United Announces Full-Year and Fourth-Quarter 2014 Profit

4Q 2014 Passenger Revenue (millions)

Passenger Revenue vs. 4Q 2013

PRASM vs. 4Q 2013

Yield vs. 4Q 2013

Available Seat Miles vs. 4Q 2013

Domestic

$3,219

1.9%

3.5%

4.4%

(1.6%)

Atlantic

1,357

4.5%

6.9%

6.1%

(2.2%)

Pacific

1,107

(1.5%)

(5.9%)

(3.8%)

4.7%

Latin America

692

11.3%

(4.4%)

(3.7%)

16.4%

International

3,156

3.6%

(0.2%)

0.5%

3.8%

Mainline

6,375

2.7%

1.7%

2.5%

1.0%

Regional

1,708

(3.6%)

(3.5%)

(2.9%)

(0.1%)

Consolidated

$8,083

1.3%

0.4%

1.3%

0.9%

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

THREE MONTHS AND YEAR ENDED DECEMBER 31, 2014, AND 2013

Three Months Ended

Year Ended

December 31,

%

December 31,

%

(In millions, except per share data)

2014

2013

Increase/ (Decrease)

2014

2013

Increase/ (Decrease)

Operating revenue:

Passenger:

Mainline

$6,375

$6,205

2.7

$26,785

$25,997

3.0

Regional

1,708

1,772

(3.6)

6,977

7,125

(2.1)

Total passenger revenue

8,083

7,977

1.3

33,762

33,122

1.9

Cargo

260

220

18.2

938

882

6.3

Other operating revenue

970

1,132

(14.3)

4,201

4,275

(1.7)

Total operating revenue

9,313

9,329

(0.2)

38,901

38,279

1.6

Operating expense:

Aircraft fuel (A)

2,530

2,965

(14.7)

11,675

12,345

(5.4)

Salaries and related costs

2,251

2,114

6.5

8,935

8,625

3.6

Regional capacity purchase

597

582

2.6

2,344

2,419

(3.1)

Landing fees and other rent

568

546

4.0

2,274

2,090

8.8

Aircraft maintenance materials and outside repairs

415

431

(3.7)

1,779

1,821

(2.3)

Depreciation and amortization

431

421

2.4

1,679

1,689

(0.6)

Distribution expenses

334

338

(1.2)

1,373

1,390

(1.2)

Aircraft rent

215

230

(6.5)

883

936

(5.7)

Special charges (B)

179

165

NM

443

520

NM

Other operating expenses

1,168

1,302

(10.3)

5,143

5,195

(1.0)

Total operating expense

8,688

9,094

(4.5)

36,528

37,030

(1.4)

Operating income

625

235

166.0

2,373

1,249

90.0

Nonoperating income (expense):

Interest expense

(176)

(193)

(8.8)

(735)

(783)

(6.1)

Interest capitalized

12

14

(14.3)

52

49

6.1

Interest income

5

5

-

22

21

4.8

Miscellaneous, net (B)

(443)

51

NM

(584)

3

NM

Total nonoperating expense

(602)

(123)

389.4

(1,245)

(710)

75.4

Income before income taxes

23

112

(79.5)

1,128

539

109.3

Income tax benefit (C)

(5)

(28)

(82.1)

(4)

(32)

(87.5)

Net income

$28

$140

(80.0)

$1,132

$571

98.2

Earnings per share, basic

$0.08

$0.39

(79.5)

$3.05

$1.64

86.0

Earnings per share, diluted

$0.07

$0.37

(81.1)

$2.93

$1.53

91.5

Weighted average shares, basic

372

361

3.0

371

348

6.6

Weighted average shares, diluted

376

391

(3.8)

390

391

(0.3)

NM Not meaningful

UNITED CONTINENTAL HOLDINGS, INC.

NOTES (UNAUDITED)

UAL's results of operations include fuel expense for both mainline and regional operations.

