SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172019
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Commission
File Number
| | Exact Name of Registrant as
Specified in its Charter, Principal
Executive
Office Address, Zip Code and
Telephone Number, Including Area Code
| | State of
Incorporation
| | I.R.S. Employer
Identification No.
|
001-06033
| | United Continental Holdings, Inc.
233 South Wacker Drive
Chicago, Illinois 60606
(872)825-4000 | | Delaware | | 36-2675207 |
001-10323
| | United Airlines, Inc.
233 South Wacker Drive
Chicago, Illinois 60606
(872)825-4000 | | Delaware | | 74-2099724 |
Securities registered pursuant to Section 12(b) of the Act:
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| | Title of Each Class
| | Name of Each Exchange on Which Registered
|
United Continental Holdings, Inc.
| | Common Stock, $0.01 par value | | New York Stock Exchange |
United Airlines, Inc.
| | None | | None |
Securities registered pursuant to Section 12(g) of the Act:
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| Commission File Number | | Exact Name of Registrant as Specified in its Charter, Principal Executive Office Address and Telephone Number | | State of Incorporation | | I.R.S. Employer Identification No. |
| 001-06033 | | United ContinentalAirlines Holdings, Inc. | | Delaware | | 36-2675207 |
| | | 233 South Wacker Drive, | Chicago, | Illinois | 60606 | | | | |
| | | (872) | 825-4000 | | | | | | | |
| | | | | | | | | | | |
| 001-10323 | | United Airlines, Inc. | | Delaware | | 74-2099724 |
| | | 233 South Wacker Drive, | Chicago, | Illinois | 60606 | | | | |
| | | (872) | 825-4000 | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | | | |
| | Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
| United Airlines Holdings, Inc. | | Common Stock, $0.01 par value | | UAL | | The Nasdaq Stock Market LLC |
| United Airlines, Inc. | | None | | None | | None |
Securities registered pursuant to Section 12(g) of the Act:
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| United Airlines Holdings, Inc. | | | None | |
| | United Airlines, Inc. | | None | |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Act |
| | | | | | | | | | | | |
| | United ContinentalAirlines Holdings, Inc. | | Yes | ☒ | No | ☐ | | |
| | United Airlines, Inc. | | Yes ☒ No ☐ | ☒ | No | ☐ |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
ActAct. |
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| | United ContinentalAirlines Holdings, Inc. | | Yes | ☐ | No | ☒ | | |
| | United Airlines, Inc. | | Yes ☐ No ☒ | ☐ | No | ☒ |
Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
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| | United ContinentalAirlines Holdings, Inc. | | Yes | ☒ | No | ☐ | | |
| | United Airlines, Inc. | | Yes ☒ No ☐ | ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter)Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |
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| | United ContinentalAirlines Holdings, Inc. | | Yes | ☒ | No | ☐ | | |
| | United Airlines, Inc. | | Yes ☒ No ☐ | | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.
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| | United Continental Holdings, Inc.
| | ☒ | No | |
| | United Airlines, Inc.
| | ☒ | | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act. (Check one): |
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United Continental
Airlines Holdings, Inc. | | Large accelerated filer ☒ | ☒ | Accelerated filer | ☐ | Non-accelerated filer | Non-accelerated filer ☐ | | Smaller reporting company ☐ | ☐ | Emerging growth company | ☐ |
United Airlines, Inc. | | Large accelerated filer ☐ | ☐ | Accelerated filer | ☐ | Non-accelerated filer | Non-accelerated filer ☒ | | Smaller reporting company ☐ | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | | |
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| | United ContinentalAirlines Holdings, Inc. | | ☐ | | |
| | United Airlines, Inc. | | ☐ | | |
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). |
| | | | | | |
| | United ContinentalAirlines Holdings, Inc. | | Yes | ☐ | No | ☒ | | |
| | United Airlines, Inc. | | Yes | ☐ | No | ☒ | | |
The aggregate market value of common stock held by non-affiliates of United ContinentalAirlines Holdings, Inc. was $21,673,390,018$21.1 billion as of June 30, 2017,28, 2019, based on the closing sale price of $75.25$87.55 on the New York Stock Exchange reported for that date. There is no market for United Airlines, Inc. common stock. Indicate the number of shares outstanding of each of the
registrant’sregistrant's classes of common stock, as of February
14, 2018.18, 2020. |
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United ContinentalAirlines Holdings, Inc. | | 284,700,547 247,951,116 | shares of common stock ($0.01 par value) |
United Airlines, Inc. | | 1,000 | shares of common stock ($0.01 par value) (100% owned by United ContinentalAirlines Holdings, Inc.) |
This combined Form
10-K is separately filed by United
ContinentalAirlines Holdings, Inc. and United Airlines, Inc.
OMISSION OF CERTAIN INFORMATION
United Airlines, Inc. meets the conditions set forth in General Instruction I(1)(a) and (b) of Form
10-K and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.
DOCUMENTS INCORPORATED BY REFERENCE
Information
Certain information required by Items 10, 11, 12 and 13 of Part III of thisForm 10-K is incorporated by reference for United ContinentalAirlines Holdings, Inc. from its definitive proxy statement for its 20182020 Annual Meeting of Stockholders.
United
ContinentalAirlines Holdings, Inc. and Subsidiary Companies
United Airlines, Inc. and Subsidiary Companies
Annual Report on
Form 10-KFor the Year Ended December 31, 20172019
This
Annual Report on Form 10-K ("Form 10-K") contains various
“forward-looking statements”"forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”"Exchange Act"). Forward-looking statements represent our expectations and beliefs concerning future
results or events, based on information available to us on the date of the filing of this
Form 10-K, and are subject to various risks and uncertainties. Factors that could cause actual results
or events to differ materially from those referenced in the forward-looking statements are listed in Part I, Item
1A,1A. Risk Factors and in Part II, Item
7, Management’s7. Management's Discussion and Analysis of Financial Condition and Results of Operations. We disclaim any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise, except as required by applicable law.
ITEM 1. BUSINESS.
United
ContinentalAirlines Holdings, Inc. (together with its consolidated subsidiaries,
“UAL”"UAL" or the
“Company”"Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries,
“United”"United"). As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted.
United’sUnited's operating revenues and operating expenses comprise nearly 100% of
UAL’sUAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of
UAL’sUAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words
“we,” “our,” “us,”"we," "our," "us," and the
“Company”"Company" in this report for disclosures that relate to all of UAL and United.
UAL was incorporated under the laws of the State of Delaware on December 30, 1968.
Effective June 27, 2019, UAL amended its Certificate of Incorporation to change its name to "United Airlines Holdings, Inc." Our principal executive office is located at 233 South Wacker Drive, Chicago, Illinois 60606 (telephone number
(872) 825-4000).The
Company’sCompany's website is
www.united.com.located at www.united.com and its investor relations website is located at ir.united.com. The information contained on or connected to the
Company’s websiteCompany's websites is not incorporated by reference into this
annual reportAnnual Report on
Form 10-K and should not be considered part of this or any other report filed with the U.S. Securities and Exchange Commission
(“SEC”("SEC").
Through this website, the Company’sThe Company's filings with the SEC, including annual reports on
Form 10-K, quarterly reports on
Form 10-Q, current reports on
Form 8-K, and all amendments to those reports, as well as
ourUAL's proxy statement for
ourits annual meeting of stockholders, are accessible without charge
on the Company's investor relations website, as soon as reasonably practicable, after such material is electronically filed with, or furnished to, the SEC. Such filings are also available on the
SEC’sSEC's website at www.sec.gov.
The Company transports people and cargo
through its mainline and regional operations. With key global aviation rights inthroughout North America
Asia-Pacific,and to destinations in Asia, Europe,
Africa, the Pacific, the Middle East and Latin
America, UAL has the world’s most comprehensive global route network.America. UAL, through United and its regional carriers, operates more than
4,5004,900 flights a day to
338362 airports across
fivesix continents, with hubs at Newark Liberty International Airport
(“Newark”("Newark"), Chicago
O’HareO'Hare International Airport
(“("Chicago
O’Hare”O'Hare"), Denver International Airport
(“Denver”("Denver"), George Bush Intercontinental Airport
(“("Houston
Bush”Bush"), Los Angeles International Airport
(“LAX”("LAX"), A.B. Won Pat International Airport
(“Guam”("Guam"), San Francisco International Airport
(“SFO”("SFO") and Washington Dulles International Airport
(“("Washington
Dulles”Dulles").
All of the Company’sCompany's domestic hubs are located in large business and population centers, contributing to a large amount of “origin"origin and destination”destination" traffic. The hub and spoke system allows us to transport passengers between a large number of destinations with substantially more frequent service than if each route were served directly. The
hub system also allows us to add service to a new destination from a large number of cities using only one or a limited number of aircraft. As discussed underAlliances below, United is a member of Star Alliance, the world’sworld's largest alliance network.
Financial information on the Company’s operating revenues by geographic region, as reported to the U.S. Department of Transportation (the “DOT”), can be found in Note 15 to the financial statements included in Part II, Item 8 of this report.
Regional. The Company has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. These regional operations are an extension of the Company’s mainline network. This regional service complements our operations by carrying traffic that connects to our mainline servicehubs and allows flights to smaller cities that cannot be provided economically with mainline aircraft. Republic Airlines (“Republic”), Champlain Enterprises, LLC d/b/a CommutAir (“CommutAir”("CommutAir"), Republic Airline Inc. ("Republic"), ExpressJet Airlines (“ExpressJet”LLC ("ExpressJet"), GoJet Airlines (“GoJet”LLC ("GoJet"), Mesa Airlines, (“Mesa”Inc. ("Mesa"), SkyWest Airlines, (“SkyWest”Inc. ("SkyWest"), Air Wisconsin Airlines (“LLC ("Air Wisconsin”Wisconsin"), and Trans States Airlines, (“LLC ("Trans States”States") are all regional carriers that operate with capacity contracted to United under capacity purchase agreements (“CPAs”("CPAs"). Under these CPAs, the Company pays the regional carriers contractually agreed fees (carrier
(carrier costs) for operating these flights plus a variable
reimbursement (incentive payment for operational performance)rate adjustment based on agreed performance metrics, subject to annual
inflation adjustments. The fees
for carrier costs are based on specific rates
for various operating expenses of the regional carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures),
while others areas well as fixed monthly amounts. Under these CPAs, the Company is
also responsible for all fuel costs incurred, as well as landing fees and other costs, which are either passed through by the regional carrier to the Company without any markup or directly incurred by the Company. In
some cases, the Company owns some or all of the aircraft subject to the CPA and leases such aircraft to the regional carrier. In return, the regional carriers operate
thisthe capacity
of the aircraft included within the scope of such CPA exclusively for United, on schedules determined by the Company. The Company also determines pricing and revenue management, assumes the inventory and distribution risk for the available seats and permits mileage accrual and redemption for regional flights through its MileagePlus
® loyalty program.
Alliances. United is a member of Star Alliance, a global integrated airline network and the largest and most comprehensive airline alliance in the world. As of January 1, 2018,2020, Star Alliance carriers served nearly 1,300 airports in 191195 countries with 18,400more than 19,000 daily departures. Star Alliance members, in addition to United, are Adria Airways, Aegean Airlines, Air Canada, Air China, Air India, Air New Zealand, All Nippon Airways (“ANA”("ANA"), Asiana Airlines, Austrian Airlines, Avianca, Avianca Brasil,Aerovías del Continente Americano S.A. ("Avianca"), Brussels Airlines, Copa Airlines ("Copa"), Croatia Airlines, EGYPTAIR, Ethiopian Airlines, EVA Air, LOT Polish Airlines, Lufthansa, SAS Scandinavian Airlines, Shenzhen Airlines, Singapore Airlines, South African Airways, SWISS, TAP Air Portugal, THAI Airways International and Turkish Airlines. In May 2017,addition to its members, Star Alliance addedincludes Shanghai-based Juneyao Airlines as an additionala connecting partner. United has a variety of bilateral commercial alliance agreements and obligations with Star Alliance members, addressing, among other things, reciprocal earning and redemption of frequent flyer miles, access to airport lounges and, with certain Star Alliancemembers, codesharing of flight operations (whereby one carrier’scarrier's selected flights can be marketed under the brand name of another carrier). In addition to the alliance agreements with Star Alliance members, United currently maintains independent marketing alliance agreements with other air carriers, including Aeromar, Aer Lingus, Air Dolomiti, Azul Linhas Aéreas Brasileiras S.A. ("Azul"), Boutique Air, Cape Air, Edelweiss, Eurowings, Great Lakes Airlines, Hawaiian Airlines, Olympic Air, Silver Airways and Silver Airways.Vistara. In addition to the marketing alliance agreements with air partners, United also offers atrain-to-plane codeshare and frequent flyer alliance with Amtrak from Newark on select city pairs in the northeastern United States. United also participates in threefour passenger joint ventures,business arrangements ("JBAs"): one with Air Canada and the Lufthansa Group (which includes Lufthansa and its affiliates Austrian Airlines, Brussels Airlines, Eurowings and SWISS) covering transatlantic routes, one with ANA covering certain transpacific routes, and one with Air New Zealand covering certain routes between the United States and New Zealand.Zealand and one with Avianca and Copa Airlines, which, upon receipt of regulatory approvals will cover routes between the United States and Central and South America, excluding Brazil. These passenger joint venturesJBAs enable the participating carriers to integrate the services they provide in the respective regions, capturing revenue synergies and delivering enhanced customer benefits, such as highly competitive flight schedules, fares and services. United has also implementedparticipates in cargo joint
venturesJBAs with ANA for transpacific cargo services and continues to implement a cargo joint venture with Lufthansa for transatlantic cargo services. These cargo joint venturesJBAs offer expanded and more seamless access to cargo space across the carriers’carriers' respective combined networks.
Loyalty Program. United’s United's MileagePlus loyalty program builds customer loyalty by offering awards, benefits and services to program participants. Members in this program earn miles for flights on United, United Express, Star Alliance members and certain other airlines that participate in the program. Members can also earn miles by purchasing the goods and services offrom our network ofnon-airline partners, such as domestic and international credit card issuers, retail merchants, hotels and car rental companies. Members can redeem miles for free (other than taxes and government imposedgovernment-imposed fees), discounted or upgraded travel andnon-travel awards. United has an agreement with
JPMorgan Chase Bank,
USA, N.A.
(“Chase”("Chase"), pursuant to which members of
United’sUnited's MileagePlus loyalty program who are residents of the United States can earn miles for making purchases using a MileagePlus credit card issued by
Chase.Chase (the "Co-Brand Agreement"). The
agreementCo-Brand Agreement also provides for joint marketing and other support for the MileagePlus credit card and provides Chase with other benefits such as permission to market to the
Company’sCompany's customer database.
Approximately 5.4 million and 5.2
In 2019, approximately 6.1 million MileagePlus flight awards were used on United
in 2017 and
2016, respectively.United Express. These awards represented
7.5% and 7.7%7.2% of
United’sUnited's total revenue passenger
miles in 2017 and 2016, respectively.miles. Total miles redeemed for flights on United
in 2017,and United Express, including
class-of-service upgrades, represented approximately
85%87% of the total miles redeemed. In addition, excluding miles redeemed for flights on United
and United Express, MileagePlus members redeemed miles for approximately
2.32.2 million other
awards in 2017 as compared to 2.0 million in 2016.awards. These awards include United Club memberships, car and hotel awards, merchandise and flights on other air carriers.
