United Airlines Holdings, Inc. · NASDAQ:UAL
United Airlines — United Continental Holdings — Investor Day (November 2013)
82 slides from United Airlines's investor day presentation, Nov 19, 2013
Slide 1: United Airlines Investor Day November 19, 2013
United Airlines Investor Day November 19, 2013
Slide 2: Agenda
Agenda Presentation Executive presenter Opening Smisek , Jeff Chairman, President & CEO Operations & revenue , Compton Jim Vice Chairman & Chief Revenue Officer Followed by Q&A panel Hart , Greg SVP Technical Operations Break Product, ancillary revenue & loyalty , Foland Jeff EVP Marketing, Technolo
Slide 3: Safe Harbor Statement
Safe Harbor Statement Certain statements included in this release are forward -looking and thus reflect our current expectations and beliefs with respect to certain current and future events and financial performance. Such forward -looking statements are and will be subject to many risks and uncerta
Slide 4: Jeff Smisek, Chairman, President and CEO
Jeff Smisek Chairman, President and CEO
Slide 5: United has transformed
United has transformed Industry -leading Working together network culture Customer and investor oriented Consistently profitable Improving service and Leading passenger and product ancillary revenue Investable for the long term 5
Slide 6: Committed to running a great airline and improving returns
Committed to running a great airline and improving returns Consistently Industry—Competitive Great Increased reliable leading unit product customer efficiency operations revenue offering service 6
Slide 7: United is flyer-friendly throughout the entire travel experience
United is flyer-friendly throughout the entire travel experience World-wide Airport-friendly friendly Seating- Onboard-friendly friendly 7
Slide 8: Making our digital tools more user-friendly
Making our digital tools more user-friendly 8
Slide 9: Working together culture
Working together culture Putting the customer first, always Investing in tools and recurring training for our employees Creating customer service standards Measuring employee service against standards to increase accountability Empowering and listening to our employees Reaching responsible joint col
Slide 10: Improving the quality and efficiency of everything we do
Improving the quality and efficiency of everything we do Fuel Maintenance Productivity Sourcing Distribution consumption Implementing a $2B annual cost savings program 10
Slide 11: Creating long-term shareholder value
Creating long-term shareholder value Customers Increasing quality and efficiency Investing in our fleet, product Investors and technology Employees Expanding earnings Communities Generating free cash flow we serve 11
Slide 12: Jim Compton, Vice Chairman & Chief Revenue Officer
Jim Compton Vice Chairman & Chief Revenue Officer
Slide 13: Committed to running a great airline and improving returns
Committed to running a great airline and improving returns Increase Expand Leverage Deliver Improve value operational industry leading benefits of new reliability of network efficiency unit revenue aircraft 13
Slide 14: Operational investments have paid off
Operational investments have paid off On-time departures (D:0) YOY mainline on-time arrival improvement Implemented new arrival (year-to-date) 1 and departure procedures to reduce aircraft turn times 3.8 pts. 3Q12 1Q13 3Q13 Enhanced boarding On-time boarding process and new agent interface to improv
Slide 15: Driving efficiency throughout the operation
Driving efficiency throughout the operation Network optimization Airport experience Maintenance reliability Enhancing tools to improve Expanding self-service Broadening preventative tactical decision making and technologies maintenance programs of fleet reduce fuel burn Modernizing airport Migrating
Slide 16: Improving maintenance practices
Improving maintenance practices Increasing maintenance touchpoints and Fleet health capabilities across the network SFO maintenance Developing a world-class facility by base aligning work with core competencies transformation Implement lean Reducing variability and increasing practices quality to re
Slide 17: Right part in the right place at the right time
Right part in the right place at the right time Average duration of parts-driven Measuring supply chain performance by out of service event tracking bin levels for critical parts (hours) No-go empty spare part inventory bins ~(15%) (monthly average) ~(60%) 1Q 2013 2Q 2013 3Q 2013 Jan Mar May Jul Sep