(A)

Three Months Ended

Year Ended

December 31,

%

December 31,

%

(In millions, except per gallon)

2014

2013

Increase/ (Decrease)

2014

2013

Increase/ (Decrease)

Mainline fuel expense excluding hedge impacts

$1,982

$2,404

(17.6)

$9,408

$10,008

(6.0)

Hedge gains (losses) reported in fuel expense (a)

(85)

22

 NM

(89)

18

 NM

Total mainline fuel expense

2,067

2,382

(13.2)

9,497

9,990

(4.9)

Regional fuel expense

463

583

(20.6)

2,178

2,355

(7.5)

Consolidated fuel expense

2,530

2,965

(14.7)

11,675

12,345

(5.4)

Cash received (paid) on settled hedges that did not qualify for hedge accounting (b)

(151)

4

 NM

(138)

39

 NM

Fuel expense including all gains (losses) from settled hedges

$2,681

$2,961

(9.5)

$11,813

$12,306

(4.0)

Mainline fuel consumption (gallons)

769

777

(1.0)

3,183

3,204

(0.7)

Mainline average aircraft fuel price per gallon excluding hedge gains (losses) recorded in fuel expense

$2.58

$3.09

(16.5)

$2.96

$3.12

(5.1)

Mainline average aircraft fuel price per gallon

$2.69

$3.07

(12.4)

$2.98

$3.12

(4.5)

Mainline average aircraft fuel price per gallon including cash received (paid) on settled hedges that did not qualify for hedge accounting

$2.88

$3.06

(5.9)

$3.03

$3.11

(2.6)

Regional fuel consumption (gallons)

179

184

(2.7)

722

743

(2.8)

Regional average aircraft fuel price per gallon

$2.59

$3.17

(18.3)

$3.02

$3.17

(4.7)

Consolidated fuel consumption (gallons)

948

961

(1.4)

3,905

3,947

(1.1)

Consolidated average aircraft fuel price per gallon excluding hedge gains (losses) recorded in fuel expense 

$2.58

$3.11

(17.0)

$2.97

$3.13

(5.1)

Consolidated average aircraft fuel price per gallon

$2.67

$3.09

(13.6)

$2.99

$3.13

(4.5)

Consolidated average aircraft fuel price per gallon including cash received (paid) on settled hedges that did not qualify for hedge accounting

$2.83

$3.08

(8.1)

$3.03

$3.12

(2.9)

(a) Includes gains (losses) from settled hedges that were designated for hedge accounting. UAL allocates 100 percent of hedge accounting gains (losses) to mainline fuel expense.

(b) Includes ineffectiveness gains (losses) on settled hedges and gains (losses) on settled hedges that were not designated for hedge accounting. Ineffectiveness gains (losses) and gains (losses) on hedges that do not qualify for hedge accounting are recorded in Nonoperating income (expense): Miscellaneous, net.

UNITED CONTINENTAL HOLDINGS, INC.

NOTES (UNAUDITED)

(B)

Special items include the following:

Three Months Ended

Year Ended

December 31,

December 31,

(In millions)

2014

2013

2014

2013

Operating:

Severance and benefit costs

$141

$91

$199

$105

Integration-related costs

17

40

96

205

Impairment of assets

16

33

49

33

Costs associated with permanently grounding Embraer ERJ 135 aircraft

-

-

66

-

Labor agreement costs

-

-

-

127

Losses on sale of assets and other special (gains) losses, net

5

1

33

50

     Special charges

$179

$165

$443

$520

Nonoperating:

          Loss on extinguishment of debt and other, net

$53

$-

$74

$-

          Income tax benefit

(6)

(7)

(10)

(7)

             Total operating and nonoperating special charges, net of income taxes

$226

$158

$507

$513

Mark-to-market (MTM) (gains) losses from fuel hedges settling in future periods

$225

$(59)

$244

$(84)

Prior period gains (losses) on fuel contracts settled in the current period

(18)

9

83

39

          Total special items, net of income taxes

$433

$108

$834

$468

2014 - Special items

Severance and benefit costs: During the fourth quarter of 2014, the company recorded $141 million of costs related primarily to a voluntary early-out program for its flight attendants. More than 2,500 participants elected a one-time opportunity to voluntarily separate from the company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates from November 30, 2014 through the end of 2015. The company will record additional expense associated with this program through 2015 over the remaining required service periods. In addition to the fourth quarter item, during the year ended December 31, 2014, the company recorded $58 million of severance and benefits primarily related to reductions of management and front-line employees, including from Cleveland airport, as part of its cost savings initiatives. The company is currently evaluating its options regarding its long-term contractual commitments at Cleveland. The capacity reductions at Cleveland may result in further special charges, which could be significant, related to our contractual commitments.