Aircraft Fuel. The table below summarizes UAL’sUAL's aircraft fuel consumption and expense during the last three years. | | | | | | | | | | | | | | | | | | | | | | |
| | | Year | | Gallons
Consumed
(in millions) | | | Fuel Expense
(in millions) | | | Average Price
Per Gallon | | | Percentage of
Total
Operating
Expense | | | | |
| | 2017 | | | 3,978 | | | $ | 6,913 | | | $ | 1.74 | | | | 20% | | | | | |
| | 2016 | | | 3,904 | | | $ | 5,813 | | | $ | 1.49 | | | | 18% | | | | | |
| | 2015 | | | 3,886 | | | $ | 7,522 | | | $ | 1.94 | | | | 23% | | | | | |
|
| | | | | | | | | | | | | | |
| Year | | Gallons Consumed (in millions) | | Fuel Expense (in millions) | | Average Price Per Gallon | | Percentage of Total Operating Expense |
| 2019 | | 4,292 |
| | $ | 8,953 |
| | $ | 2.09 |
| | 23 | % |
| 2018 | | 4,137 |
| | $ | 9,307 |
| | $ | 2.25 |
| | 24 | % |
| 2017 | | 3,978 |
| | $ | 6,913 |
| | $ | 1.74 |
| | 20 | % |
Our operational and financial results can be significantly impacted by changes in the price and availability of aircraft fuel. To provide adequate supplies of fuel, the Company routinely enters into purchase contracts that are customarily indexed to market prices for aircraft fuel, and the Company generally has some ability to cover short-term fuel supply and infrastructure disruptions at
somecertain major demand locations. The price of aircraft fuel has fluctuated substantially in the past several years.
As of December 31, 2017, the Company did not have any outstanding fuel hedging contracts. The
Company’sCompany's current strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors.
Third-Party Business.United generates third-party business revenue that includes maintenance services, catering, frequent flyer awardnon-air non-travel redemptions maintenance services, catering and ground handling. Third-party business revenue is recorded in Other operating revenue. Expenses associated with third-party business, except non-travel redemptions, are recorded in Other operating expenses. Non-travel redemptions expenses are recorded to Other operating revenue.
Distribution Channels. The Company’sCompany's airline seat inventory and fares are distributed through the Company’sCompany's direct channels, traditional travel agencies andon-line travel agencies. The use of the Company’sCompany's direct sales website, www.united.com, the Company’sCompany's mobile applications and alternative distribution systems provides the Company with an opportunity tode-commoditize its services, better present its content, make more targeted offerings, better retain its customers, enhance its brand and lower its ticket distribution costs. Agency sales are
primarily sold using global distribution systems (“GDS”("GDS"). United has developed and expects to continue to develop capabilities to sell certain ancillary products through the GDS channel to provide an enhanced buying experience for customers who purchase in that channel. To increase the Company’s opportunities to sell its full range of products and services and lower distribution costs, the Company will continue to develop new selling capabilities in third-party channels and expand the capabilities of its website and mobile applications.
Domestic Competition. The domestic airline industry is highly competitive and dynamic. The Company’sCompany's competitors consist primarily of other airlines and, to a certain extent, other forms of transportation. Currently, any U.S. carrier deemed fit by the DOTU.S. Department of Transportation (the "DOT") is largely free to operate scheduled passenger service between any two points within the United States. Competition can be direct, in the form of another carrier flying the exactnon-stop route, or indirect, where a carrier serves the same two citiesnon-stop from an alternative airport in that city or via an itinerary requiring a connection at another airport. Air carriers’carriers' cost structures are not uniform and there are influenced by numerous factors influencing cost structure.factors. Carriers with lower costs may offer lower fares to passengers, which could have a potential negative impact on the Company’sCompany's revenues. Decisions on domesticDomestic pricing decisions are based onimpacted by intense competitive pressure exerted on the Company by other U.S. airlines. In order to remain competitive and maintain passenger traffic levels, we often find it necessary to match competitors’competitors' discounted fares. Since we compete in a dynamic marketplace, attempts to generate additional revenue through increased fares oftentimesoften fail.
International Competition. Internationally, the Company competes not only with U.S. airlines, but also with foreign carriers. International competition has increased and may continue to increase in the future as a result of airline mergers and acquisitions, joint ventures,JBAs, alliances, restructurings, liberalization of aviation bilateral agreements and new or increased service by competitors, including government subsidized competitors from certain Middle East countries. Competition on international routes is subject to varying degrees of governmental regulation. The Company’sCompany's ability to compete successfully withnon-U.S. carriers on international routes depends in part on its ability to generate traffic to and from the entire United States via its integrated domestic route network and its ability to overcome business and operational challenges across its network worldwide. Foreign carriers currently are prohibited by U.S. law from carrying local passengers between two points in the United States and the Company generally experiences comparable restrictions in foreign countries. Separately, “fifth"fifth freedom rights”rights" allow the Company to operate between points in two different foreign countries and foreign carriers may also have fifth freedom rights between the U.S. and another foreign country. In the absence of fifth freedom rights, or some other extra-bilateral right to conduct operations between two foreign countries, U.S. carriers are constrained from carrying passengers to points beyond designated international gateway cities. To compensate partially for these structural limitations, U.S. and foreign carriers have entered into alliances, joint venturesimmunized JBAs and marketing arrangements that enable these carriers to exchange traffic between each other’sother's flights and route networks. SeeAlliances, above, for additional information.
Seasonality. The air travel business is subject to seasonal fluctuations. Historically, demand for air travel is higher in the second and third quarters, driving higher revenues, than in the first and fourth quarters, which are periods of lower travel demand. Domestic RegulationRegulation.
All carriers engaged in air transportation in the United States are subject to regulation by the DOT. Absent an exemption, no air carrier may provide air transportation of passengers or property without first being issued a DOT certificate of public convenience and necessity. The DOT also grants international route authority, approves international codeshare arrangements and regulates methods of competition. The DOT regulates consumer protection and maintains jurisdiction over advertising, denied boarding compensation, tarmac delays, baggage liability and other areas and may add additional expensive regulatory burdens in the future. The DOT has launched investigations or claimed rulemaking authority to regulate commercial agreements among carriers or between carriers and third parties in a wide variety of contexts.
Airlines are also regulated by the Federal Aviation Administration (the
“FAA”"FAA"), an agency within the DOT, primarily in the areas of flight safety, air carrier operations and aircraft maintenance and airworthiness. The FAA issues air carrier operating certificates and aircraft airworthiness certificates, prescribes maintenance procedures, oversees airport operations, and regulates pilot and other employee training. From time to time, the FAA issues directives that require air carriers to inspect,
modify or
modifyground aircraft and other equipment, potentially causing the Company to incur substantial, unplanned expenses. The airline industry is also subject to numerous other federal laws and regulations. The U.S. Department of Homeland Security
(“DHS”("DHS") has jurisdiction over virtually every aspect of civil aviation security. The Antitrust Division of the U.S. Department of Justice
(“DOJ”("DOJ") has jurisdiction over certain airline competition matters. The U.S. Postal Service has authority over certain aspects of the transportation of mail by airlines. Labor relations in the airline industry are generally governed by the Railway Labor Act
(“RLA”("RLA"), a federal statute. The Company is also subject to investigation inquiries by the DOT, FAA, DOJ, DHS, the U.S. Food and Drug Administration
(“FDA”("FDA"), the U.S. Department of Agriculture
(“USDA”("USDA") and other U.S. and international regulatory bodies.
Airport Access. Access to landing andtake-off rights, or “slots,”"slots," at several major U.S. airports served by the Company are or recently have been, subject to government regulation. Federally-mandated domestic slot restrictions that limit operations and regulate capacity currently apply at three airports: Reagan National Airport in Washington, D.C. (“("Reagan National”National"), John F. Kennedy International Airport and LaGuardia Airport ("LaGuardia") in the New York City metropolitan region (“LaGuardia”).region. Of these three airports, United currently operates at two: Reagan National and LaGuardia. Additional restrictions on takeoff and landing slots at these and other airports may be implemented in the future and could affect the Company’sCompany's rights of ownership and transfer as well as its operations.
Legislation. The airline industry is subject to legislative activityactions (or inactions) that may have an impact on operations and costs. In 2018, the U.S. Congress will continue to consider legislation to reauthorizeapproved a five-year reauthorization for the FAA, which encompasses all significant aviation tax and policy-related issues. As with previous reauthorization legislation,The law includes a range of policy changes related to airline customer service and aviation safety which are ongoing and, depending on how they are implemented, could impact our operations and costs. Additionally, the U.S. Congress may consider a range of policy changes thatlegislation related to aviation safety as well as environmental issues which could impact operationsthe Company and costs. Finally, aviation security continues to be the subject of legislative and regulatory action, requiring changes to the Company’s security processes, potentially increasing the cost of its security procedures and affecting its operations.airline industry.
Catering Operations. The Company owns and operates catering kitchens at airports in Denver, Cleveland, Newark, Houston, and Honolulu, which prepareready-to-eat food for United flights, as well asflights. Some of the Company's kitchens also prepare ready-to-eat food for other domestic and international airlines. In addition,The Company's onboard food service operations are subject to FDA regulation through its interstate conveyance sanitation regulations, and the Cleveland flight kitchen produces a small volume of food products for retail sale. TheseCompany's catering operations are subject to regulation by the FDA and the USDA, as well as other federal, state, and local regulatory agencies. TheIn particular, the FDA recently began implementingenforces the Federal Food Safety Modernization Act which requires all food manufacturers, including ready-to-eat catering operations, to implement more stringent risk-based preventive controls. As a result, airlinethe Company's catering and food service operations have recently become the focus of enhanced scrutiny by the FDA withare periodically subject to inspections and greater enforcement.enforcement by regulatory agencies.
International RegulationRegulation.
International air transportation is subject to extensive government regulation. In connection with the Company’sCompany's international services, the Company is regulated by both the U.S. government and the governments of the foreign countries the Company serves. In addition, the availability of international routes to U.S. carriers is regulated by aviation agreements between the U.S. and foreign governments, and in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign governments.
Legislation.Foreign countries are increasingly enacting passenger protection laws, rules and regulations that meet or exceed U.S. requirements. In cases where this activity exceeds U.S. requirements, additional burden and liability may be placed on the Company. Certain countries have regulations requiring passenger compensation and/or enforcement penalties from the Company in addition to changes in operating procedures due to canceled and delayed flights.
Airport Access. Historically, access to foreign markets has been tightly controlled through bilateral agreements between the U.S. and each foreign country involved. These agreements regulate the markets served, the number of carriers allowed to serve each market and the frequency of carriers’carriers' flights. Since the early 1990s, the U.S. has pursued a policy of “Open Skies”"Open Skies" (meaning all U.S.-flag carriers have access to the destination), under which the U.S. government has negotiated a number of bilateral agreements allowing unrestricted access between U.S. and foreign markets. Currently, there are more than 100 Open Skies agreements in effect. However, even with Open Skies, many of the airports that the Company serves in Europe, Asia and Latin America maintain slot controls. A large number of these slot controls exist due to congestion, environmental and noise protection and reduced capacity due to runway and air traffic control (“ATC”("ATC") construction work, among other reasons. London Heathrow International Airport, Frankfurt Rhein-Main Airport, Shanghai Pudong International Airport, Beijing Capital International Airport, Sao Paulo Guarulhos International Airport and Tokyo Haneda International Airport are among the most restrictive foreign airports due to slot and capacity limitations. The
Company’sCompany's ability to serve some foreign markets and expand into certain others is limited by the absence of aviation agreements between the U.S. government and the relevant foreign governments. Shifts in U.S. or foreign government aviation policies may lead to the alteration or termination of air service agreements. Depending on the nature of any such change, the value of the
Company’sCompany's international route authorities and slot rights may be materially enhanced or diminished. Similarly, foreign governments control their airspace and can restrict our ability to overfly their territory, enhancing or diminishing the value of the
Company’sCompany's existing international route authorities and slot rights.
Environmental RegulationRegulation.
The airline industry is subject to increasingly stringent federal, state, local and international environmental requirements, including those regulating emissions to air, water discharges, safe drinking water and the use and management of hazardous substances and wastes.
Climate Change. There is an increasing global regulatory focus on greenhouse gas (“GHG”("GHG") emissions and their potential impacts relating to climate change. InitiativesAn initiative to regulate GHG emissions from aviation had previously been adopted byknown as the European Union (“EU”("EU") Emission Trading System ("ETS") was adopted in 2009, but applicability to flights arriving or departing from airports outside the EU havehas been postponed several times. In December 2017, the European Parliament voted to extend exemptions forextra-EU flights until December 2023 in order to align the extension date with the completion of the pilot phase of the International Civil Aviation Organization’s (“ICAO”Organization's ("ICAO") Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”("CORSIA"). CORSIA, which was adopted in October 2016, is intended to create a single global market-based measure to achieve carbon-neutral growth for international aviation after 2020, which willcan be achieved through airline purchases of carbon offset credits. However, the European Parliament is expected to assess CORSIA implementation and re-assess the applicability of EU ETS to international aviation in 2024, at which point the EU could require all extra- and intra-EU flights to participate in EU ETS. Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be fully predicted. However, CORSIA is expected to increase operating costs for airlinesthe Company, depending on a number of factors, including the number of its flights that operate internationally.are subject to CORSIA, the fuel efficiency of the Company's fleet, the Company's purchase and use of CORSIA-eligible sustainable aviation fuels, aviation sector growth, and the price of CORSIA-eligible offsets. In 2016,2017, ICAO also adopted a carbon dioxide (“CO2”("CO2") emission standard for aircraft. TheIn 2016, the U.S. Environmental Protection Agency has("EPA") commenced the procedural steps necessary to adopt its own standard, in consultation with the ICAO.but has not yet taken further action. While the precise timing and final form of these various programs and requirements continue to evolve, the Company is taking various actions that are expected to help to reduce its CO2 emissions over time such as improving fuel efficiency, fleet renewal, aircraft retrofits and promoting the commercialization of sustainable aviation alternative fuels.
Other Regulations. Our operations are subject to a variety of other environmental laws and regulations both in the United States and internationally. These include noise-related restrictions on aircraft types and operating times and state and local air quality initiatives which have, or could in the future, result in curtailments in services, increased operating costs, limits on expansion, or further emission reduction requirements. Certain airports and/or governments, both domestically and internationally, either have or are seeking to establish environmental fees and other requirements applicable to carbon emissions, local air quality pollutants and/or noise. The implementation of state plans to achieve national standards for ozonethese requirements is expected to result in restrictions on mobile sources such as cars, trucks and airport ground support equipment in somecorresponding locations.
Certain states may also elect to impose restrictions apart from the revised national standards. Finally, environmental cleanup laws could require the Company to undertake or subject the Company to liability for investigation and remediation costs at certain owned or leased locations or third partythird-party disposal locations.
Until applicability of new regulations to our specific operations is better defined and/or until pending regulations are finalized, future costs to comply with such regulations will remain uncertain but are likely to increase our operating costs over time. While we continue to monitor these developments, the precise nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the Company and the aviation industry could be significant.
As of December 31,
2017,2019, UAL, including its subsidiaries, had approximately
89,80096,000 employees. Approximately
80%84% of the
Company’sCompany's employees were represented by various U.S. labor organizations.
Collective bargaining agreements between the Company and its represented employee groups are negotiated under the RLA. Such agreements typically do not contain an expiration date and instead specify an amendable date, upon which the agreement is considered
“open"open for amendment.
