United Airlines Holdings, Inc. · NASDAQ:UAL
United Airlines — UAL — Investor Presentation (February 2003)
21 slides from United Airlines's investor presentation, Feb 14, 2003
Slide 1: Plan For Transformation Overview
Plan For Transformation Overview February 2003
Slide 2: Plan For Transformation
Plan For Transformation * The plan must fundamentally transform the airline. * It must create useful and worthwhile travel options to meet the changing needs of today’s travelers. * It must build a cost-competitive airline across all segments. * The plan must give the company a platform to reengage
Slide 3: Airline Industry Has Delivered The Worst Shareholder Performance Of Any Industry
Airline Industry Has Delivered The Worst Shareholder Performance Of Any Industry 7-year rolling normalized indexed TRS — U.S. airline industry vs. economy" McKinsey research of 16 industries, 1008 campanies 400 aan Worst performance of 16 industries am Range of typical researched 200 shareholder ret
Slide 4: United Faces Fundamental Challenges Required for Sustained Profitability, Access To Capital Markets
United Faces Fundamental Challenges Required for Sustained Profitability, Access To Capital Markets * Weak value for leisure/ price- sensitive segments * Core business segment dectining in value + Employee motivation and engagement could dectine post CBA restructuring CONFIDENTIAL Clear and compelli
Slide 5: However, Revenue From Road Warriors Is Declining Even Faster Than Other Segments
However, Revenue From Road Warriors Is Declining Even Faster Than Other Segments Industry Road Warrior United Average Passenger Revenue revenue index Premier te ceneraiMenber Prema Bceestk Decline from 2000 peak Net Revenue Per Member 1995 2002 Note: Based on tier earned via prior yearlight activity
Slide 6: Customers Are Increasingly Turning To LCCs For Qualities Valued By Both Business And Leisure Travelers
Customers Are Increasingly Turning To LCCs For Qualities Valued By Both Business And Leisure Travelers Percent of customers agreeing with statement Safe Dependable Helpful Comfortable Simple Good Value UA AA co SW JetBlue* 36% 38% 31% 41% 31% 24 28 20 38 30 23 27 21 38 30 24 36 19 17 38 9 8 6 49 36
Slide 7: United Has The Highest LCC Exposure Of Any Mainline Carrier
United Has The Highest LCC Exposure Of Any Mainline Carrier United’s 08D passengers in markets with low-cost competition Percent 714 729 724 644 Mainline carriers’ exposure toLecs Percent *UA 72 *co 66 *AA 58 *DL 51 “NW 49 *us a 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 1002 Source
Slide 8: A Separate LCC Must Be Developed And Knit Together With Existing Products Through A Strong Umbrella Brand
A Separate LCC Must Be Developed And Knit Together With Existing Products Through A Strong Umbrella Brand Offerings on other airlines through alliances CONFIDENTIAL Premium offering for business segments Single umbrella brand No-frilts offering for small markets LCC offering for price-sensitive! lei
Slide 9: Network Carriers Still Command A Premium Over LCCs; Maintaining A Strong Network Is Critical To Success
Network Carriers Still Command A Premium Over LCCs; Maintaining A Strong Network Is Critical To Success Unit revenue advantage — network carriers vs. LCCs Percent ci 30 28 26 26 14 13 24 27 26 22 1992 93 94 95 96 oF 98 Source: Goldman Sachs; DOT CONFIDENTIAL 10 99 2000 «(01 02E W UNITED
Slide 10: United Currently Faces Significant Challenges In Each Potential Network Product
United Currently Faces Significant Challenges In Each Potential Network Product " Network product Competitive deficiencies Implications Alliance! + Domestic and intemational restrictions + Network voids Code Share + Limited revenue-sharing/blocked space * Lost revenue opportunities * Cargo restricti
Slide 11: Alliances: Competitive Response Has Eroded United's Substantial Lead In Alliance/Codeshare
Alliances: Competitive Response Has Eroded United’s Substantial Lead In Alliance/Codeshare Daily departures & destinations served through Alliances [Departures Destinations January 1999 January 2003 10,367 * United's artvantage is eroding Launched 6100 + While the US. codeshare deal will improve UA’
