting winglets in our long-range 757 that reduced our fuel cost for those planes by something like 5% on those long-range missions. We also have a new flight planning system that's going into place and then a number of the typical fuel efficiency things like making sure that we are not running APUs and not having any extra weight on the planes.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Single-engine taxing.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Single-engine taxing and other...

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Domestic RVSM, the DFA implemented which reduces fuel costs, so a whole lot of initiatives that are reducing consumption.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

We have a $40 million target for 2008 to reduce our fuel consumption that will result in $40 million of savings.

Kelly Yamanouchi - Denver Post

Great. Thank you very much.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Welcome.

Operator

Your next question comes from the line of Jennifer Michaels with Aviation Daily. Please proceed.

Jennifer Michaels - Aviation Daily

Hi, good morning.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Good morning.

Jennifer Michaels - Aviation Daily

I was curious about the increase in cargo revenues. Is that just a fluke in the fourth quarter? Do you have new cargo capacity, are you focusing in anywhere more on the cargo business and in any particular geographical region?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

No, cargo... this is Jake. Cargo revenues in the fourth quarter… I mean Cargo revenues are typically strongest in the fourth quarter but we had a very strong performance in the fourth quarter and we saw a double-digit yield increases in all other geographies that we operated. And so, the cargo team has been focusing for a long time to maximize the value. We don't have any capacity growth to speak of in those markets, and so they're focused on increasing the yields, which they did quite successfully passing on the higher fuel costs, fuel surcharges and the like. So, good performance by our cargo folks just basic doing… running the business in a very smart way.

Jennifer Michaels - Aviation Daily

Okay. And just, do you see any difference in '08 in that side of the business, overall?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

I'm sorry, I missed that.

Jennifer Michaels - Aviation Daily

In 2008, do you have any forecast for cargo going up or down or staying flat?

Frederic F. Brace - Executive Vice President and Chief Financial Officer

We haven't disclosed anything for 2008 expectations for cargo.

Jennifer Michaels - Aviation Daily

Thank you.

Operator

Your next question comes from the line of John [ph] with Crain's Chicago Business. Please proceed?

Unidentified Analyst – Crain's Chicago Business

Good morning. I was hoping somebody might be able to talk a little bit about some of the IT investments that you've mentioned?

John P. Tague - Executive Vice President and Chief Revenue Officer

This is John Tague here. Principally we have a significant desktop or PC refreshment program going on. That's driving quite a bit of the investment opportunity as well as general infrastructure investment.

Unidentified Analyst – Crain's Chicago Business

Okay. And how... do you have any sense of I guess how long that upgrade is going to last and what sort of cost you're looking at?

John P. Tague - Executive Vice President and Chief Revenue Officer

Now, that particular upgrade goes on for another 18 months to 24 months, and we've not disclosed with the forward-looking costs are.

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Hey, John. One item though that I think that you here in Chicago, you likely took note of is that we have brought into United here very recently a new Chief Information Officer in Keith Halbert. And a good bit of the way forward relative to the competitive benefits of IT, it’s going to be enhanced by our having recruited to the company the former Chief Information Officer of EDS, and I think speaks well for his qualifications to the company as our new CIO who will continue report to John.

Unidentified Analyst – Crain's Chicago Business

Is there anything else larger beyond just desktop upgrade at work, are you changing out some of the backend systems? Is the flight planning capability that you spoke of earlier a part of that? I mean how extensive are the IT upgrades?

Peter D. McDonald - Executive Vice President and Chief Operating Officer

Let me frame here, desktop upgrades can sound like a little thing for a lot of companies, but I think as you can imagine, given our worldwide footprint that is all across our reservation systems, all across our corporate groups, but also throughout our airport operations as well. Some of the things that Jake mentioned, new flight planning system obviously improving fuel, we continue to invest and improve tools and technologies for our revenue management systems. We're expanding the easy check-in unit footprint throughout the airport to better enable self-service for our customers focusing on investments to improve the quality of data that our customers receive. So, it's a long-term plan to improve the infrastructure that's supporting United. I think as Glenn mentioned, at the end of day, we think we can get more for less and where you're going to have to navigate our way between here and there.

Frederic F. Brace - Executive Vice President and Chief Financial Officer

Yeah. This is Jake. These are the backbone systems, so things like an ERP, which just went live the other day, a replacement for our reservation system over the long term, so the things that are, as I said, backbone to our business.

Unidentified Analyst – Crain's Chicago Business

Okay, thanks.

Operator: Your next question comes from the line of Mary with Bloomberg News. Please proceed.

Mary Schlangenstein - Bloomberg

Hi, this is Mary Schlangenstein. I wanted to see if you might be willing to comment on whether you've had any discussions with Lufthansa in terms of consolidation in the US industry?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

As you know, Mary… this is Glenn, we met recently, I think that I mentioned on a call at a Star Alliance CEO meeting in Beijing. All of the CEOs of all of the Star carriers meet there. We all report out on developments in our respective theater of operations. So we certainly reported out on the possibilities in the US, but nothing more than that. So, I think we've just as they, we report out in Europe on the data play with respect to Iberia and Alitalia just as an example. We keep one another appraised of what is happening in our respective markets, but beyond that, no.

Mary Schlangenstein - Bloomberg

Okay. So nothing there was specific to United and what you might be considering?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

Mary, as I said at the outset, when an analyst asked me about Lufthansa JetBlue, the east coast of the United States as a market of connectivity for our Atlantic partners and ourselves is a market of interest.

Mary Schlangenstein - Bloomberg

Okay. And when you are just discussing consolidation, and what might or might not happen in the US industry, how big a concern or a consideration is maintaining your current alliance ties as opposed to having consider and if you would consider switching alliances in the effect of a merger?

Glenn F. Tilton - Chairman, President and Chief Executive Officer UAL Corporation and United Airlines

I think the best way to respond to that, Mary, is, you can assume that absolutely everything goes into the mix of consideration.

Mary Schlangenstein - Bloomberg

Okay. Thank you.

Operator

Thank you ladies and gentlemen. This concludes our call today. You may disconnect your lines at this time.

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Source: UAL Corp. Q4 2007 Earnings Call Transcript
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