”"
On February 1, 2019, the collective bargaining agreement with the Air Line Pilots Association ("ALPA"), the labor union representing United's pilots, became amendable. The Company and ALPA are in negotiations for an amended agreement. The Company and UNITE HERE, the labor union representing United's Catering employees, started negotiations for a first collective bargaining agreement in March 2019.
The following table reflects the Company’sCompany's represented employee groups, the number of employees per represented group, union representation for each of United’s employee groups,group, and the amendable date for each employee group’sgroup's collective bargaining agreement as of December 31, 2017: 2019: | | |
| | | | | | | |
| | | |
Group | |
| Number of
Employees |
| | Union | | Agreement Open for Amendment |
Flight Attendants | | 24,203 | 22,676 |
| | Association of Flight Attendants (the “AFA”"AFA") | | August 2021 |
PassengerFleet Service
| | 13,803 | 13,299 |
| | International Association of Machinists and Aerospace Workers (the “IAM”"IAM") | | December 2021 |
FleetPassenger Service
| | 12,135 | 13,187 |
| | IAM | | December 2021 |
Pilots | | 12,251 | 11,492
| | | Air Line Pilots Association, InternationalALPA | | January 2019 |
Technicians and Related & Flight Simulator Technicians | | 9,318 | 9,535 |
| | International Brotherhood of Teamsters (the “IBT”"IBT") | | December 2022 (a) |
Storekeeper EmployeesPassenger Service - United Ground Express, Inc. | | 4,155 | 1,000
| | IAM | | March 2025 |
| Catering | | 2,577 |
| | UNITE HERE | | N/A |
| Storekeepers | | 989 |
| | IAM | | December 2021 |
| Dispatchers | | 412 | 402 |
| | Professional Airline Flight Control Association | | December 2021 |
| Fleet Tech Instructors | | 130 | 111 |
| | IAM | | December 2021 |
| Load Planners | | 62 | 71 |
| | IAM | | December 2021 |
| Security Officers | | 45 | 51 |
| | IAM | | December 2021 |
| Maintenance Instructors | | | 40 |
| | IAM | | December 2021 |
UNITE HERE is attempting to organize United’s Catering Operations employees, who are currently unrepresented, and filed an application to do so
National MediationIBT contains provisions that require the Company to align contract terms with other airlines' workgroups under certain conditions. Information about Our Executive Officers
Kate Gebo. Age 51. Ms. Gebo has served as Executive Vice President Human Resources and Labor Relations of UAL and United since December 2017. From November 2016 to November 2017, Ms. Gebo served as Senior Vice President, Global Customer Service Delivery and Chief Customer Officer of United. From October 2015 to November 2016, Ms. Gebo served as Vice President of the Office of the Chief Executive Officer. From November 2009 to October 2015, Ms. Gebo served as Vice President of Corporate Real Estate of United.
Brett J. Hart. Age 50. Mr. Hart has served as Executive Vice President and Chief Administrative Officer of UAL and United since March 2019. From May 2017 to March 2019, he served as Executive Vice President, Chief Administrative Officer and General Counsel of UAL and United. From February 2012 to May 2017, he served as Executive Vice President and General Counsel of UAL and United. Mr. Hart served as acting Chief Executive Officer and principal executive officer of the Company, on an interim basis, from October 2015 to March 2016. From December 2010 to February 2012, he served as Senior Vice President, General Counsel and Secretary of UAL, United and Continental Airlines, Inc. ("Continental"). From June 2009 to December 2010, Mr. Hart served as Executive Vice President, General Counsel and Corporate Secretary at Sara Lee Corporation, a consumer food and beverage company. From March 2005 to May 2009, Mr. Hart served as Deputy General Counsel and Chief Global Compliance Officer of Sara Lee Corporation.
Gregory L. Hart. Age 54. Mr. Hart has served as Executive Vice President and Chief Operations Officer of UAL and United since February 2014. From December 2013 to February 2014, he served as Senior Vice President Operations of UAL and United. From September 2012 to December 2013, Mr. Hart served as Senior Vice President Technical Operations of United. From October 2010 to September 2012, Mr. Hart served as Senior Vice President Network of United and Continental. From
September 2008 to September 2010, Mr. Hart served as Vice President Network Strategy of Continental. Mr. Hart joined Continental in 1997.
Linda P. Jojo. Age 54. Ms. Jojo has served as Executive Vice President Technology and Chief Digital Officer of UAL and United since May 2017. From November 2014 to May 2017, Ms. Jojo served as Executive Vice President and Chief Information Officer of UAL and United. From July 2011 to October 2014, Ms. Jojo served as Executive Vice President and Chief Information Officer of Rogers Communications, Inc., a Canadian communications and media company. From October 2008 to June 2011, Ms. Jojo served as Chief Information Officer of Energy Future Holdings, a Dallas-based privately held energy company and electrical utility provider.
Chris Kenny. Age 55. Mr. Kenny has served as Vice President and Controller of UAL and United since October 2010. From September 2003 to September 2010, Mr. Kenny served as Vice President and Controller of Continental. Mr. Kenny joined Continental in 1997.
J. Scott Kirby. Age 52. Mr. Kirby has served as President of UAL and United since August 2016. Prior to joining the Company, from December 2013 to August 2016, Mr. Kirby served as President of American Airlines Group and American Airlines, Inc. Mr. Kirby also previously served as President of US Airways from October 2006 to December 2013. Mr. Kirby held significant other leadership roles at US Airways and at America West prior to the 2005 merger of those carriers, including Executive Vice President—Sales and Marketing (2001 to 2006); Senior Vice President, e-business (2000 to 2001); Vice President, Revenue Management (1998 to 2000); Vice President, Planning (1997 to 1998); and Senior Director, Scheduling and Planning (1995 to 1998). Prior to joining America West, Mr. Kirby worked for American Airlines Decision Technologies and at the Pentagon.
In December 2019, the Company announced that Mr. Kirby will become Chief Executive Officer of UAL and United following UAL's 2020 Annual Meeting of Stockholders, scheduled for May 20, 2020 (the "2020 Annual Meeting").
Gerald Laderman. Age 62. Mr. Laderman has served as Executive Vice President and Chief Financial Officer since August 2018. Mr. Laderman served as Senior Vice President Finance, Procurement and Treasurer for UAL and United from 2013 to August 2015, and again from August 2016 to May 2018. Mr. Laderman additionally was acting Chief Financial Officer from August 2015 to August 2016 and from May 2018 to August 2018. Mr. Laderman served as Senior Vice President Finance and Treasurer for the Company from 2010 to 2013. From 2001 to 2010, Mr. Laderman served as Senior Vice President of Finance and Treasurer for Continental. Mr. Laderman joined Continental in 1988 as senior director legal affairs, finance and aircraft programs.
Oscar Munoz. Age 61. Mr. Munoz has served as Chief Executive Officer of UAL and United since September 2015, and also as President of UAL and United from September 2015 until August 2016. From February 2015 to September 2015, Mr. Munoz served as President and Chief Operating Officer of CSX Corporation ("CSX"), a railroad and intermodal transportation services company, overseeing operations, sales and marketing, human resources, service design and information technology. Prior to his appointment as President and Chief Operating Officer of CSX, Mr. Munoz served as Executive Vice President and Chief Operating Officer of CSX from January 2012 to February 2015 and as Executive Vice President and Chief Financial Officer of CSX from 2003 to 2012. Mr. Munoz has been a member of the UAL Board on January 24, 2018.of Directors since 2010.
In December 2019, the Company announced that Mr. Munoz will transition from the role of Chief Executive Officer of UAL and United following UAL's 2020 Annual Meeting and assume the role of Executive Chairman of the Board of Directors of UAL.
Andrew Nocella. Age 50. Mr. Nocella has served as Executive Vice President and Chief Commercial Officer of UAL and United since September 2017. From February 2017 to September 2017, he served as Executive Vice President and Chief Revenue Officer of UAL and United. Prior to joining the Company, from August 2016 to February 2017, Mr. Nocella served as Senior Vice President, Alliances and Sales of American Airlines, Inc. From December 2013 to August 2016, he served as Senior Vice President and Chief Marketing Officer of American Airlines, Inc. From August 2007 to December 2013, he served as Senior Vice President, Marketing and Planning of US Airways.
The following risk factors should be read carefully when evaluating the
Company’sCompany's business and the forward-looking statements contained in this report and other statements the Company or its representatives make from time to time. Any of the following risks could materially and adversely affect the
Company’sCompany's business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this report.
Global
If we do not successfully execute our strategic operating plan, or if our strategic operating plan is unsuccessful, our business, operating results and financial condition could be materially and adversely affected.
We have announced several strategic plans in recent years, including several revenue-generating initiatives and plans to optimize our revenue, such as our plans to add capacity, including international expansion and new or increased service to mid-size airports, and initiatives and plans to optimize and control our costs. We also continue to explore opportunities to enhance our segmentation, including the introduction of Polaris, Basic Economy and United Premium Plus, and are implementing many programs and policies to improve the customer experience at all points in air travel. In developing our strategic operating plan, we make certain assumptions, including, but not limited to, those related to customer demand, competition, market consolidation, the availability of aircraft and the global economy. Actual economic, market and other conditions may be different from our assumptions. In 2019, our capacity growth was lower than planned due to the grounding of Boeing 737 MAX aircraft, among other factors, which adversely impacted our ability to execute our strategic operating plans. If we do not successfully execute our strategic operating plan, or if actual results vary significantly from our assumptions, our business, operating results and financial condition could be materially and adversely impacted.
Unfavorable economic and political conditions, in the United States and industry conditions constantly change and unfavorable conditionsglobally, may have a material adverse effect on the Company’sour business, operating results and financial condition.
The Company's business and
operating results
of operations.The Company’s business and results of operations are significantly impacted by U.S. and global economic and industrypolitical conditions. The airline industry is highly cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and global economies. The Company is a global business with operations outside of the United States from which it derives significant operating revenues. The Company’s international operations are a vital part of its worldwide airline network. Volatile economic, political and market conditions in these international regions may have a negative impact on the Company’s operating results and its ability to achieve its business objectives.
Robust demand for the Company’sCompany's air transportation services depends largely on favorable economic conditions, including the strength of the domestic and foreign economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit. Air transportation is often a discretionary purchase that leisure travelers may limit or eliminate during difficult economic times. Short-haul travelers, in particular, have the option to replace air travel with surface travel. In addition, during periods of unfavorable economic conditions, business travelers usually reducehistorically have reduced the volume of their travel, either due to cost-saving initiatives, the replacement of travel with alternatives such as videoconferencing, or as a result of decreased business activity requiring travel. During such periods, the Company’sCompany's business and operating results of operations may be adversely affected due to significant declines in industry passenger demand, particularly with respect to the Company’sCompany's business and premium cabin travelers, and a reduction in fare levels.
As a global business with operations outside of the United States from which it derives significant operating revenues, volatile conditions in certain international regions may have a negative impact on the Company's operating results and its ability to achieve its business objectives. The Company's international operations are a vital part of its worldwide airline network. Political disruptions and instability in certain regions can negatively impact the demand and network availability for air travel. Additionally, any deterioration in global trade relations, such as increased tariffs or other trade barriers, could result in a decrease in the demand for international air travel.
Stagnant or weakening global economic conditions either in the United States or in other geographic regions
and any future volatility in U.S. and global financial and credit markets may have a material adverse effect on the
Company’sCompany's revenues,
operating results
of operations and liquidity.
If such economic conditions were to disrupt capital markets in the future, the Company may be unable to obtain financing on acceptable terms (or at all) to refinance certain maturing debt and to satisfy future capital commitments.In June 2016, United Kingdom (“UK”) voters voted for the UK to exit the EU.
The
UK parliament voted in favor of allowing the government to commence negotiations to determine the future terms of the UK’s relationship with the EU, including the terms of trade between the UK and the EU and other nations. A process of negotiation is now taking place to determine the future terms of the UK’s relationship with the EU. Depending on the outcome of these negotiations, we could face new challenges in our operations, such as instability in global
financial and foreign exchange markets, including volatility in the value of the British pound and European euro, additional travel restrictions on passengers traveling between the UK and other EU countries and legal uncertainty and potentially divergent national laws and regulations. These adverse effects in European market conditions could negatively impact the Company’s business, results of operations and financial condition.In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies may have a material adverse impact upon the Company’s liquidity, revenues, costs and operating results.
The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on the Company.
our business, operating results and financial condition.
The U.S. airline industry is characterizedhighly competitive, marked by substantial pricesignificant competition including fromlow-cost carriers. The significant market presencewith respect to routes, fares, schedules (both timing and frequency), services, products, customer service and frequent flyer programs. Consolidation in the airline industry, the rise oflow-cost well-funded government sponsored international carriers, which engagechanges in substantial price discounting, may diminish our abilityinternational alliances and the creation of immunized JBAs have altered and are expected to achieve sustained profitability on domesticcontinue to alter the competitive landscape in the industry, resulting in the formation of airlines and international routes.alliances with increased financial resources, more extensive global networks and services and competitive cost structures.
Airlines also compete for market share by increasing or decreasing their capacity, including route systems and the number of marketsdestinations served. Several of the Company’sCompany's domestic and international competitors have increased their international capacity by including service to some destinations that the Company currently serves, causing overlap in destinations served, and therefore, increasing competition for those destinations. This increased competition in both domestic and international markets may have
a material adverse effect on the Company’sCompany's business, operating results and financial condition.
The Company's U.S. operations are subject to competition from traditional network carriers, national point-to-point carriers, and discount carriers, including low-cost carriers and ultra-low-cost carriers. Such carriers may have lower costs and provide service at lower fares to destinations also served by the Company. The significant presence of
operations,low-cost carriers and ultra-low-cost carriers, which engage in substantial price discounting, may diminish our ability to achieve sustained profitability on domestic and international routes. Our ability to compete in the domestic market effectively depends, in part, on our ability to maintain a competitive cost structure. If we cannot maintain our costs at a competitive level, then our business, operating results and financial condition
or liquidity.Terrorist attacks or international hostilities, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect the Company and the airline industry.
The terrorist attacks on September 11, 2001 involving commercial aircraft severely and adversely impacted the Company’s financial condition and results of operations, as well as the prospects for the airline industry. Among the effects experienced from the September 11, 2001 terrorist attacks were substantial flight disruption costs caused by theFAA-imposed temporary grounding of the U.S. airline industry’s fleet, significantly increased security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significantly decreased traffic and passenger revenue.
Additional terrorist attacks, even if not made directly on the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated national threat warnings, travel restrictions or selective cancellation or redirection of flights) couldbe materially and adversely affectaffected.
Our international operations are subject to competition from both foreign and domestic carriers. Competition is significant from government subsidized competitors from certain Middle East countries. These carriers have large numbers of international widebody aircraft on order and are increasing service to the CompanyU.S. from their hubs in the Middle East. The government support provided to these carriers has allowed them to grow quickly, reinvest in their product, invest in other airlines and expand their global presence. We also face competition from foreign carriers operating under "fifth freedom" rights permitted under international treaties that allow certain carriers to provide service to and from stopover points between their home country and ultimate destination, including points in the airline industry. WarsUnited States, in competition with service provided by us.
Through alliance and other marketing and codesharing agreements with foreign carriers, U.S. carriers have increased their ability to sell international hostilitiestransportation, such as services to and beyond traditional global gateway cities. Similarly, foreign carriers have obtained increased access to interior U.S. passenger traffic beyond traditional U.S. gateway cities through these relationships. In addition, several JBAs among U.S. and foreign carriers have received grants of antitrust immunity allowing the participating carriers to coordinate schedules, pricing, sales and inventory. If we are not able to continue participating in these types of alliance and other marketing and codesharing agreements in the future, our business, operating results and financial condition could alsobe materially and adversely affected.