Integration-related costs: Integration-related costs include compensation costs related to systems integration, training, severance and relocation for employees.

Impairment of assets: During the fourth quarter of 2014, the company recorded a charge of $16 million ($10 million net of related income tax benefits) related to its annual assessment of impairment of its indefinite-lived intangible assets (primarily international Pacific routes). In addition to the fourth quarter item, during the year ended December 31, 2014, the company recorded $33 million for charges related primarily to impairment of its flight equipment held for disposal associated with its Boeing 737-300 and 737-500 fleets.

Costs associated with permanently grounding Embraer ERJ 135 aircraft: During the year ended December 31, 2014, the company recorded $66 million for the permanent grounding of 21 of the company's Embraer ERJ 135 regional aircraft under lease through 2018, which includes an accrual for remaining lease payments and an amount for maintenance return conditions. As a result of the current fuel prices, new Embraer 175 regional jet deliveries and impact of pilot shortages at regional carriers, the company decided to permanently ground these 21 Embraer ERJ 135 aircraft. The company continues to operate nine Embraer ERJ 135 aircraft and will assess the possibility of grounding those aircraft when the term of the current capacity purchase contract ends.

Loss on extinguishment of debt and other special charges, net: On October 10, 2014, United used cash to retire, at par, the entire $248 million principal balance of the 6% Convertible Junior Subordinated Debentures and the 6% Convertible Preferred Securities, Term Income Deferrable Equity Securities (TIDES). The $53 million expense is primarily associated with the write-off of non-cash debt discounts recorded on the TIDES due to purchase accounting during the merger with Continental Airlines in 2010.

MTM losses from fuel hedges settling in future periods and prior period gains (losses) on fuel contracts settled in the current period: The company utilizes certain derivative instruments that are economic hedges but do not qualify for hedge accounting under U.S. generally accepted accounting principles. The company records changes in the fair value of these economic hedges to Nonoperating income (expense): Miscellaneous, net in the statements of consolidated operations. During the three and twelve months ended December 31, 2014, the company recorded $225 million and $244 million, respectively, in MTM losses on economic hedges that will settle in future periods. For economic hedges that settled in the three and twelve months ended December 31, 2014, the company recorded MTM gains (losses) of ($18) million and $83 million, respectively, in prior periods. The figures above also include an insignificant amount of ineffectiveness on hedges that are designated for hedge accounting.

2013 - Special items

Severance and benefit costs: During the fourth quarter of 2013, the company recorded a $91 million severance and benefit special charge. The company offered a voluntary retirement program for its fleet service, passenger service, storekeeper and pilot workgroups. Approximately 1,200 employees volunteered during the fourth quarter and United recorded approximately $64 million of costs for the programs. The company also offered a voluntary leave of absence program that approximately 1,100 flight attendants accepted, which allowed for continued medical coverage during the leave of absence period, resulting in a charge of approximately $12 million. The remaining $15 million of severance and benefit costs is related to involuntary severance programs associated with other workgroups. During the year ended December 31, 2013, the company recorded a $14 million charge associated with a voluntary program offered by United in which flight attendants took an unpaid 13-month leave of absence. The flight attendants received medical benefits and other company benefits while on leave under this program. Approximately 1,300 flight attendants opted to participate in the program.

Integration-related costs: Integration-related costs included compensation costs related to systems integration and training, branding activities, new uniforms, write-off or acceleration of depreciation on systems and facilities that were no longer used or planned to be used for significantly shorter periods, relocation for employees and severance primarily associated with administrative headcount reductions.