Slide 12: Ability To Respond Effectively To Continued Market Changes Is Key To Future Competitiveness
Ability To Respond Effectively To Continued Market Changes Is Key To Future Compe’ Market trends Limiting factors to United response * Domestic alliances like UnitediUS * Labor contracts (scope clauses) Airways and ContinentaliDeltal limit ability to pursue code share Northwest are changing domestic
Slide 13: United Express: United's Current RJ Fleet Is Small Relative To Overall Fleet, And Lags Competitors
United Express: United’s Current RJ Fleet Is Small Relative To Overall Fleet, And Lags Competitors ... Percent of Airline Rus in operation mainline fleet Delta 299 54 Continental 188 50 America West 33 23 United 128 23 US Airways 70 22 AMR: 169 20 Alaska 16 16 Northwest 53 12 Industry 1015 30 Source
Slide 14: United's Express Network Product Profitability Will Be Significantly Enhanced By Optimizing Fleet Size, Fleet Mix, And Cost
United’s Express Network Product Profitability Will Be Significantly Enhanced By Optimizing Fleet Size, Fleet Mix, And Cost * Labor contract scope relief needed to allow Express RJ fleet expansion to optimize network * Labor contract scope relief needed to ensure the introduction of more RJs where e
Slide 15: Launching A Competitive, Sustainable Low-Cost Carrier-Within-A-Carrier Is Extremely Challenging
Launching A Competitive, Sustainable Low-Cost Carrier-Within-A-Carrier Is Extremely Challenging Carrier-within-carrier Launch & eventual LCC attempts outcome Key reason cited for failure + Launched in 1993 “,.. the all-important low costs have * Ceased operations been elusive so far.”—Airline in 199
Slide 16: To Match Best-in-Class Mainline Cost Structure, United Must Reduce Projected 2005 Unit Costs By 25%
To Match Best-in-Class Mainline Cost Structure, United Must Reduce Projected 2005 Unit Costs By 25% Unit Costs, 2544 reduction to Cents per ASM achieve target Target to be achieved through: “Business Transformation Projects *SAM Restructuring *§1110 Benefits “CBA Savings Projected 2005 Target 2005 U
Slide 17: United Has Launched A Comprehensive Restructuring Program Designed To Meet Strategic Objectives
United Has Launched A Comprehensive Restructuring Program Designed To Meet Strategic Objectives Strategic objectives + Competitive, durable maintine cost structure + Competitive, durable LCC brand cost structure + Flexible, profitable United Express network product + Robust portfolio of alliancesico
Slide 18: Successful Transformation Also Will Require A Cooperative Effort To Enhance Employee Value
Successful Transformation Also Will Require A Cooperative Effort To Enhance Employee Value “When service companies put employees and . DESIRED END-STATE customers first, they achieve great success” Employees "UA isa great place to work enema “UA is my cartier of choice” Leadership “Our employees Cap
Slide 19: Each Key Constituency Will Have Responsibilities
Each Key Constituency Wii Responsibilities Leadership Unions Employees CONFIDENTIAL * Clearly articulate the vision for the business and cutture * Develop a robust business strategy and compelling customer value * Develop attractive employee value that creates alignment between employees and company
Slide 20: Our People Strategy Demands Improvements In Two Areas
In Two Areas Area CONFIDENTIAL Key driver 2 Our People Strategy Demands Improvements Actions * Provide clear and compelling direction of the company's vision and strategy + Ensure alignment of all competing constituencies towards profitability + Maintain a stable course: + Communicate effectively wi
Slide 21: Our Plan Will Require Transformational Change
Our Plan Will Require Transformational Change * Each individual element of the strategic plan represents major change for United and involves risk + In our case, these actions must be carried out simultaneously and rapidly * BUT, ANYTHING LESS WOULD BE EVEN RISKIER CONFIDENTIAL 24 UNITED