High and/or volatile fuel prices or significant disruptions in the supply of aircraft fuel could have a material adverse impact on the Company’sCompany's strategic plans, operating results, financial condition liquidity and resultsliquidity.
Aircraft fuel is critical to the Company's operations and is one of operations.our largest operating expenses. During the year ended December 31, 2019, the Company's fuel expense was approximately $9.0 billion. The Company’stimely and adequate supply of fuel to meet operational demand depends on the continued availability of reliable fuel supply sources, as well as related service and delivery infrastructure. Although the Company has some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations, it depends significantly on the continued performance of its vendors and service providers to maintain supply integrity. Consequently, the Company can neither predict nor guarantee the continued timely availability of aircraft fuel throughout the Company's system.
Aircraft fuel has historically been the Company's most volatile operating expense due to the highly unpredictable nature of market prices for fuel. The Company generally sources fuel at prevailing market prices. Market prices for aircraft fuel have historically fluctuated substantially in short periods of time and continue to be highly volatile due to a dependence on a multitude of unpredictable factors beyond the Company's control. These factors include changes in global crude oil prices, the balance between aircraft fuel supply and demand, natural disasters, prevailing inventory levels and fuel production and transportation infrastructure. Prices of fuel are also impacted by indirect factors, such as geopolitical events, economic growth indicators, fiscal/monetary policies, fuel tax policies, changes in regulations, environmental concerns and financial resourcesinvestments in energy markets. Both actual changes in these factors, as well as changes in related market expectations, can potentially drive rapid changes in fuel prices in short periods of time.
Given the highly competitive nature of the airline industry, the Company may not be sufficientable to absorbincrease its fares and fees sufficiently to offset the adverse effectsfull impact of increases in fuel prices, especially if these increases are significant, rapid and sustained. Further, any such fare or fee increase may not be sustainable, may reduce the general demand for air travel and may also eventually impact the Company's strategic growth and investment plans for the future. In addition, decreases in fuel prices for an extended period of time may result in increased industry capacity, increased competitive actions for market share and lower fares or surcharges. If fuel prices were to then subsequently rise quickly, there may be a lag between the rise in fuel prices and any improvement of the revenue environment.
To protect against increases in the market prices of fuel, the Company may hedge a portion of its future
terrorist attacks or other international hostilities.Increasing privacy and data security obligations or a significant data breach may adversely affect the Company’s business.
fuel requirements. The Company is subjectdoes not currently hedge its future fuel requirements. However, to increasing legislative, regulatorythe extent the Company decides to start a hedging program, such hedging program may not be successful in mitigating higher fuel costs, and customer focus on privacy issuesany price protection provided may be limited due to the choice of hedging instruments and data security. Also, a numbermarket conditions, including breakdown of correlation between hedging instrument and market price of aircraft fuel and failure of hedge counterparties. To the Company’s commercial partners, including credit card companies, have imposed data security standardsextent that the Company must meetdecides to hedge a portion of its future fuel requirements and these standards continueuses hedge contracts that have the potential to evolve. Thecreate an obligation
to pay upon settlement if fuel prices decline significantly, such hedge contracts may limit the Company's ability to benefit fully from lower fuel prices in the future. If fuel prices decline significantly from the levels existing at the time the Company
will continue its efforts to meet its privacy and data security obligations; however, it is possible that certain new obligationsenters into a hedge contract, the Company may be
difficultrequired to
meet andpost collateral (margin) beyond certain thresholds. There can be no assurance that the Company's hedging arrangements, if any, will provide any particular level of protection against rises in fuel prices or that its counterparties will be able to perform under the Company's hedging arrangements. Additionally, deterioration in the Company's financial condition could
increasenegatively affect its ability to enter into new hedge contracts in the
Company’s costs. Additionally, the Company must manage evolving cybersecurity risks. The loss, disclosure, misappropriation of or access to customers’, employees’ or business partners’ information or the Company’s failure to meet its obligations could result in legal claims or proceedings, liability or regulatory penalties. A significant data breach or the Company’s failure to meet its obligations may adversely affect the Company’s reputation, business, results of operations and financial condition.future.
The Company relies heavily on technology and automated systems to operate its business and any significant failure or disruption of the technology or these systems could materially harm its business.
The Company depends on automated systems and technology to operate its business, including, but not limited to, computerized airline reservation systems, demand prediction software, flight operations systems, revenue management systems, accounting systems, technical and business operations systems, telecommunication systems and commercial websites and applications, including www.united.com. United’swww.united.com and the United Airlines app. United's website and other automated systems must be able to accommodate a high volume of traffic, maintain secure information and deliver important flight and schedule information, as well as process critical financial transactions. These systems could suffer substantial or repeated disruptions due to various events, some of which are beyond the Company’sCompany's control, including natural disasters, power failures, terrorist attacks, equipment or software failures computer viruses or cyber security attacks. We have initiatives in place to prevent disruptions and disaster recovery plans, and we continue to invest in improvements to these initiatives and plans; however, these measures may not be adequate to prevent or mitigate disruptions. Substantial or repeated systems failures or disruptions, including failures or disruptions related to the Company’sCompany's complex integration of systems, could reduce the attractiveness of the Company’sCompany's services versus those of its competitors, materially impair its ability to market its services and operate its flights, result in the unauthorized release of confidential or otherwise protected information, result in increased costs, lost revenue and the loss or compromise of important data, and may adversely affect the Company’sCompany's business, operating results and financial condition.
The Company's business relies extensively on third-party service providers, including certain technology providers. Failure of these parties to perform as expected, or interruptions in the Company's relationships with these providers or their provision of services to the Company, could have a material adverse effect on the Company's business, operating results and financial condition.
The Company has engaged third-party service providers to perform a large number of functions that are integral to its business, including regional operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of information technology infrastructure and services, transmitting or uploading of data, provision of aircraft maintenance and repairs, provision of various utilities, performance of aircraft fueling operations and catering services, among other vital functions and services. The Company does not directly control these third-party service providers, although generally it does enter into agreements that define expected service performance and compliance requirements, such as compliance with legal requirements, including anti-corruption laws; however, there can be no assurance that our third-party service providers will adhere to these requirements.
Any of these third-party service providers, however, may materially fail to meet its service performance commitments to the Company or may suffer disruptions to its systems that could impact its services. For example, failures in certain third-party technology or communications systems may cause flight delays or cancellations. The failure of any of the Company's third-party service providers to perform its service obligations adequately, or other interruptions of services, may reduce the Company's revenues and increase its expenses, prevent the Company from operating its flights and providing other services to its customers or result in adverse publicity or harm to our brand. We may also be subject to consequences from any illegal conduct of our third-party service providers, including for their failure to comply with anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act. In addition, the Company's business and financial performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory.
The Company may also have disagreements with such providers or such contracts may be terminated or may not be extended or renewed. For example, the number of flight reservations booked through third-party GDSs or online travel agents ("OTAs") may be adversely affected by disruptions in the business relationships between the Company and these suppliers. Such disruptions, including a failure to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the Company's flight information to be limited or unavailable for display by the affected GDS or OTA operator, significantly increase fees for both the Company and GDS/OTA users and impair the Company's relationships with its customers and travel agencies. Any such disruptions or contract terminations may adversely impact our operations and financial results.
If we are not able to negotiate or renew agreements with third-party service providers, or if we renew existing agreements on less favorable terms, our operations and financial results may be adversely affected.
The Company could experience adverse publicity, harm to its brand, reduced travel demand and potential tort liability as a result of an accident, catastrophe or incident involving its aircraft or its operations, the aircraft or operations of its regional carriers, the aircraft or operations of its codeshare partners, or the aircraft or operations of another airline, which may result in a material adverse effect on the Company's business, operating results and financial condition.
An accident, catastrophe or incident involving an aircraft that the Company operates, or an aircraft that is operated by a codeshare partner, one of the Company's regional carriers or another airline, or an incident involving the Company's operations, or the operations of a codeshare partner, one of the Company's regional carriers or of another airline, could have a material adverse effect on the Company if such accident, catastrophe or incident created a public perception that the Company's operations, or the operations of its codeshare partners or regional carriers, are not safe or reliable, or are less safe or reliable than other airlines. Additionally, any accident, catastrophe or incident involving an aircraft type that is operated by the Company, its codeshare partners or regional carriers could have a material adverse effect on the Company if such accident, catastrophe or incident creates a public perception that such aircraft type was not safe or reliable. Such public perception could, in turn, result in adverse publicity for the Company, cause harm to the Company's brand and reduce travel demand on the Company's flights, or the flights of its codeshare partners or regional carriers.
In addition, any such accident, catastrophe or incident involving the Company, its regional carriers or its codeshare partners could expose the Company to significant tort liability. Although the Company currently maintains liability insurance in amounts and of the type the Company believes to be consistent with industry practice to cover damages arising from any such accident, catastrophe or incident, and the Company's codeshare partners and regional carriers carry similar insurance and generally indemnify the Company for their operations, if the Company's liability exceeds the applicable policy limits or the ability of another carrier to indemnify it, the Company could incur substantial losses from an accident, catastrophe or incident which may result in a material adverse effect on the Company's operating results and financial condition.
Terrorist attacks, international hostilities or other security events, or the fear of terrorist attacks or hostilities, even if not made directly on the airline industry, could negatively affect the Company and the airline industry.
Terrorist attacks or international hostilities, even if not made on or targeted directly at the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated national threat warnings, travel restrictions, selective cancellation or redirection of flights and new security regulations) could materially and adversely affect the Company and the airline industry. Security events pose a significant risk to our passenger and cargo operations. These events could include acts of violence in public areas that we cannot control. The Company's financial resources may not be sufficient to absorb the adverse effects of any future terrorist attacks, international hostilities or other security events. Any such events could have a material adverse impact on the Company's financial condition, liquidity and operating results.
Increasing privacy and data security obligations or a significant data breach may adversely affect the Company's business.
In our regular business operations, we collect, transmit, process and store sensitive data, including personal information of our customers and employees such as payment processing information and information of our business partners. The Company depends on the ability to use information we collect to provide our services and operate our business.
The Company must manage increasing legislative, regulatory and consumer focus on privacy issues and data security. For example, in May 2018, the EU's General Data Protection Regulation became effective, which imposes significant privacy and data security requirements, as well as potential for substantial penalties for non-compliance. Recent penalties imposed by regulators have resulted in substantial adverse financial consequences to those companies. Also, some of the Company's commercial partners, such as credit card companies, have imposed data security standards that the Company must meet. These standards continue to evolve. The Company will continue its efforts to meet its privacy and data security obligations; however, it is possible that certain new obligations or customer expectations may be difficult to meet and could increase the Company's costs.
Additionally, the Company must manage evolving cybersecurity risks. Our network systems and storage applications, and those systems and storage and other business applications maintained by our third-party providers, may be subject to attempts to gain unauthorized access, breach, malfeasance or other system disruptions. In some cases, it is difficult to anticipate or to detect immediately such incidents and the damage caused thereby. In addition, as attacks by cybercriminals become more sophisticated, frequent and intense, the costs of proactive defense measures may increase. While we continually work to safeguard our internal network systems, including through risk assessments, system monitoring, information security policies and employee awareness and training, and review and validate our third-party security standards, there is no assurance that such actions will be sufficient to prevent cyber-attacks or data breaches.
The loss, disclosure, misappropriation of or access to customers', employees' or business partners' information or the Company's failure to meet its obligations could result in legal claims or proceedings, penalties and remediation costs. A
significant data breach or the Company's failure to meet its obligations may adversely affect the Company's reputation, relationships with our business partners, business, operating results and financial condition.
The mandatory grounding of our Boeing 737 MAX 9 aircraft may have a material adverse effect on our business, operating results and financial condition.
On March 13, 2019, the Federal Aviation Administration issued an emergency order prohibiting the operation of Boeing 737 MAX series aircraft by U.S. certificated operators (the "FAA Order"). As a result, the Company grounded all 14 Boeing 737 MAX 9 aircraft in its fleet and Boeing also suspended deliveries of new Boeing 737 MAX series aircraft. The Company does not know whether, on what conditions or when the MAX grounding will end. The long-term operational and financial impact of this grounding is uncertain and could negatively affect the Company based on a number of factors, including, among others, the period of time the aircraft are unavailable, the availability of replacement aircraft, to the extent needed, and the circumstances of any reintroduction of the grounded aircraft to service.
In 2019, the grounding affected the delivery of 16 Boeing 737 MAX aircraft that were scheduled for delivery and were not delivered, and it is also expected to affect the timing of future Boeing 737 MAX aircraft deliveries, including the 28 Boeing 737 MAX aircraft that the Company planned to take delivery in 2020. The extent of the delay of future deliveries is expected to be impacted by the length of time the FAA Order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA Order, among other factors.
The Company continues to make adjustments to its flight schedule and operations, including substituting replacement aircraft on routes originally intended to be flown by Boeing 737 MAX aircraft. The grounding has impacted the Company's ability to implement its strategic growth strategy, reducing the Company's scheduled capacity from its planned capacity, and has resulted in increased costs as well as lower operating revenue. The Company has had discussions with Boeing regarding compensation from Boeing for the Company's financial damages related to the grounding of the airline's Boeing 737 MAX aircraft; however, the parties have not agreed to any settlement, and the amount, nature and timing of any settlement with Boeing remains uncertain.
Disruptions to our regional network and United Express flights provided by third-party regional carriers could adversely affect our business, operating results and financial condition.
The Company has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. These regional operations are an extension of the Company's mainline network and complement the Company's operations by carrying traffic that connects to mainline service and allows flights to smaller cities that cannot be provided economically with mainline aircraft. The Company's business and operations are dependent on its regional flight network, with regional capacity accounting for approximately 11% of the Company's total capacity for the year ended December 31, 2019.
Although the Company has agreements with its regional carriers that include contractually agreed performance metrics, each regional carrier is a separately certificated commercial air carrier and the Company does not control the operations of these carriers. A number of factors may impact the Company's regional network, including weather-related effects and seasonality. In addition, the decrease in qualified pilots driven by changes to federal regulations has adversely impacted and could continue to affect the Company's regional flying. For example, the FAA's expansion of minimum pilot qualification standards, including a requirement that a pilot have at least 1,500 total flight hours, as well as the FAA's revised pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations, have contributed to a smaller supply of pilots available to regional carriers. The decrease in qualified pilots resulting from the regulations as well as factors including a decreased student pilot population and a shrinking U.S. military from which to hire qualified pilots, could adversely impact the Company's operations and financial condition, and could also require the Company to reduce regional carrier flying.
If a significant disruption occurs to the Company's regional network or flights or if one or more of the regional carriers with which the Company has relationships is unable to perform their obligations over an extended period of time, there could be a material adverse effect on the Company's business, operating results and financial condition.
Current or future litigation and regulatory actions, or failure to comply with the terms of any settlement, order or arrangement relating to these actions, could have a material adverse impact on the Company.