Impairment of assets: During the year ended December 31, 2013, the company recorded $32 million of charges related primarily to impairment of its flight equipment held for disposal associated with its 737-300 and 737-500 fleets and a $1 million charge associated with a route to Manila to reflect the estimated fair value of this asset as part of its annual impairment test of indefinite-lived intangible assets.

Labor agreements costs: On September 26, 2013, the company announced that it had reached tentative agreements with respect to joint collective bargaining agreements with the International Association of Machinists for the fleet service, passenger service and storekeeper workgroups. The company recorded a $127 million special charge associated with lump sum cash payments that would be made in conjunction with the ratification of the agreements. The agreements were ratified and the payments were made in the fourth quarter of 2013.

Losses on sale of assets and other special (gains) losses, net: During the year ended December 31, 2013, the company recorded $18 million associated with the temporary grounding of its Boeing 787 aircraft. The charges were comprised of aircraft depreciation expense and dedicated personnel costs that the company incurred while the aircraft were grounded. The aircraft returned to service in May 2013. During the fourth quarter of 2013, the company recorded approximately $11 million in accruals for future rent associated with the early retirement of four leased 757-200 aircraft, offset by $5 million in gains on the sale of aircraft and a $5 million adjustment in legal reserves. In addition to the fourth quarter items, during the year ended December 31, 2013, the company adjusted its reserves for certain legal matters by $34 million, recorded a $5 million gain related to a contract termination and recorded $2 million in losses on the sale of assets.

MTM gains from fuel hedges settling in future periods and prior period gains on fuel contracts settled in the current period: During the three and twelve months ended December 31, 2013, the company recorded $59 million and $84 million, respectively, in MTM gains on economic hedges that settled in later periods. For economic hedges that settled in the three and twelve months ended December 31, 2013, the company recorded MTM gains of $9 million and $39 million, respectively, in prior periods. The figures above also include an insignificant amount of ineffectiveness on hedges that are designated for hedge accounting.

No federal income tax expense was recognized related to the company's pretax income for the three months ended December 31, 2014, and 2013 and the year ended December 31, 2014, and 2013 due to the utilization of book net operating loss carry forwards for which no benefit has previously been recognized. The company is required to provide a valuation allowance for its deferred tax assets in excess of deferred tax liabilities because UAL concluded that it is more likely than not that such deferred tax assets will ultimately not be realized.

UNITED CONTINENTAL HOLDINGS, INC.

STATISTICS

Three Months Ended

Year Ended

December 31,

%

December 31,

%

2014

2013

Increase/ (Decrease)

2014

2013

Increase/ (Decrease)

Mainline:

Passengers (thousands)

22,087

22,155

(0.3)

91,475

91,329

0.2

Revenue passenger miles (millions)

42,609

42,531

0.2

179,015

178,578

0.2

Available seat miles (millions)

52,197

51,670

1.0

214,105

213,007

0.5

Cargo ton miles (millions)

674

599

12.5

2,487

2,213

12.4

Passenger load factor:

Mainline

81.6 %

82.3 %

(0.7)

pts.

83.6 %

83.8 %

(0.2)

pts.

Domestic

84.1 %

84.8 %

(0.7)

pts.

86.0 %

85.7 %

0.3

pts.

International

79.2 %

79.7 %

(0.5)

pts.

81.3 %

81.9 %

(0.6)

pts.

Passenger revenue per available seat mile (cents)

12.21

12.01

1.7

12.51

12.20

2.5

Average yield per revenue passenger mile (cents)

14.96

14.59

2.5

14.96

14.56

2.7

Average aircraft fuel price per gallon excluding hedge gains (losses) recorded in fuel expense (a)

$2.58

$3.09

(16.5)

$2.96

$3.12

(5.1)

 Average aircraft fuel price per gallon (a)

$2.69

$3.07

(12.4)

$2.98

$3.12

(4.5)

Average aircraft fuel price per gallon including cash received (paid) on settled hedges that did not qualify for hedge accounting (a)

$2.88

$3.06

(5.9)

$3.03

$3.11

(2.6)

 Fuel gallons consumed (millions)

769

777

(1.0)

3,183

3,204

(0.7)

Aircraft in fleet at end of period

691

693

(0.3)

691

693

(0.3)

Average stage length (miles) (b)

1,936

1,916

1.0

1,958

1,934

1.2

Average daily utilization of each aircraft (hours)

10:11

       10:07

0.7

  10:26

  10:28

(0.3)

Regional:

Passengers (thousands)

11,470

11,952

(4.0)

46,554

47,880

(2.8)

Revenue passenger miles (millions)

6,602

6,648

(0.7)

26,544

26,589

(0.2)

Available seat miles (millions)

8,016

8,021

(0.1)

31,916

32,347

(1.3)

Passenger load factor

82.4 %

82.9 %

(0.5)

pts.