Slide 18: World-class network is unmatched in scope and scale
World -class network is unmatched in scope and scale Global Advantageous Business -centric Balance reach geography More flights to more Ideally located hubs #1 carrier in top five Leadership position destinations around spread across the U.S. business in all entities and the globe than any U.S.in ke
Slide 19: Offering New York customers the most flights worldwide
Offering New York customers the most flights worldwide, with the only true connecting hub Most flights Highest yielding Best corporate presence New York daily departures New York yield New York corporate revenue share (cents) 451 15.6 37% 417 14.5 33% +4pt 207 United Delta American United Industry U
Slide 20: San Francisco is the premier gateway to the Pacific
San Francisco is the premier gateway to the Pacific 10 of Fortune 100 headquartered Business—in Bay Area centric #2 U.S. destination for corporate travel spend Most affluent U.S. metropolitan Valuable, loyal area customer base Most top-tier MileagePlus members 300 daily flights to 90 destinations La
Slide 21: United is the best positioned carrier to China
United is the best positioned carrier to China Non-stop service from five U.S. Weekly departures Routes gateways, more than any airline 77 11 First U.S. carrier with non-stop service to China beyond Beijing and Shanghai 49 7 Best connectivity Single-stop connectivity from China to over 130 U.S. dest
Slide 22: Capacity discipline is central to our strategy
Capacity discipline is central to our strategy United’s capacity declined nearly 2% per year since 2008, more than 2x industry average United’s capacity vs. U.S. GDP growth (year-over-year) Long-term 2.5% 2.8% 2.5% capacity outlook 1.8% 1.5% 1%-2% 1.1% Annual capacity growth below GDP, or 1% -2% ove
Slide 23: Taking actions to grow our unit revenue premium
Taking actions to grow our unit revenue premium Trailing twelve months PRASM (adjusted to industrylength of haul) Investing in revenue United management +14.9% +14.3% Improving value of A4A network +16.8% industry +14.7% Leveraging new aircraft Creating high quality corporate partnerships 1Q10 3Q10
Slide 24: Investing in our revenue management
Investing in our revenue management Made phased recalibrations to demand forecast Recent actions Leveraging no-show/cancellation rate data to optimize booking levels Creating functionality to better Long-term optimize most profitable investments connecting routing Incorporating ancillary revenue opp
Slide 25: Transforming Pacific network to meet demand for non-stop service
Transforming Pacific network to meet demand for non -stop service Non-stop passengers to Asia United intra-Asia capacity Realigning intra-Asia and (average per day) (million ASMs per month) non-core flights +~40% (31%) (53%) 7,700 226 Launching non-stop service: San Francisco to Taipei San Francisco
Slide 26: Using efficiency improvements to unlock profitable new markets
Using 787 efficiency improvements to unlock profitable new markets Right sizes capacity and Opens valuable new increases efficiency route opportunities 275 250 Margin Operating Seats 225 2 Class 767-300 200 3 Class 767-300 175 0% 5% 10% 15% 5,500 6,000 6,500 7,000 7,500 8,000 8,500 9,000 Relative Tr
Slide 27: Regional fleet restructuring
Regional fleet restructuring will enhance service and improve efficiency and profitability Improved 26 additional seats Regional fleet mix1 revenue Ancillary revenue opportunities 28% Large RJs Increased Replaces less efficient 50 seat RJs 41% (70-76 seats) efficiency 10%+ fuel efficiency improvemen
Slide 28: United's network and assets are the best for corporate customers
United’s network and assets are the best for corporate customers Best network for Growing quality partnerships business travelers Fair market share of total corporate revenue Leveraging JV relationships to grow share in partners’ home markets Share premium Increasing compliance and efficiency of cor
Slide 29: Making meaningful investments to expand our revenue
Making meaningful investments in our tools, network, fleet and product to expand our revenue Grow high quality Invest in revenue Improve value Leverage benefits corporate management tools of network of new aircraft partnerships 29
Slide 30: Q&A
Q&A Jim Compton Vice Chairman & Chief Revenue Officer Pete McDonald Executive Vice President & Chief Operations Officer Greg Hart Senior Vice President Technical Operations Brian Znotins Vice President Network