From time to time, we are subject to litigation and other legal and regulatory proceedings relating to our business or investigations or other actions by governmental agencies, including as described in Part I, Item 3, Legal Proceedings, of this report. No assurances can be given that the results of these or new matters will be favorable to us. An adverse resolution of lawsuits, arbitrations, investigations or other proceedings or actions could have a material adverse effect on our financial condition and operating results, of operations, including as a result ofnon-monetary remedies, and could also result in adverse publicity. Defending ourselves in these matters may be time-consuming, expensive and disruptive to normal business operations and may
result in significant expense and a diversion of
management’smanagement's time and attention from the operation of our business, which could impede our ability to achieve our business objectives. Additionally, any amount that we may be required to pay to satisfy a judgment, settlement, fine or penalty may not be covered by insurance. If we fail to comply with the terms contained in any settlement, order or agreement with a governmental authority relating to these matters, we could be subject to criminal or civil penalties, which could have a material adverse impact on the Company. Under our charter and certain indemnification agreements that we have entered into (and may in the future enter into) with our officers, directors and certain third parties, we could be required to indemnify and advance expenses to them in connection with their involvement in certain actions, suits, investigations and other proceedings. There can be no assurance that any of these payments will not be material.
Disruptions
Our significant investments in other airlines, including in other parts of the world, and the commercial relationships that we have with those carriers may not produce the returns or results we expect.
An important part of our strategy to expand our global network includes making significant investments in airlines both domestically and in other parts of the world and expanding our commercial relationships with these carriers. For example, in January 2019, we completed the acquisition of a 49.9% interest in ManaAir LLC, which, as of immediately following the closing of that investment, owns 100% of the equity interests in ExpressJet Airlines LLC, a domestic regional airline. We also have minority equity interests in CommutAir and Republic Airways Holdings Inc. See Note 9 to the Company’sfinancial statements included in Part II, Item 8 of this report for additional information regarding our investments in regional networkairlines. We also have significant investments in Latin American airlines, including significant investments in Avianca Holdings, S.A. ("AVH") and United Express flights provided by third-partyBRW Aviation LLC ("BRW"), an affiliate of Synergy Aerospace Corporation and the majority shareholder of AVH, and an equity investment in Azul. See Note 8 and Note 9 to the financial statements included in Part II, Item 8 of this report for additional information regarding our investments in AVH and Azul, respectively. See also the additional risks with respect to our investment in AVH described in this Part I, Item 1A. Risk Factors.
We expect to continue exploring similar non-controlling investments in, and entering into JBAs, commercial agreements, loan transactions and strategic alliances with, other carriers as part of our regional
carriers could adversely affect the Company’s operations and
financial condition.The Company has contractualglobal business strategy. These transactions and relationships with various regional carriersinvolve significant challenges and risks, and we face competition in forming and maintaining these relationships, since there are a limited number of potential arrangements and other airlines are looking to provide regional aircraft service branded as United Express. These regional operations are an extension of the Company’s mainline network and complement the Company’s operations by carrying traffic that connects to mainline service and allows flights to smaller cities that cannot be provided economically with mainline aircraft. The Company’s business and operationsenter into similar relationships. We are dependent on its regional flightthese other carriers for significant aspects of our network in the regions in which they operate. While we work closely with regional capacity accounting for approximately 11%these carriers, each is a separately certificated commercial air carrier, and we do not have control over their operations, strategy, management or business methods. And not only are these airlines subject to a number of the Company’s totalsame risks as our business, which are described elsewhere in this Part I, Item 1A. Risk Factors, including competitive pressures on pricing, demand and capacity, forchanges in aircraft fuel pricing, and the year ended December 31, 2017.
Although the Company has agreements with its regional carriers that include contractually agreed performance metrics, the Company does not control theimpact of global and local political and economic conditions on operations and customer travel patterns, among others, they are also subject to their own distinct financial and operational risks.
As a result of these
carriers. A numberand other factors, we may not realize a satisfactory return on our investment, and we may not receive repayment of
factorsany invested or loaned funds. Further, these investments may
not generate the revenue or operational synergies we expect, and they may distract management focus from our operations or other strategic options. Finally, our reliance on these other carriers in the regions in which they operate may negatively impact
the Company’sour regional
network, including weather-related effects and
seasonality. In addition, the decrease in qualified pilots driven by federal regulations has adversely impacted and could continue to affect the Company’s regional flying. For example, the FAA’s expansion of minimum pilot qualification standards, including a requirement that a pilot have at least 1,500 total flight hours, as well as the FAA’s revised pilot flight and duty time rules, effective January 2014, have contributed to a smaller supply of pilots available to regional carriers. The decrease in qualified pilots resulting from the regulations as well as factors including a decreased student pilot population and a shrinking U.S. military from which to hire qualified pilots, could adversely impact the Company’sglobal operations and
financial condition, and also require the Company to reduce regional carrier flying.If a significant disruption occurs to the Company’s regional networkresults if those carriers are impacted by general business risks or flightsperform below our expectations or ifneeds. Any one or more of these events could have a material adverse effect on our operating results or financial condition.
We may also be subject to consequences from any illegal conduct of JBA partners, including for failure to comply with anti-corruption laws such as the regionalU.S. Foreign Corrupt Practices Act. Furthermore, our relationships with these carriers may be subject to the laws and regulations of non-U.S. jurisdictions in which these carriers are located or conduct business. In addition, any political or regulatory change in these jurisdictions that negatively impacts or prohibits our arrangements with whichthese carriers could have an adverse effect on our operating results or financial condition. To the Company has relationships is unable to perform their obligationsextent that the operations of any of these carriers are disrupted over an extended period of time or their actions subject us to the consequences of failure to comply with laws and regulations, our operating results may be adversely affected.
Our significant investments in AVH and its affiliates, and the commercial relationships that we have with Avianca may not produce the returns or results we expect.
In November 2018, as part of our global network strategy, United entered into a revenue-sharing JBA with Avianca, a subsidiary of AVH, Copa and several of their respective affiliates, subject to regulatory approval. Concurrently with this transaction, United, as lender, entered into a Term Loan Agreement (the "BRW Term Loan Agreement") with, among others, BRW Aviation Holding LLC ("BRW Holding") and BRW, as guarantor and borrower, respectively. Pursuant to the BRW Term Loan Agreement, United provided to BRW a $456 million term loan (the "BRW Term Loan"), secured by a pledge of BRW's equity, as well as BRW's 516 million common shares of AVH (which are eligible to be converted into the same number of
preferred shares, which maybe be deposited with the depositary for AVH's American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange (the "NYSE"), in exchange for 64.5 million ADRs) (such shares and equity, collectively, the "BRW Loan Collateral"). BRW is currently in default under the BRW Term Loan Agreement. In order to protect the value of its collateral, on May 24, 2019, United began to exercise certain remedies available to it under the terms of the BRW Term Loan Agreement and related documents. In connection with the delivery by United of a notice of default to BRW, Kingsland Holdings Limited ("Kingsland"), AVH's largest minority shareholder, was granted, in accordance with the agreements related to the BRW Term Loan Agreement, authority to manage BRW, which remains the majority shareholder of AVH. After a hearing on September 26, 2019, a New York state court granted Kingsland summary judgment authorizing it to foreclose on the BRW Loan Collateral under the BRW Term Loan Agreement. Kingsland is continuing with the foreclosure process, which is expected to result in a judicially supervised sale of the BRW Loan Collateral. The New York state court also granted Kingsland's motion for a preliminary injunction that, among other things, enjoins BRW Holding from interfering with Kingsland's ability to exercise voting and other rights in certain equity interests in BRW. These rulings are intermediate steps in the judicial foreclosure process in New York and are subject to appeal. The repayment of the BRW Term Loan is dependent on this judicial foreclosure process and there is no assurance that a judicial foreclosure sale will be completed, or, if completed, will result in the full satisfaction of all of the obligations under the BRW Term Loan. Our ability to enforce a deficiency judgment against BRW in the event that the proceeds from the sale of the BRW Loan Collateral in the judicial foreclosure are insufficient to repay the full amount of the BRW Term Loan may be limited. Any of these circumstances may lead to a loss or delay in the repayment of the BRW Term Loan. Further, the amount we receive from the foreclosure sale of the BRW Loan Collateral may be inadequate to fully pay the amounts owed to us by BRW and our costs incurred to foreclose, repossess and sell the property.
In November 2019, United entered into a senior secured convertible term loan agreement (the "AVH Convertible Loan Agreement") with, among others, AVH, as borrower, for the provision by the lenders thereunder (including United) to AVH of convertible term loans for general corporate purposes. In December 2019, United provided such a convertible term loan to AVH under the Convertible Loan Agreement in the aggregate amount of $150 million (the "AVH Convertible Loan").
See Note 8 to the financial statements included in Part II, Item 8 of this report for additional information regarding our investments in AVH and its affiliates.
These transactions and relationships involve significant challenges and risks, particularly given AVH's recent debt restructuring and the judicial foreclosure process to which the repayment of the BRW Term Loan is subject. While AVH has successfully carried out its debt restructuring plan to date, there is no guarantee that such debt restructuring plan will improve AVH's long-term financial condition, United's exposure to which has increased with the completion of the AVH Convertible Loan. While we work closely with Avianca in connection with the JBA, and have supported AVH by providing capital in the form of the AVH Convertible Loan, Avianca is a separately certificated commercial air carrier, and we do not have control over its or AVH's operations, strategy, management or business methods. Avianca is also subject to a number of the same risks as our business, which are described in this Part I, Item 1A, Risk Factors, including competitive pressures on pricing, demand and capacity, changes in aircraft fuel pricing, and the impact of global and local political and economic conditions on operations and customer travel patterns, among others, as well as to its own distinct financial and operational risks.
In addition, the value of the BRW Loan Collateral and the collateral securing the AVH Convertible Loan is subject to market and other conditions. Changes in the aviation market may adversely affect the value of the BRW Loan Collateral and the collateral securing the AVH Convertible Loan and thereby lower the value to be derived from a foreclosure or other exercise of remedies with respect to the BRW Term Loan Agreement or the AVH Convertible Loan. As a result of these and other factors, including delays in foreclosure proceedings, we may not receive full repayment of our BRW Term Loan or our AVH Convertible Loan, and we may be unable to realize the full value of the BRW Loan Collateral or the collateral securing the AVH Convertible Loan. As a consequence, we may not realize a satisfactory return on our invested or loaned funds with respect to AVH and its affiliates.
Further, these investments may not generate the revenue or operational synergies we expect, and they may distract management focus from our operations or other strategic options. Finally, our reliance on Avianca in the region in which it operates may negatively impact our global operations and results if AVH does not successfully recover from its debt restructuring or is otherwise impacted by general business risks or performs below our expectations or needs. Any one or more of these events could behave a material adverse effect on our operating results or financial condition.
The airline industry may undergo further change with respect to alliances and JBAs or due to consolidations, any of which could have a material adverse effect on the Company’s business, financial conditionCompany.
The Company faces, and
operations.The Company’s business relies extensively on third-party service providers. Failuremay continue to face, strong competition from other carriers due to the modification of these partiesalliances and formation of new JBAs. Carriers may improve their competitive positions through airline alliances, slot swaps and/or JBAs. Certain types of airline JBAs further competition by allowing multiple airlines to performcoordinate routes, pool revenues and costs,
and enjoy other mutual benefits, achieving many of the benefits of consolidation. Open Skies agreements, including the longstanding agreements between the United States and each of the EU, Canada, Japan, Korea, New Zealand, Australia, Colombia and Panama, as
expected,well as the more recent agreements between the United States and each of Mexico and Brazil, may also give rise to better integration opportunities among international carriers. Movement of airlines between current global airline alliances could reduce joint network coverage for members of such alliances while also creating opportunities for JBAs and bilateral alliances that did not exist before such realignment. Further airline and airline alliance consolidations or
interruptionsreorganizations could occur in the
Company’s relationships with these providers or their provision of services to the Company, could have an adverse effect on the Company’s financial position and results of operations.future. The Company has engaged third-party service providers to perform a large numberroutinely engages in analyses and discussions regarding its own strategic position, including current and potential alliances, asset acquisitions and divestitures and may have future discussions with other airlines regarding strategic activities. If other airlines participate in such activities, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of functions that are integral to its business, including regional operations, operation of customer service call centers, distribution and sale of airline seat inventory, provision of information technology infrastructure and services, transmitting or uploading of data, provision of aircraft maintenance and repairs, provision of various utilities and performance of aircraft
fueling operations, and catering services, among other vital functions and services. The Company does not directly control these third-party service providers, although it does enter into agreements with most of them that define expected service performance. Any of these third-party service providers, however, may materially fail to meet their service performance commitments to the Company, may suffer disruptions to their systems that could impact their services, or the agreements with such providers may be terminated. For example, flight reservations booked by customers and travel agencies via third-party GDSs may be adversely affected by disruptions in the business relationships between the Company and GDS operators. Such disruptions, including a failurepotentially impairing the Company's ability to agree upon acceptable contract terms when contracts expire or otherwise become subject to renegotiation, may cause the Company’s flight information to be limited or unavailable for display, significantly increase fees for both the Company and GDS users and impair the Company’s relationships withrealize expected benefits from its customers and travel agencies. The failure of any of the Company’s third-party service providers to perform their service obligations adequately, or other interruptions of services, may reduce the Company’s revenues and increase its expenses, prevent the Company from operating its flights and providing other services to its customers or result in adverse publicity or harm to its brand. In addition, the Company’s business and financial performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory.
own strategic relationships.
Orders for new aircraft typically must be placed years in advance of scheduled deliveries, and changes in the
Company’s routeCompany's network
strategy over time
or other factors outside of the Company's control may make aircraft on order less economic for the Company,
but anyresult in costs related to modification or termination of
suchaircraft orders
could result in material liabilityor cause the Company to enter into orders for
the Company.new aircraft on less favorable terms.
The
Company’sCompany's orders for new aircraft are typically made years in advance of actual delivery of such aircraft, and the financial commitment required for purchases of new aircraft is substantial. At December 31,
2017,2019, the Company had firm commitments to purchase
228304 new aircraft from The Boeing Company
(“Boeing”("Boeing"), Airbus S.A.S ("Airbus") and
Airbus S.A.S (“Airbus”Embraer S.A. ("Embraer"), as well as related agreements with engine manufacturers, maintenance providers and others.
AtAs of December 31,
2017,2019, the
Company’sCompany's commitments relating to the acquisition of aircraft and related spare engines, aircraft improvements and other related obligations aggregated to a total of
$22.2$26.7 billion.
Subsequent to the Company placing an order for new aircraft, the Company’s routeCompany's network strategy may change, such that the aircraft on order become less economic to operate flights in the Company’s network.change. As a result, the Company’sCompany's preference for a particular aircraft that it has ordered, often years in advance, may be decreased or eliminated. If the Company were to seek to modify or terminate any of its existing aircraft order commitments, it may be responsible for material obligationsliabilities to its counterparties arising from any such change. However,modification. Additionally, the Company expectsmay have a need for additional aircraft that are not available under its existing orders. In such cases, the Company may seek to acquire aircraft from other sources, such as through lease arrangements, which may result in higher costs or less favorable terms, or through the purchase or lease of used aircraft. The Company may not be able to acquire such aircraft when needed on favorable terms or at all.
The imposition of new tariffs, or any suchincrease in existing tariffs, on the importation of commercial aircraft that the Company orders may result in higher costs. For example, in October 2019, the United States imposed tariffs on certain imports from the EU, including a customs duty at an ad valorem rate of 10% on new commercial aircraft, which rate, in February 2020, was increased to 15%. These tariffs apply to certain new Airbus aircraft that we have on order. While the scope and rate of these tariffs are subject to change, that it makesif and to the extent these tariffs are imposed on us, they could increase the effective cost of, among other things, new Airbus aircraft.