83.2 %

82.2 %

1.0

pt.

Passenger revenue per available seat mile (cents)

21.31

22.09

(3.5)

21.86

22.03

(0.8)

Average yield per revenue passenger mile (cents)

25.87

26.65

(2.9)

26.28

26.80

(1.9)

Aircraft in fleet at end of period

566

572

(1.0)

566

572

(1.0)

Average stage length (miles) (b)

570

544

4.8

561

542

3.5

UNITED CONTINENTAL HOLDINGS, INC.

STATISTICS (Continued)

Three Months Ended

Year Ended

December 31,

%

December 31,

%

2014

2013

Increase/ (Decrease)

2014

2013

Increase/ (Decrease)

Consolidated (Mainline and Regional):

Passengers (thousands)

33,557

34,107

(1.6)

138,029

139,209

(0.8)

Revenue passenger miles (millions)

49,211

49,179

0.1

205,559

205,167

0.2

Available seat miles (millions)

60,213

59,691

0.9

246,021

245,354

0.3

Passenger load factor

81.7 %

82.4 %

(0.7)

pts.

83.6 %

83.6 %

-

pts.

Passenger revenue per available seat mile (cents)

13.42

13.36

0.4

13.72

13.50

1.6

Total revenue per available seat mile (cents)

15.47

15.63

(1.0)

15.81

15.60

1.3

Average yield per revenue passenger mile (cents)

16.43

16.22

1.3

16.42

16.14

1.7

Average aircraft fuel price per gallon excluding hedge gains (losses) recorded in fuel expense (a)

$2.58

$3.11

(17.0)

$2.97

$3.13

(5.1)

Average aircraft fuel price per gallon (a)

$2.67

$3.09

(13.6)

$2.99

$3.13

(4.5)

Average aircraft fuel price per gallon including cash received (paid) on settled hedges that did not qualify for hedge accounting (a)

$2.83

$3.08

(8.1)

$3.03

$3.12

(2.9)

Fuel gallons consumed (millions)

948

961

(1.4)

3,905

3,947

(1.1)

Average full-time equivalent employees (thousands)

80.5

82.2

(2.1)

82.0

84.2

(2.6)

(a)

Fuel price per gallon includes aircraft fuel and related taxes.

(b)

Average stage length equals the average distance a flight travels weighted for size of aircraft.

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION

UAL evaluates its financial performance utilizing various accounting principles generally accepted in the United States of America (GAAP) and Non-GAAP financial measures, including income before income taxes excluding special items, net earnings/loss per share excluding special items, and CASM, among others. CASM is a common metric used in the airline industry to measure an airline's cost structure and efficiency. Pursuant to SEC Regulation G, UAL has included the following reconciliation of reported Non-GAAP financial measures to comparable financial measures reported on a GAAP basis. UAL believes that adjusting for special items is useful to investors because special charges are non-recurring charges not indicative of UAL's ongoing performance. In addition, the company believes that adjusting for MTM gains and losses from fuel hedges settling in future periods and prior period gains and losses on fuel contracts settled in the current period is useful because the adjustments allow investors to better understand the cash impact of settled hedges in a given period. UAL also believes that excluding third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel sales and non-air mileage redemptions, provides more meaningful disclosure because these expenses are not directly related to UAL's core business. UAL also believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management's performance excluding the effects of a significant cost item over which management has limited influence. UAL excludes profit sharing because this exclusion allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.