Slide 31: United
UNITED SY
Slide 32: Jeff Foland and Scott Wilson
Jeff Foland Executive Vice President Marketing, Technology & Strategy Scott Wilson Vice President Merchandising & eCommerce
Slide 33: Making return-driven investments
Making return -driven investments Route Customer Reliability Product Loyalty network service 33
Slide 34: Improving the experience we deliver on the ground
Improving the experience we deliver on the ground Efficiency New mobile app Easy bag self-tagging Intuitive kiosks Modernized United Clubs Enhanced boarding layout Convenience 34
Slide 35: Enhancing our industry-leading options in the air
Enhancing our industry -leading options in the air Flatbed seats Economy Plus Slimline seats Seating Expanded food New interiors Onboard and beverage environment for sale 35
Slide 36: Enabling the connected aircraft with global satellite-fed Wi-Fi
Enabling the connected aircraft by rolling out global satellite -fed Wi-Fi More bandwidth Works on trans-oceanic flights Content and pricing flexibility Foundation for numerous customer service and reliability initiatives Rolling out 1 per day, largely complete in 2014 36
Slide 37: Providing professional, ever-improving customer service
Providing professional, ever -improving customer service throughout the entire experience Standards, Established specific customer service training, and standards tools Trained more than 43,000 employees on investments those standards Rolled out employee technology tools Will continue to invest in e
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Slide 39: Digital investments drive significant financial returns
Digital investments drive significant financial returns and improve customer experience WiFi Mobile Kiosk Revenue Experience Efficiency 39
Slide 40: Focus was to first elevate our technology infrastructure
Focus was to first elevate our technology infrastructure … From reliance on silo platforms and To a modern architecture with greater “spaghetti” code flexibility and timeliness Presentation Applications (Logic) Data 40
Slide 41: Coordinated set of digital customer touchpoints
…and then to deliver a coordinated set of digital customer touchpoints from the ground up Web Mobile Clear Customizable Touch-friendly Performance -focused Kiosk 41
Slide 42: Our mobile centricity has made us the industry leader
Our mobile centricity has made us the industry leader Current mobile app usage Visits (000s) Downloads (M) 300 Average daily visits 8 7 250 Cumulative downloads 6 200 5 150 4 3 100 2 50 1 0 0 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 2012 2013 Over 7M total downloads 94% of custome
Slide 43: Last week we introduced the new United mobile app
Last week we introduced the new United mobile app… 43
Slide 44: Giving customers more control and United more opportunity
…giving customers more control and United more opportunity 44
Slide 45: Following soon will be our new website
Following soon will be our new website
Slide 46: Investments will improve strong e-commerce financial performance
These investments will improve upon our strong e-commerce financial performance to date Ticket penetration through Distribution cost per Ancillary revenue via direct digital channels booking digital channels +~25% +~4x (~50%) 1 20101 2013E 2010 2013E All channels United.com ex. website 1: 2010 resul
Slide 47: Portfolio of high-margin ancillary products and services
Developing a strong and growing portfolio of high -margin ancillary products and services Unbundling New products Optimization Checked bags Streaming Premier access United Club entertainment Meals Onboard Wi-Fi Flexibility Premium cabin upsell 47
Slide 48: Optimizing our existing products
Not only are we optimizing our existing products … More extra legroom seats in Economy Plus per seat revenue 1 Economy than any other airline reflects optimization efforts +20% +30% Demand Dynamic pricing optimization Distribution Offer targeting 2012 2013E 2014E expansion 1: Economy Plus revenue pe
Slide 49: Stimulating ancillary growth through new offerings and smart bundling
…but we will also stimulate ancillary growth through new offerings and smart bundling Static bundles Dynamic bundles Popular products, mass market Customizable offers to deliver right product to right person Faster time to market Leverage “big data” to offer smarter, targeted offers Bundle well-reco
Slide 50: Continue steadily growing ancillary revenue