A majority of the Company's aircraft and certain parts are sourced from single suppliers; therefore, the Company would be materially and adversely affected if it were unable to obtain timely deliveries, additional equipment or support from any of these suppliers.
The Company currently sources the majority of its aircraft and many related aircraft parts from Boeing. In addition, our aircraft suppliers are dependent on other suppliers for certain other aircraft parts. Therefore, if the Company is unable to acquire additional aircraft from Boeing, or if Boeing fails to make timely deliveries of aircraft or to provide adequate support for its products, the Company's operations could be materially and adversely affected. The Company is also dependent on a limited number of suppliers for aircraft engines and certain other aircraft parts and could, therefore, also be materially and adversely affected in the
long-term best economic interestevent of the
Company.Theunavailability of these engines and other parts.
Union disputes, employee strikes or slowdowns, and other labor-related disruptions could adversely affect the Company's operations and could result in increased costs that impair its financial performance.
United is a highly unionized company. As of December 31, 2019, the Company could experience adverse publicity, harm toand its brand, reduced travel demandsubsidiaries had approximately 96,000 active employees, of whom approximately 84% were represented by various U.S. labor organizations. See Part I, Item 1. Business—Employees, of this report for additional information on our represented employee groups and potential tort liabilitycollective bargaining agreements.
There is a risk that unions or individual employees might pursue judicial or arbitral claims arising out of changes implemented as a result of the Company entering into collective bargaining agreements with its represented employee groups. There is also a possibility that employees or unions could engage in job actions such as slowdowns, work-to-rule campaigns, sick-outs or other
actions designed to disrupt the Company's normal operations, in an accident, catastrophe, or incident involving its aircraft or its operations,attempt to pressure the aircraft orCompany in collective bargaining negotiations. Although the RLA makes such actions unlawful until the parties have been lawfully released to self-help, and the Company can seek injunctive relief against premature self-help, such actions can cause significant harm even if ultimately enjoined. Similarly, if the operations of itsour third-party regional carriers, ground handlers or other vendors are impacted by labor-related disruptions, our operations could be adversely affected. In addition, collective bargaining agreements with the aircraftCompany's represented employee groups increase the Company's labor costs, which increase could be material.
An outbreak of disease or
operations of its codeshare partners, which may result in a material adverse effect onsimilar public health threat, such as the
Company’s results of operations or financial position.An accident, catastrophe, or incident involving an aircraft that the Company operates, or an aircraft that is operated by a codeshare partner or one of the Company’s regional carriers, or an incident involving the Company’s operations,coronavirus, could have a material adverse effectimpact on the Company ifCompany's business, operating results and financial condition.
An outbreak of disease or similar public health threat, or fear of such accident, catastrophe,an event, that affects travel demand, travel behavior, or incident createdtravel restrictions could have a public perception thatmaterial adverse impact on the Company’s operations, or the operationsCompany's business, financial condition and operating results. In addition, outbreaks of its codeshare partners or regional carriers, are not safe or reliable, or are less safe or reliable than other airlines. Such public perceptiondisease could in turn, result in adverse publicityincreased government restrictions and regulation, including quarantines of our personnel or an inability to access facilities or our aircraft, which could adversely affect our operations.
In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China. The World Health Organization has declared COVID-19 to constitute a "Public Health Emergency of International Concern." On January 30, 2020, the U.S. Department of State issued a Level 4 "do not travel" advisory for
China. The U.S. government has also implemented enhanced screenings, quarantine requirements and travel restrictions in connection with the COVID-19 outbreak. The Company has suspended its flights between the United States and each of Beijing, Chengdu, Shanghai and Hong Kong through April 24, 2020. These routes represented approximately 5% of the Company's 2020 planned capacity and the Company's other trans-Pacific routes represented an additional 10% of the Company's 2020 planned capacity. As of the date of this report, the Company
cause harmis experiencing an approximately 100% decline in near-term demand to
the Company’s brandChina and
reduce travelan approximately 75% decline in near-term demand on the
Company’s flights, or the flights of its codeshare partners or regional carriers.In addition, any such accident, catastrophe, or incident could expose the Company to significant tort liability. Although the Company currently maintains liability insurance in amounts andrest of the typeCompany's trans-Pacific routes. The extent of the Company believes to be consistent with industry practice to cover damages arising from any such accident or catastrophe,impact of the COVID-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related travel advisories and restrictions and the Company’s codeshare partnersimpact of the COVID-19 on overall demand for air travel, all of which are highly uncertain and regional carriers carry similar insurance and generally indemnify the Company for their operations, if the Company’s liability exceeds the applicable policy limits or the ability of
another carrier to indemnify it, the Company could incur substantial losses from an accident, catastrophe or incident which may result in a material adverse effectcannot be predicted. If traffic on the Company’sCompany's trans-Pacific routes were to remain at these levels for an extended period, and/or routes in other parts of the Company's network begin to see significant declines in demand, our results of operations or financial position.
for full year 2020 may be materially adversely affected.
If we experience changes in, or are unable to retain, our senior management team or other key employees, our operating results could be adversely affected.
Much of our future success depends on the continued availability of skilled personnel with industry experience and knowledge, including our senior management team and other key employees. If we are unable to attract and retain talented, highly qualified senior management and other key employees, or if we are unable to effectively provide for the succession of senior management, our business may be adversely affected.
High and/
Extended interruptions or volatile fuel prices or significant disruptions in the supply of aircraft fuelservice at major airports where we operate could have a material adverse impact on our operations.
The airline industry is heavily dependent on business models that concentrate operations in major airports in the
Company’s strategic plans, operating results, financial positionUnited States and
liquidity.Aircraft fuel is critical to the Company’s operations and is one of its single largest operating expenses. The timely and adequate supply of fuel to meet operational demand depends on the continued availability of reliable fuel supply sources, as well as related service and delivery infrastructure. Although the Company has some ability to cover short-term fuel supply and infrastructure disruptions at some major demand locations, it can neither predict nor guarantee the continued timely availability of aircraft fuel throughout the Company’s system. The Company generally sources fuelworld. An extended interruption or disruption at prevailing market prices.
Aircraft fuel has historically been the Company’s most volatile operating expense due to the highly unpredictable nature of market prices for fuel. Market prices for aircraft fuelan airport where we have historically fluctuated substantially in short periods of time and continue to be highly volatile due to a dependence on a multitude of unpredictable factors beyond the Company’s control. These factors include changes in global crude oil prices, the balance between aircraft fuel supply and demand, natural disasters, prevailing inventory levels and fuel production and transportation infrastructure. Prices of fuel are also impacted by indirect factors that may potentially impact fuel supply or demand balance, such as geopolitical events, economic growth indicators, fiscal/monetary policies, fuel tax policies, environmental concerns and financial investments in energy markets. Both actual changes in these factors, as well as changes in market expectations of these factors can potentially drive rapid changes in fuel price levels in short periods of time.
Given the highly competitive nature of the airline industry, the Company may not be able to increase its fares and fees sufficiently to offset the full impact of increases in fuel prices, especially if these increases are significant rapid and sustained. Further, any such fare and fee increases may not be sustainable, may reduce the general demand for air travel and may also eventually impact the Company’s strategic growth and investment plans for the future. In addition, decreases in fuel prices for an extended period of time may result in increased industry capacity, increased competitive actions for market share and lower fares or surcharges in general. If fuel prices were to then subsequently rise quickly, there may be a lag between the rise in fuel prices and any improvement of the revenue environment.
To protect against increases in the market prices of fuel, the Company may hedge a portion of its future fuel requirements. However, the Company’s hedging program may not be successful in mitigating higher fuel costs, and any price protection provided may be limited due to choice of hedging instruments and market conditions, including breakdown of correlation between hedging instrument and market price of aircraft fuel and failure of hedge counterparties. To the extent that the Company decides to hedge a portion of its future fuel requirements and uses hedge contracts that have the potential to create an obligation to pay upon settlement if fuel prices decline significantly, such hedge contracts may limit the Company’s ability to benefit fully from lower fuel costs in the future. If fuel prices decline significantly from the levels existing at the time the Company enters into a hedge contract, the Company may be required to post collateral (margin) beyond certain thresholds. There can be no assurance that the Company’s hedging arrangements will provide any particular level of protection against rises in fuel prices or that its counterparties will be able to perform under the Company’s hedging arrangements.
Additionally, deterioration in the Company’s financial condition could negatively affect its ability to enter into new hedge contracts in the future.
Union disputes, employee strikes or slowdowns, and other labor-related disruptions could adversely affect the Company’s operations and could result in increased costs that impair its financial performance.
United is a highly unionized company. As of December 31, 2017, the Company and its subsidiaries had approximately 89,800 active employees, of whom approximately 80% were represented by various U.S. labor organizations.
There is a risk that unions or individual employees might pursue judicial or arbitral claims arising out of changes implemented as a result of the Company entering into collective bargaining agreements with its represented employee groups. There is also a possibility that employees or unions could engage in job actions such as slowdowns,work-to-rule campaigns, sick-outs or other actions designed to disrupt the Company’s normal operations, in an attempt to pressure the Company in collective bargaining negotiations. Although the RLA makes such actions unlawful until the parties have been lawfully released to self-help, and the Company can seek injunctive relief against premature self-help, such actions can cause significant harm even if ultimately enjoined. In addition, collective bargaining agreements with the Company’s represented employee groups increase the Company’s labor costs, which increase could be material for any applicable reporting period.
An outbreak of a disease or similar public health threat could have a material adverse impact on the Company’s business, financial position and results of operations.
An outbreak of a disease or similar public health threat that affects travel demand, travel behavior, or travel restrictions could have a material adverse impact on the Company’sour business, financial condition and results of operations.
Extensiveoperation.
We operate principally through our domestic hubs in at Newark, Chicago O'Hare, Denver, Houston Bush, LAX, Guam, SFO and Washington Dulles. Substantially all of our flights either originate in or fly into one of these locations. A significant interruption or disruption in service at one of our hubs or other airports where we have a significant presence resulting from ATC delays, weather conditions, natural disasters, growth constraints, relations with third-party service providers, failure of computer systems, disruptions to government agencies or personnel (including as a result of government shutdowns), disruptions at airport facilities or other key facilities used by us to manage our operations, labor relations, power supplies, fuel supplies, terrorist activities, international hostilities or otherwise could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a material impact on our business, operating results and financial condition. We have minimal control over the operation, quality or maintenance of these services or whether vendors will improve or continue to provide services that are essential to our business.
The airline industry is subject to extensive government regulation,
could increase the Company’s operatingwhich imposes significant costs and
restrict its ability to conduct its business.may adversely impact our business, operating results and financial condition.
Airlines are subject to extensive regulatory and legal oversight. Compliance with U.S. and international regulations imposes significant costs and may have adverse effects on the Company. Laws, regulations, taxes and airport rates and charges, both
domestically and internationally, have been proposed from time to time that could significantly increase the cost of airline operations or reduce airline revenue.
The airline industry is heavily taxed and additional taxation could negatively impact our business.
United provides air transportation under certificates of public convenience and necessity issued by the DOT. If the DOT altered, amended, modified, suspended or revoked these certificates, it could have a material adverse effect on the
Company’sCompany's business. The DOT also regulates consumer protection and, through its investigations or rulemaking authority, could impose restrictions that materially impact the Company's business. The FAA regulates the safety of
United’sUnited's operations. United operates pursuant to an air carrier operating certificate issued by the FAA.
In 2014, the FAA’s moreThe FAA's regulations include stringent pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations,
took effect, which has increased costs for all carriers. Additionally,as well as minimum qualifications
took effect for air carrier first officers. These regulations
will continue to impact the industry and the Company for years to come, as they have caused mainline airlines to hire regional pilots, while simultaneously significantly reducing the pool of new pilots from which regional carriers themselves can hire. Although this is an industry issue, it directly affects the Company and
requireshas required it to reduce regional partner flying, as several regional partners have experienced difficulty flying their schedules due to reduced pilot availability. From time to time, the FAA also issues orders, airworthiness directives and other regulations relating to the maintenance and operation of aircraft that require material expenditures or operational restrictions by the Company. These FAA orders and directives
could includehave resulted in the temporary grounding of an entire aircraft type if the FAA identifies design, manufacturing, maintenance or other issues requiring immediate corrective
action.action (including the FAA Order grounding Boeing 737 MAX aircraft). These FAA directives or requirements could have a material adverse effect on the Company.
In 2018, the U.S. Congress will continue to consider legislation to reauthorizeapproved a five-year reauthorization for the FAA, which encompasses all significant aviation tax and policy-related issues. The law includes a range of policy changes related issues. As with previous reauthorization legislation,to airline customer service and aviation safety which are ongoing and, depending on how they are implemented, could impact our operations and costs. Additionally, the U.S. Congress may consider a range of policy changes thatlegislation related to aviation safety as well as environmental issues which could impact the Company’sCompany and the airline industry.
The Company's operations and costs.
In addition, the Company’s operations may also be adversely impacted due to the existing antiquated ATC system utilized by the U.S. government.government and regulated by the FAA. During peak travel periods in certain markets, the current ATC system’ssystem's inability to handle ATC demand has led to short-term capacity constraints imposed by government agencies and resulted in delays and disruptions of air traffic. In addition, the current system will not be able to effectively handle projected future air traffic growth. The outdated technologies also cause the ATC to be less resilient in the event of a failure, causing flight cancellations and delays. Imposition of these ATC constraints on a long-term basis may have a material adverse effect on the Company’sCompany's operations. Failure to update the ATC system in a timely manner and the substantial funding requirements of a modernized ATC system that may be imposed on air carriers may have an adverse impact on the Company’sCompany's financial condition or results of operations.
operating results.
Access to landing and
take-off rights, or
“slots,”"slots," at several major U.S. airports and many foreign airports served by the Company are, or recently have been, subject to government regulation. Certain of the
Company’sCompany's major hubs are among the most congested airports in the United States and have been or could be the subject of regulatory action that might limit the number of flights and/or increase costs of operations at certain times or throughout the day. The FAA may limit the
Company’sCompany's airport access by limiting the number of departure and arrival slots at high density traffic airports, which could affect the
Company’sCompany's ownership and transfer rights, and local airport authorities may have the ability to control access to certain facilities or the cost of access to their facilities, which could have an adverse effect on the
Company’sCompany's business. The FAA historically has taken actions with respect to
airlines’airlines' slot holdings that airlines have challenged; if the FAA were to take actions that adversely affect the
Company’sCompany's slot holdings, the Company could incur substantial costs to preserve its slots or may lose slots. If slots are eliminated at an airport, or if the number of hours of operation governed by slots is reduced at an airport, the lack of controls on
takeoffstake-offs and landings could result in greater congestion both at the affected airport or in the regional airspace (e.g., the New York City metropolitan region airspace) and could significantly impact the
Company’sCompany's operations. Further, the
Company’sCompany's operating costs at airports, including the
Company’sCompany's major hubs, may increase significantly because of capital improvements at such airports that the Company may be required to fund, directly or indirectly. Such costs could be imposed by the relevant airport authority without the
Company’sCompany's approval and may have a material adverse effect on the
Company’sCompany's financial condition.
Many aspects of the Company’s operations are also subject to increasingly stringent federal, state, local and international laws protecting the environment. Future environmental regulatory developments, such as climate change regulations in the United States and abroad could adversely affect operations and increase operating costs in the airline industry. In addition, there is the potential for additional regulatory actions in regard to the emission of GHGs by the aviation industry. The precise nature of future requirements and their applicability to the Company are difficult to predict, but the financial impact to the Company and the aviation industry would likely be adverse and could be significant.