Three Months Ended

Year Ended

(in millions)

December 31,

$

%

December 31,

$

%

2014

2013

Increase/ (Decrease)

Increase/ (Decrease)

2014

2013

Increase/ (Decrease)

Increase/ (Decrease)

Operating expenses

$8,688

$9,094

$(406)

(4.5)

$36,528

$37,030

$(502)

(1.4)

Less: Special charges (B)

179

165

14

 NM

443

520

(77)

 NM

Operating expenses, excluding special charges

8,509

8,929

(420)

(4.7)

36,085

36,510

(425)

(1.2)

Less: Third-party business expenses

65

198

(133)

(67.2)

534

694

(160)

(23.1)

Less: Fuel expense

2,530

2,965

(435)

(14.7)

11,675

12,345

(670)

(5.4)

Less: Profit sharing, including taxes

53

28

25

89.3

235

190

45

23.7

Operating expenses, excluding fuel, profit sharing, special charges and third-party business expenses

$5,861

$5,738

$123

2.1

$23,641

$23,281

$360

1.5

Income before income taxes

$23

$112

$(89)

(79.5)

$1,128

$539

$589

109.3

Less: Special items before income  tax benefit

439

115

324

281.7

844

475

369

77.7

Income before income taxes and excluding special items

$462

$227

$235

103.5

$1,972

$1,014

$958

94.5

Net income

$28

$140

$(112)

(80.0)

$1,132

$571

$561

98.2

Less: Special items, net (B)

433

108

325

 NM

834

468

366

 NM

Net income, excluding special items, net

$461

$248

$213

85.9

$1,966

$1,039

$927

89.2

Diluted earnings per share

$0.07

$0.37

$(0.30)

(81.1)

$2.93

$1.53

$1.40

91.5

Add back: Special items, net of tax

1.12

0.28

0.84

 NM

2.12

1.20

0.92

 NM

Add back: Impact of dilution, net

0.01

-

0.01

 NM

0.01

-

0.01

 NM

Diluted earnings per share, excluding special items, net

$1.20

$0.65

$0.55

84.6

$5.06

$2.73

$2.33

85.3

Weighted average shares, diluted

387

391

(1.0)

393

391

0.5

UNITED CONTINENTAL HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION (Continued)

Three Months Ended

Year Ended

December 31,

%

December 31,

%

2014

2013

Increase/ (Decrease)

2014

2013

Increase/ (Decrease)

CASM Mainline Operations (cents)

Cost per available seat mile (CASM)

13.68

14.41

(5.1)

14.03

14.31

(2.0)

Less:  Special charges (B)

0.34

0.31

NM

0.21

0.24

NM

CASM, excluding special charges

13.34

14.10

(5.4)

13.82

14.07

(1.8)

Less:  Third-party business expenses

0.12

0.39

(69.2)

0.25

0.33

(24.2)

CASM, excluding special charges and third-party business expenses

13.22

13.71

(3.6)

13.57

13.74

(1.2)

Less:  Fuel expense

3.96

4.61

(14.1)

4.44

4.69

(5.3)

CASM, excluding special charges, third-party business expenses and fuel

9.26

9.10

1.8

9.13

9.05

0.9

Less: Profit sharing per available seat mile

0.10

0.05

100.0

0.11

0.09

22.2

CASM, excluding special charges, third-party business expenses, fuel, and profit sharing

9.16

9.05

1.2

9.02

8.96

0.7

CASM Consolidated Operations (cents)

Cost per available seat mile (CASM)

14.43

15.24

(5.3)

14.85

15.09

(1.6)

Less:  Special charges (B)

0.30

0.28

NM

0.18

0.21

NM

CASM, excluding special charges

14.13

14.96

(5.5)

14.67

14.88

(1.4)

Less:  Third-party business expenses

0.11

0.33

(66.7)

0.22

0.28

(21.4)

CASM, excluding special charges and third-party business expenses

14.02

14.63

(4.2)

14.45

14.60

(1.0)

Less:  Fuel expense

4.20

4.97

(15.5)

4.75

5.03

(5.6)

CASM, excluding special charges, third-party business expenses and fuel

9.82

9.66

1.7

9.70

9.57

1.4

Less: Profit sharing per available seat mile