Expect to continue steadily growing ancillary revenue, providing better choice and experience to our customers Ancillary revenue Comprehensive and ($B) relevant portfolio $3.5+ Dynamic pricing +7%CAGR capabilities $2.8 $2.4 $2.5 $2.2 Powerful and nimble technology platforms Expand availability 1 thr
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Slide 52: The world's most rewarding loyalty program
Engaging customers and creating value with the world’s most rewarding loyalty program Most members Most earn options Most redemption options Leading program Most exclusive status Significant 1 Retain and grow high value value airline customer base creation 2 Create high-margin revenue through smart
Slide 53: Advancing loyalty program to align benefits with customer value
Advancing loyalty program to better align benefits with customer value 2012 2014 Near-term Introduced Further Merged Realigned minimum revenue differentiate MileagePlus Premier benefits requirements for earning, rewards & OnePass by frequent flyer Premier level and benefits by programs tier qualific
Slide 54: Partnering with premier brands
Partnering with premier brands that provide great benefits for our customers and value for United RewardsPlus Reciprocal elite status w/ Marriott among elite members of both programs Improved points transfers Mercedes—Improved service for Benz highest value customers with tarmac transfers Discounts
Slide 55: Growing high margin revenue with mileage currency and data
Growing high margin revenue with expanded use of mileage currency and data Grow co-brand card Expand MileagePlus Expand use of data for portfolio loyalty network marketing optimization Increase direct to Build innovative new Partner with innovative customer mileage sales products ventures 55
Slide 56: Growing the world's leading co-brand credit card portfolio
Continuing to grow the world’s leading co-brand credit card portfolio Presence in 15 countries Card spend increased 35% and active card members increased 16% over last 3 years Continuing to improve card portfolio and features Successful new launches in Mexico and Japan 56
Slide 57: Executing our strategy to deliver customer experience and margin growth
Executing our strategy to deliver strong customer experience and margin growth Quality product and Strong customer Leading channels service engagement 57
Slide 58: Q&A
Q&A Jeff Foland Executive Vice President Marketing, Technology & Strategy Tom O’Toole Senior Vice President Marketing & Loyalty Scott Wilson Vice President eCommerce & Merchandising
Slide 59: United
UNITED SY
Slide 60: John Rainey, EVP & Chief Financial Officer
John Rainey Executive Vice President & Chief Financial Officer
Slide 61: Improving long-term shareholder value
Improving long-term shareholder value Reduce annual costs Increase earnings by 2-4x by $2B Balance free cash Improve capital structure flow allocation 61
Slide 62: Expect to achieve $2 billion in annual cost savings by 2017
Expect to achieve $2 billion in annual cost savings by 2017 Fuel Maintenance Productivity Sourcing Distribution consumption ~$100M ~$500M ~$150M ~$100M ~$1B Benefit from Realign work Improve Reduce Shift traffic new aircraft and with core efficiency and sourcing costs mix towards winglets that compe
Slide 63: Fuel efficiency to drive $1 billion in annual savings
Fuel efficiency to drive $1 billion in annual savings by 2017 Aircraft to be replaced 10-20% more over next 4 years efficient aircraft 16.3 13.3 2013E gal/1,000 ASM gal/1,000 ASM 2017E 16.0 14.9 gal/1,000 ASM gal/1,000 ASM Winglets & operational Remaining aircraft initiatives 15.9 15.2 gal/1,000 ASM
Slide 64: 2017 maintenance expense expected lower than 2013
Despite modest capacity growth, expect 2017 maintenance expense to be lower than 2013 Maintenance CASM (cents) 10 -15% improvement Newaircraft 0.75 0.76 ~0.65 Preventative maintenance programs Improved qualitythrough lean practices 2013E 2014E 2017E 64
Slide 65: Annual improvements in productivity drive 15%-20% improvement
Consistent, annual improvements in productivity drive 15% -20% improvement by 2017 Labor productivity (ASMs1/FTE) Aligning staffing with workload 15% –20% improvement Implementing best sourcing initiatives 2.94 2.91 Increasing quality of our processes Reducing defects in our work Investing in techno
Slide 66: Expect 2014 CASM ex-fuel growth
Expect 2014 CASM ex -fuel to grow between 1 and 2% YOY 8.0% 6.0%—6.5% 6.0% 2010 -2013 Expect 4.0% 3.4% avg. CASM 2015 – 2017 ex-fuel growth 2 non -fuel unit 2.0% 2.0% 1.7% 1% -2% costs to grow less than 0.0% inflation -2.0% 1 2010 2011 2012 2013E 2014E YOY capacity growth YOY CASM ex-fuel 2 1: 2010