See Part I, Item 1, Business—Industry Regulation, of this report for additional information on government regulation impacting the Company.
Extensive government regulation on international routes could restrict the Company’s ability to conduct its business and have a material adverse effect on the Company’s financial position and results of operations.
The ability of carriers to operate flights on international routes between the United States and other countries may be subject to change.is highly regulated. Applicable arrangements between the United States and foreign governments may be amended from time to time, government policies with respect to airport operations may be revised, and the availability of appropriate slots or facilities may change. The Company currently operates a number of flights on international routes under government arrangements, regulations or policies that designate the number of carriers permitted to operate on such routes, the capacity of the carriers providing services on such routes, the airports at which carriers may operate international flights, or the number of carriers allowed access to particular airports. Any further limitations, additions or modifications to such arrangements, regulations or policies could have a material adverse effect on the Company’sCompany's financial positioncondition and results of operations.operating results. Additionally, a change in law,
regulation or policy for any of the Company’sCompany's international routes, such as Open Skies, could have a
material adverse impact on the Company’sCompany's financial positioncondition and operating results of operations and could result in the impairment of material amounts of related tangible and intangible assets. In addition, competition from revenue-sharing joint venturesJBAs and other alliance arrangements by and among other airlines could impair the value of the Company’sCompany's business and assets on the Open Skies routes. The Company’sCompany's plans to enter into or expand U.S. antitrust immunized alliances and joint venturesJBAs on various international routes are subject to receipt of approvals from applicable U.S. federal authorities and obtaining other applicable foreign government clearances or satisfying the necessary applicable regulatory requirements. There can be no assurance that such approvals and clearances will be granted or will continue in effect upon further regulatory review or that changes in regulatory requirements or standards can be satisfied.
See Part I, Item
1,1. Business—Industry Regulation, of this report for additional information on government regulation impacting the Company.
The airline industry
We are subject to many forms of environmental regulation and liability and risks associated with climate change, and may undergo further changeincur substantial costs as a result.
Many aspects of the Company's operations are subject to increasingly stringent federal, state, local and international laws protecting the environment, including those relating to emissions to the air, water discharges, safe drinking water and the use and management of hazardous materials and wastes. Compliance with respectexisting and future environmental laws and regulations can require significant expenditures and violations can lead to alliancessignificant fines and joint ventures orpenalties. In addition, from time to time we are identified as a responsible party for environmental investigation and remediation costs under applicable environmental laws due to consolidations,the disposal of hazardous substances generated by our operations. We could also be subject to environmental liability claims from various parties, including airport authorities, related to our operations at our owned or leased premises or the off-site disposal of waste generated at our facilities.
We may incur substantial costs as a result of changes in weather patterns due to climate change. Increases in the frequency, severity or duration of severe weather events such as thunderstorms, hurricanes, flooding, typhoons, tornados and other severe weather events could result in increases in delays and cancellations, turbulence-related injuries and fuel consumption to avoid such weather, any of which could haveresult in significant loss of revenue and higher costs.
To mitigate climate change risks, CORSIA has been developed by ICAO, a
material adverse effect onUN specialized agency. CORSIA is intended to create a single global market-based measure to achieve carbon-neutral growth for international aviation after 2020 through airline purchases of carbon offset credits. Certain CORSIA program details remain to be developed and could potentially be affected by political developments in participating countries or the results of the pilot phase of the program, and thus the impact of CORSIA cannot be fully predicted. However, CORSIA is expected to result in increased operating costs for airlines that operate internationally, including the Company.
In addition to CORSIA, the EPA has begun preliminary work to adopt its own aircraft engine GHG emission standards, which were expected to be aligned with recent ICAO carbon dioxide emission standards. The Company facestiming of any U.S. EPA aircraft engine GHG emission standards is currently unknown, but some jurisdictions in which United operates have adopted or are considering GHG emission reduction initiatives, which could impact various aspects of the Company's business. The precise nature of future requirements and may continue to face strong competition from other carriers duetheir applicability to the modificationCompany are difficult to predict, but the financial impact to the Company and the aviation industry would likely be adverse and could be significant.
See Part I, Item 1. Business—Industry Regulation—Environmental Regulation, of alliancesthis report for additional information on environmental regulation impacting the Company.
The United Kingdom's withdrawal from the EU may adversely impact our operations in the United Kingdom and formationelsewhere.
In June 2016, United Kingdom ("UK") voters approved an advisory referendum for the UK to exit the EU. The UK parliament voted in favor of new joint ventures. Carriers may improve their competitive positions through airline alliances, slot swaps and/or joint ventures. Certain types of airline joint ventures further competition by allowing multiple airlinesthe government to coordinate routes, pool revenues and costs, and enjoy other mutual benefits, achieving manycommence negotiations to determine the future terms of the benefits of consolidation. “Open Skies” agreements,UK's relationship with the EU, including the agreementsterms of trade between the United StatesUK and the EU and other nations. On January 31, 2020, the UK withdrew from the EU, and started a transition period that will potentially run through December 31, 2020. The nature and terms of the UK's relationship with the EU after the transition period remain uncertain.
In connection with a UK exit from the EU, we could face new challenges in our operations, such as instability in global financial and foreign exchange markets. This instability could result in market volatility, including in the value of the British pound and European euro, additional travel restrictions on passengers traveling between the United StatesUK and Japan,other EU countries, changes to the legal status of EU-resident employees, legal uncertainty and divergent national laws and regulations. At this time, we cannot predict the impact that the UK's exit from the EU will have on our business generally and our UK and
European operations more specifically, and no assurance can be given that our operating results, financial condition and prospects would not be adversely impacted by the result.
The Company's operating results fluctuate due to seasonality and other factors associated with the airline industry, many of which are beyond the Company's control.
Due to greater demand for air travel during the spring and summer months, revenues in the airline industry in the second and third quarters of the year are generally stronger than revenues in the first and fourth quarters of the year, which are periods of lower travel demand. The Company's operating results generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal, including, among others, extreme or severe weather, outbreaks of disease or pandemics, ATC congestion, geological events, political instability, terrorism, natural disasters, changes in the competitive environment due to industry consolidation, tax obligations, general economic conditions and other factors. As a result, the Company's quarterly operating results are not necessarily indicative of operating results for an entire year and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.
Increases in insurance costs or inadequate insurance coverage may also give risematerially and adversely impact our business, operating results and financial condition.
The Company could be exposed to better integration opportunities among international carriers. Movement of airlines between current global airline alliances could reduce joint network coverage for memberssignificant liability or loss if its property or operations were to be affected by a natural catastrophe or other event, including aircraft accidents. The Company maintains insurance policies, including, but not limited to, terrorism, aviation hull and liability, workers' compensation and property and business interruption insurance, but we are not fully insured against all potential hazards and risks incident to our business. If the Company is unable to obtain sufficient insurance with acceptable terms, the costs of such alliances while also creating opportunities for joint venturesinsurance increase materially, or if the coverage obtained is insufficient relative to actual liability or losses that the Company experiences, whether due to insurance market conditions, policy limitations and bilateral alliances that did not exist before such realignment. There is ongoing speculation that further airlineexclusions or otherwise, our operating results and airline alliance consolidations or reorganizationsfinancial condition could occur in the future, especially if new “Open Skies” agreements between Brazilbe materially and the United States are fully implemented. adversely affected.
The Company
routinely engages in analysishas a significant amount of financial leverage from fixed obligations, and
discussions regarding its own strategic position, including current and potential alliances, asset acquisitions and divestitures and may have future discussions with other airlines regarding strategic activities. If other airlines participate in such activities, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of the Company and potentially impairing the Company’s ability to realize expected benefits from its own strategic relationships.Insufficientinsufficient liquidity may have a material adverse effect on the Company’sCompany's financial positioncondition and business.
The Company has a significant amount of financial leverage from fixed obligations, including aircraft lease and debt financings, leases of airport property and other facilities, and other material cash obligations. In addition, the Company has substantial noncancelable commitments for capital expenditures, including for the acquisition of new aircraft and related spare engines.
Although the
Company’sCompany's cash flows from operations and its available capital, including the proceeds from financing transactions, have been sufficient to meet these obligations and commitments to date, the
Company’sCompany's future liquidity could be negatively affected by the risk factors discussed in this
report, including, but not limited to, substantial volatility in the price of fuel, adverse economic conditions, disruptions in the global capital markets and catastrophic external events.report. If the Company’sCompany's liquidity is materially diminished, due to the various risk factors noted in this report, or otherwise, the Company might not be able to timely pay its leases and debts or comply with certain operating and financial covenants under its financing and credit card processing agreements or with other material provisions of its contractual obligations. Certain of these covenants require the Company or United, as applicable, to maintain minimum liquidity and/or minimum collateral coverage ratios.
The Company’s or United’s ability to comply with these covenants may be affected by events beyond its control, including the overall industry revenue environment, the level of fuel costs and the appraised value of the collateral.
If the Company does not timely pay its leases and debts or comply with such covenants, a variety of adverse consequences could result. These potential adverse consequences include an increase of required reserves under credit card processing agreements, withholding of credit card sale proceeds by its credit card service providers, loss of undrawn lines of credit, the occurrence of one or more events of default under the relevant agreements, the acceleration of the maturity of debt and/or the exercise of other remedies by its creditors and equipment lessors that could result in a material adverse effect on the Company’s financial position and results of operations. The Company cannot provide assurance that it would have sufficient liquidity to repay or refinance such debt if it were accelerated. In addition, an event of default or acceleration of debt under certain of its financing agreements could result in one or more events of default under certain of the Company’s other financing agreements due to cross default and cross acceleration provisions.
Furthermore, insufficient liquidity may limit the Company’s ability to withstand competitive pressures and downturns in the travel business and the economy in general.
The Company’sCompany's substantial level of indebtedness andnon-investment grade credit rating, as well as market conditions and the availability of assets as collateral for loans or other indebtedness, may make it difficult for the Company to raise additional capital if needed to meet its liquidity needs on acceptable terms, or at all.
In addition, as of December 31, 2019, the Company had $3.4 billion in variable rate indebtedness, all or a portion of which uses London interbank offered rates ("LIBOR") as a benchmark for establishing applicable rates. As announced in July 2017, LIBOR is expected to be phased out by the end of 2021. Although many of our LIBOR-based obligations provide for alternative methods of calculating the interest rate payable if LIBOR is not reported, the extent and manner of any future changes with respect to methods of calculating LIBOR or replacing LIBOR with another benchmark are unknown and impossible to predict at this time and, as such, may result in interest rates that are materially higher than current interest rates. If interest rates applicable to the Company's variable interest indebtedness increase, the Company's interest expense will also increase, which could make it difficult for the Company to make interest payments and fund other fixed costs and, in turn, adversely impact our cash flow available for general corporate purposes.
See Part II, Item
7, Management’s7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of this report for additional information regarding the
Company’sCompany's liquidity.
Increases
Agreements governing our debt include financial and other covenants. Failure to comply with these covenants could result in insurance costsevents of default.
Our financing agreements include various financial and other covenants. Certain of these covenants require UAL or
reductions in insuranceUnited, as applicable, to maintain minimum liquidity and/or minimum collateral coverage
may materially and adversely impact the Company’s results of operations and financial condition.The Company could be exposedratios. UAL's or United's ability to significant liability or loss if its property or operations were tocomply with these covenants may be affected by a natural catastrophe orevents beyond its control, including the overall industry revenue environment, the level of fuel costs and the appraised value of the collateral. In addition, our financing agreements contain other event, including aircraft accidents. The Company maintains insurance policies, including, but not limitednegative covenants customary for such financings. These covenants are subject to terrorism, aviation hullimportant exceptions and liability, workers’ compensationqualifications. If we fail to comply with these covenants and property and business interruption insurance, but we are not fully insured against all potential hazards and risks incident to our business. If the Company is unable to remedy or obtain sufficient insurance with acceptable termsa waiver or ifamendment, an event of default would result.
If an event of default were to occur, the
coverage obtained is insufficient relative to actual liabilitylenders could, among other things, declare outstanding amounts immediately due and payable. In addition, an event of default or
losses that the Company experiences, whetherdeclaration of acceleration under one financing agreement could also result in an event of default under other of our financing agreements due to
insurance market conditions, policy limitationscross-default and
exclusionscross-acceleration provisions. The acceleration of significant amounts of debt could require us to renegotiate, repay or
otherwise, its results of operations and financial condition could be materially and adversely affected.The Company’s results of operations fluctuate due to seasonality and other factors associated withrefinance the airline industry.
Due to greater demand for air travel during the spring and summer months, revenues in the airline industry in the second and third quarters of the year are generally stronger than revenues in the first and fourth quarters of the year, which are periods of lower travel demand. The Company’s results of operations generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal, including, among others, the imposition of excise and similar taxes, extreme or severe weather, ATC congestion, geological events, natural disasters, changes in the competitive environment due to industry consolidation, general economic conditions and other factors. As a result, the Company’s quarterly operating results are not necessarily indicative of operating results for an entire year and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.
obligations under our financing arrangements.
The Company may never realize the full value of its intangible assets or its long-lived assets causing it to record impairments that may negatively affect its financial
positioncondition and
results of operations.operating results.
In accordance with applicable accounting standards, the Company is required to test its indefinite-lived intangible assets for impairment on an annual basis, or more frequently if conditions indicate thatwhere there is an impairment may have occurred.indication of impairment. In addition, the Company is required to test certain of its other assets for impairment if conditions indicatewhere there is any indication that an impairmentasset may have occurred.be impaired.
The Company may be required to recognize impairmentslosses in the future due to, among other factors, extreme fuel price volatility, tight credit markets, agovernment regulatory changes, decline in the fair valuevalues of certain tangible or intangible assets, such as aircraft, route authorities, airport slots and frequent flyer database, unfavorable trends in historical or forecasted results of operations and cash flows and an uncertain economic environment, as well as other uncertainties. For example, in 2019 and 2018, the Company recorded impairment charges of $90 million and $206 million, respectively, associated with its Hong Kong routes, resulting in the full impairment of these assets. The Company can provide no assurance that a material impairment chargeloss of tangible or intangible assets will not occur in a future period. The value of the Company’sCompany's aircraft could be impacted in future periods by changes in supply and demand for these aircraft. Such changes in supply and demand for certain aircraft types could result from the grounding of aircraft by the Company or other carriers.aircraft. An impairment chargeloss could have a material adverse effect on the Company’sCompany's financial positioncondition and results of operations.
operating results.
Any damage to our reputation or brand image could adversely affect our business or financial results.
We operate in a public-facing industry and maintaining a good reputation is critical to our business. The
Company’s ability to use its net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes may be significantly limited due to various circumstances, including certain possible future transactions involving the saleCompany's reputation or
issuance of UAL common stock, or if taxable income does not reach sufficient levels.As of December 31, 2017, UAL reported consolidated federal net operating loss (“NOL”) carryforwards of approximately $2.4 billion.
The Company’s ability to use its NOL carryforwards may be limited if it experiences an “ownership change” as defined in Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). An ownership change generally occurs if certain stockholders increase their aggregate percentage ownership of a corporation’s stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing period, which is generally the three-year period preceding any potential ownership change.