Slide 67: Our cash flow allocation continues to evolve
Our cash flow allocation continues to evolve 2010 2013 2014 Future High-return product and technology Integration investment Debt reduction Balance sheet optimization Product & infrastructure investments Allocate capital to shareholders Metered, disciplined fleet replacement 67
Slide 68: Cash flow priorities
Cash flow priorities Maintain adequate liquidity Make metered and disciplined capital investments Reduce business risk through debt / pension management Generate sufficient cash to compensate shareholders 68
Slide 69: Our fleet strategy takes into account three financial objectives
Our fleet strategy takes into account three financial objectives Consistent, manageable levels of capital investment Earnings / cash flow generation ROIC over asset life 69
Slide 70: Inconsistent aircraft investment resulted in concentrated fleet age
Inconsistent aircraft investment resulted in concentrated fleet age Aircraft replacement cost by fleet age ($B) Historic peaks and troughs of profitability lead to large, cyclical aircraft orders Accelerating and deferring certain aircraft replacement to smooth Smoothing aircraft replacement cost ca
Slide 71: Replacing aircraft to improve earnings and cash flow
Replacing aircraft to improve earnings and cash flow Annual per aircraft benefit of replacing B757-200 with B737-900ER ($M) $2M+ Revenue Fuel Maintenance Landing Ownership 737-900ER fees advantage 71
Slide 72: Aircraft replacement ROIC example
Aircraft replacement ROIC example Replace w/ B737-900ER now Retain B757-200 In 5 years, replace w/ B737-MAX9 Improvement in average ROIC (in pts) ROIC ~15 ~7 Replace w/ In 5 years, B737-900ER replace w/ now B737-MAX9 Years 72
Slide 73: Extending the Airbus fleet to smooth capital expenditures
Extending the Airbus fleet to smooth capital expenditures A319/A320 fleet exit planning 40 year per exiting aircraft 20 of Number Making a modest investment to defer 0 ~$3B of capital expenditures 2016E 2017E 2018E 2019E 2020E Installing slimline seats, larger Replacement plan without Airbus investm
Slide 74: Fleet plan
Fleet plan Firm mainline aircraft deliveries 36 6 32 25 26 10 Average: 25 2 AC per year 6 16 15 30 24 6 22 Expect to keep fleet count roughly 19 14 flat for planning horizon at ~700 9 B787 mainline aircraft 2 B737 2012 2013E 2014E 2015E 2016E 2017E 74
Slide 75: Long-term capital investment plan
Long -term capital investment plan Expect 2014 capexof $2.9B -$3.1B 2014 -2017 average capex of $2.8B -$3.0B Aircraft replacement accounts for ~65% of total capex 75
Slide 76: Improving balance sheet
Improving balance sheet Total debt outstanding 1 ($B) $25.9 $23.8 Current level of debt is very manageable $20.1 $19.0 $19 EETCs are highly efficient sources of aircraft funding $1.2B average annual scheduled $15 debt and capital lease payments through 2017 2 2 2006 2009 2012 2013E 2017E 1: Includes
Slide 77: Pension obligation is manageable
Pension obligation is manageable Unfunded pension liability Estimated annual pension cash contribution ($B) ($M) $2.4 ~$275 Expect to fund $1.8 $1.8 ~$125M -$150M annually in excess $1.5 of minimum ~$160 requirement from 2014 to 2018 Excess funding reduces 2019 funding tail risk 1 2010 2011 2012 3Q1
Slide 78: Airline multiples still lag those of other industries
Despite de -risking the business, airline multiples still lag those of other industries Price to earnings ratio Expanding our multiple 17.7x 17.2x Stabilized industry Consistent level of earnings 10.5x Maintaining adequate liquidity Metered capital investment Reducing financial leverage and Industri
Slide 79: Path to improving long-term shareholder value
Path to improving long-term shareholder value Reduce costs by $2B, resulting in CASM ex-fuel growth less than inflation Increase pre-tax earnings 2–4x Generate ROIC of at least 10% Reduce business risk through manageable debt and pension obligations Generate sufficient cash to begin allocating capit
Slide 80: Q&A
Q&A John Rainey Executive Vice President & Chief Financial Officer John Gebo Senior Vice President Financial Planning & Analysis Gerry Laderman Senior Vice President Finance & Treasurer
Slide 81: Jeff Smisek, Chairman, President and CEO
Jeff Smisek Chairman, President and CEO
Slide 82: United
UNITED SY
United Continental Holdings — Investor Day (November 2013) on 6ix