There is no assurance that the Company will not experience a future ownership change under Section 382 that may significantly limit or possibly eliminate its ability to use its NOL carryforwards. Potential future transactions involving the sale or issuance of UAL common stock, including the exercise of conversion options under the terms of any convertible debt that UAL may issue in the future, the repurchase of such debt with UAL common stock, any issuance of UAL common stock for cash, and the acquisition or disposition of such stock by a stockholder owning 5% or more of UAL common stock, or a combination of such transactions, may increase the possibility that the Company will experience a future ownership change under Section 382.
Under Section 382, a future ownership change would subject the Company to additional annual limitations that apply to the amount ofpre-ownership change NOLs that may be used to offset post-ownership change taxable income. This limitation is generally determined by multiplying the value of a corporation’s stock immediately before the ownership change by the applicable long-termtax-exempt rate. Any unused annual limitation may, subject to certain limits, be carried over to later years, and the limitation may, under certain circumstances, be increased bybuilt-in gains in the assets held by such corporation at the time of the ownership change. This limitation could cause the Company’s U.S. federal income taxes to be greater, or to be paid earlier, than they otherwise would be, and could cause all or a portion of the Company’s NOL carryforwards to expire unused. Similar rules and limitations may apply for state income tax purposes. The Company’s ability to use its NOL carryforwards will also depend on the amount of taxable income it generates in future periods. The Company’s NOL carryforwards may expire before it can generate sufficient taxable income to use them in full.
The final impacts of the Tax Cuts and Jobs Actbrand image could be materially different from our current estimates.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law (the “Tax Act”). The Tax Act introduced significant changesadversely impacted by any failure to the Code. We continue to examine the impact the Tax Act may have on our business. Notwithstanding the reduction in the federal corporate income tax rate as a result of Tax Act, the estimated impact of the new law is based on management’s current knowledge and assumptions and recognized impacts could be materially different from current estimates based upon our further analysis of the new law.
Our significant investments in airlines in other parts of the world and the commercial relationships that we have with those carriers may not produce the returns or results we expect.
An important partmaintain satisfactory practices for all of our strategyoperations and activities, any failure to expandachieve and/or make progress toward our global network includes making significant investments in airlines in other parts of the worldenvironmental and expandingsustainability goals, public pressure from investors or policy groups to change our commercial relationships with these carriers. In 2015, we made a $100 million investment in Azul Linhas Aéreas Brasileiras S.A. (“Azul”) and enhanced our commercial arrangements with Azul. We expect to continue exploring similarnon-controlling investments in, and entering into joint ventures, commercial agreements, loan transactions and strategic alliances with, other carriers as partpolicies, customer perceptions of our global business strategy. These transactions and relationships (including our strategic partnership with, and investment in, Azul) involve significant challenges and risks, including that we may not realize a satisfactory return on our investment, that we may not receive repayment of invested funds, that they may distract management from our operationsadvertising campaigns, sponsorship arrangements or that they may not generate the expected revenue synergies. These events could have a material adverse effect on our operating results or financial condition.
In addition, we are dependent on these other carriers for significant aspectsmarketing programs, customer perceptions of our networkuse of social media, or customer perceptions of statements made by us, our employees and executives, agents or other third parties. Damage to our reputation or brand image or loss of customer confidence in the regions in which they operate. While we work closely with these carriers, we do not have control over their operations orour services could adversely affect our business methods. We may be subjectand financial results, as well as require additional resources to consequences from any improper behavior of joint venture partners, including for failure to comply with anti-corruption laws such as the U.S. Foreign Corrupt Practices Act. Furthermore,rebuild our relationships with these carriers may be subject to the laws and regulations ofnon-U.S. jurisdictions in which these carriers are located or conduct business. Any political or regulatory change in these jurisdictions that negatively impact or prohibit our arrangements with these carriers could have an adverse effect on our results of operations or financial condition. To the extent that the operations of any of these carriers are disrupted over an extended period of time or their actions subject us to the consequences of failure to comply with laws and regulations, our results of operations may be adversely affected.
reputation. | |
| ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
None.
Fleet
Including aircraft operated by United’s regional carriers, United’s fleet consisted of 1,262 aircraft as
Fleet.As of December 31, 2017,2019, United's mainline and regional fleets consisted of the details of which are presented in the tables below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Aircraft Type | | Total | | | Owned | | | Leased | | | | | | Seats in Standard
Configuration | | | Average Age (In
Years) | |
Mainline: | | | | | | | | | | | | | | | | | | | | | | | | |
777-300ER | | | 14 | | | | 14 | | | | — | | | | | | | | 366 | | | | 0.7 | |
777-200ER | | | 55 | | | | 40 | | | | 15 | | | | | | | | 267-269 | | | | 17.8 | |
777-200 | | | 19 | | | | 19 | | | | — | | | | | | | | 364 | | | | 20.5 | |
787-9 | | | 21 | | | | 21 | | | | — | | | | | | | | 252 | | | | 2.1 | |
787-8 | | | 12 | | | | 12 | | | | — | | | | | | | | 219 | | | | 4.5 | |
767-400ER | | | 16 | | | | 14 | | | | 2 | | | | | | | | 242 | | | | 16.3 | |
767-300ER | | | 35 | | | | 22 | | | | 13 | | | | | | | | 183-214 | | | | 22.5 | |
757-300 | | | 21 | | | | 9 | | | | 12 | | | | | | | | 213 | | | | 15.3 | |
757-200 | | | 56 | | | | 50 | | | | 6 | | | | | | | | 142-169 | | | | 21.7 | |
737-900ER | | | 136 | | | | 136 | | | | — | | | | | | | | 179 | | | | 5.0 | |
737-900 | | | 12 | | | | 8 | | | | 4 | | | | | | | | 179 | | | | 16.3 | |
737-800 | | | 141 | | | | 77 | | | | 64 | | | | | | | | 154-166 | | | | 13.8 | |
737-700 | | | 40 | | | | 20 | | | | 20 | | | | | | | | 118-126 | | | | 18.8 | |
A320-200 | | | 99 | | | | 66 | | | | 33 | | | | | | | | 150 | | | | 19.3 | |
A319-100 | | | 67 | | | | 50 | | | | 17 | | | | | | | | 128 | | | | 16.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total mainline | | | 744 | | | | 558 | | | | 186 | | | | | | | | | | | | 14.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Aircraft Type | | Capacity
Purchase
Agreement
Total | | | Owned | | | Leased | | | Owned or
Leased by
Regional
Carrier | | | Regional Carrier
Operator and
Number of
Aircraft | | | Seats in Standard
Configuration | |
Regional: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Embraer E175 | | | 152 | | | | 54 | | | | — | | | | 98 | | |
| SkyWest:
Mesa: Republic: |
| |
| 65
59 28 |
| | | 76 | |
Embraer 170 | | | 38 | | | | — | | | | — | | | | 38 | | | | Republic: | | | | 38 | | | | 70 | |
CRJ700 | | | 65 | | | | — | | | | — | | | | 65 | | |
| SkyWest:
GoJet: Mesa: |
| |
| 20
25 20 |
| | | 70 | |
CRJ200 | | | 85 | | | | — | | | | — | | | | 85 | | |
| SkyWest:
Air Wisconsin: |
| |
| 55
30 |
| | | 50 | |
Embraer ERJ 145 (XR/LR/ER) | | | 168 | | | | 29 | | | | 139 | | | | — | | |
| ExpressJet:
Trans States: CommutAir: |
| |
| 110
36 22 |
| | | 50 | |
Q200 (a) | | | 7 | | | | — | | | | — | | | | 7 | | | | CommutAir: | | | | 7 | | | | 37 | |
Embraer ERJ 135 (a) | | | 3 | | | | — | | | | 3 | | | | — | | | | ExpressJet: | | | | 3 | | | | 37 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total regional | | | 518 | | | | 83 | | | | 142 | | | | 293 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1,262 | | | | 641 | | | | 328 | | | | 293 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) United exited service of both the Q200 and ERJ 135 aircraft types in January 2018.
following: |
| | | | | | | | | | | | | | | | |
| Aircraft Type | | Total | | Owned | | Leased | | Seats in Standard Configuration | | Average Age (In Years) |
| Mainline: | | | | | | | | | | | |
| 777-300ER | | 20 |
| | 20 |
| | — |
| | 350 | | | 2.2 |
|
| 777-200ER | | 55 |
| | 51 |
| | 4 |
| | 267-276 | | | 19.8 |
|
| 777-200 | | 19 |
| | 19 |
| | — |
| | 364 | | | 22.5 |
|
| 787-10 | | 11 |
| | 11 |
| | — |
| | 318 | | | 0.7 |
|
| 787-9 | | 25 |
| | 25 |
| | — |
| | 252 | | | 3.8 |
|
| 787-8 | | 12 |
| | 12 |
| | — |
| | 219 | | | 6.5 |
|
| 767-400ER | | 16 |
| | 14 |
| | 2 |
| | 240 | | | 18.3 |
|
| 767-300ER | | 38 |
| | 25 |
| | 13 |
| | 167-214 | | | 23.9 |
|
| 757-300 | | 21 |
| | 9 |
| | 12 |
| | 234 | | | 17.3 |
|
| 757-200 | | 53 |
| | 48 |
| | 5 |
| | 142-176 | | | 23.5 |
|
| 737-900ER | | 136 |
| | 136 |
| | — |
| | 179 | | | 7.0 |
|
| 737-900 | | 12 |
| | 8 |
| | 4 |
| | 179 | | | 18.3 |
|
| 737-800 | | 141 |
| | 95 |
| | 46 |
| | 166 | | | 15.8 |
|
| 737-700 | | 41 |
| | 29 |
| | 12 |
| | 126 | | | 20.8 |
|
| A320-200 | | 97 |
| | 76 |
| | 21 |
| | 150 | | | 21.3 |
|
| A319-100 | | 80 |
| | 57 |
| | 23 |
| | 126-128 | | | 18.1 |
|
| Total mainline | | 777 |
| | 635 |
| | 142 |
| | | | | 15.6 |
|
In addition to the aircraft presented in the
tablestable above, United
ownsowned or
leasesleased the following
mainline aircraft
listed below as of December 31,
2017:2019:Fourteen Boeing 737 MAX 9s, which are temporarily grounded pursuant to the FAA Order;
Four Boeing 747-400s, which are permanently grounded;
Three Airbus A320s, which are temporarily grounded; and
One owned Boeing767-200, which is being subleased to another airline;airline.
|
| | | | | | | | | | | | | | | | |
| Aircraft Type | | Total | | Owned | | Owned or Leased by Regional Carrier | | Regional Carrier Operator and Number of Aircraft | | Seats in Standard Configuration |
| Regional: | | |
| | |
| | | | | | | |
| Embraer E175/E175LL | | 170 |
| | 71 |
| | 99 |
| | SkyWest: Mesa: Republic: ExpressJet: | 65 60 28 17 |
| | 70-76 |
|
| Embraer 170 | | 38 |
| | — |
| | 38 |
| | Republic: | 38 |
| | 70 |
|
| CRJ700 | | 47 |
| | — |
| | 47 |
| | Mesa: SkyWest: GoJet: | 20 19 8 |
| | 70 |
|
| CRJ550 | | 18 |
| | — |
| | 18 |
| | GoJet: | 18 |
| | 50 |
|
| CRJ200 | | 133 |
| | — |
| | 133 |
| | SkyWest: Air Wisconsin: | 70 63 |
| | 50 |
|
| Embraer ERJ 145 (XR/LR/ER) | | 175 |
| | 168 |
| | 7 |
| | ExpressJet: Trans States: CommutAir: | 95 43 37 |
| | 50 |
|
| Total regional | | 581 |
| | 239 |
| | 342 |
| | | | | |
In addition to the aircraft presented in the table above, United owned and three leased Boeing 747s,the following regional aircraft as of December 31, 2019:
Eight Embraer E175LLs, which are permanently grounded;were delivered but not yet in service; and
11 ownedThree Embraer ERJ 145s,ERJ145s, which are temporarily grounded.
Firm Order and Option AircraftAircraft.
As of December 31, 2017,2019, United had firm commitments and options to purchase new aircraft from Boeing, Airbus and AirbusEmbraer as presented in the table below: | | |
Aircraft Type
| | Number of Firm
Commitments (a)
|
Airbus A350
| | 45 |
Boeing 737 MAX
| | 161 |
Boeing777-300ER
| | 4 |
Boeing 787
| | 18 |
| | |
(a) United also has options and purchase rights for additional aircraft. |
|
| | | | | | | | | |
| | | | | Scheduled Aircraft Deliveries |
| Aircraft Type | | Number of Firm
Commitments (a) | | 2020 | | After 2020 |
| Airbus A321XLR | | 50 |
| | — |
| | 50 |
|
| Airbus A350 | | 45 |
| | — |
| | 45 |
|
| Boeing 737 MAX | | 171 |
| | 44 |
| | 127 |
|
| Boeing 777-300ER | | 2 |
| | 2 |
| | — |
|
| Boeing 787 | | 16 |
| | 15 |
| | 1 |
|
| Embraer E175 | | 20 |
| | 20 |
| | — |
|
(a) United also has options and purchase rights for additional aircraft.
The aircraft listed in the table above are scheduled for delivery from 2018 through 2027. In 2018, United2030. The Company expects to takeassign the purchase obligation for each of the 20 Embraer E175 aircraft to one of its regional partners at the time of such aircraft's delivery, of 10 Boeing 737 MAX aircraft, seven Boeing 787 aircraft and four Boeing777-300ER aircraft.subject to certain conditions. To the extent the Company and the aircraft manufacturers with whomwhich the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’sCompany's future capital commitments could change. Additionally, the CompanyUnited also has entered into a contractagreements to purchase three20 used Boeing767-300ERAirbus A319 aircraft from Hawaiian Airlines, Inc. with expected delivery dates through 2022 and 19 used Boeing 737-700 aircraft with expected delivery dates through 2021.
The 44 Boeing 737 MAX aircraft in the second halftable above include 16 Boeing B737 MAX aircraft of 2018. which the Company planned to take delivery in 2019, and 28 aircraft of which the Company planned to take delivery of in 2020; however, following the FAA Order, Boeing suspended deliveries of new Boeing 737 MAX aircraft. The extent of the delay to the scheduled deliveries of new 737 MAX aircraft is expected to be impacted by the length of time the FAA Order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA Order, among other factors. As a result, the Company is unable to estimate the number of Boeing 737 MAX aircraft of which it will take delivery in 2020.
See Notes 10 and 13 to the financial statements included in Part II, Item 8 of this report for additional information.
Facilities
United’s principal facilities relate to
Facilities.United leases of airport facilities, gates, hangar sites, terminal buildings and other airport facilities in the municipalities it serves. United has major terminal facility leases at SFO, Washington Dulles, Chicago O’Hare,O'Hare, LAX, Denver, Newark, Houston Bush Cleveland Hopkins International Airport and Guam with expiration dates ranging from 20182020 through 2054.2053. Substantially all of these facilities are leased on anet-rental basis, resulting in the Company’sCompany's responsibility for maintenance, insurance and other facility-related expenses and services. United also maintains administrative,
offices, catering, cargo, training,
facilities, maintenance
facilities and other facilities to support
its operations in the cities
served.it serves. In addition, United
also has multiple leases, which expire from
20182020 through
2029,2033, for its principal executive office and operations center in downtown Chicago and administrative offices in downtown Houston.
| |
| ITEM 3. | LEGAL PROCEEDINGS. |
On June 30, 2015, UAL received a Civil Investigative Demand (“CID”("CID") from the Antitrust Division of the DOJ seeking documents and information from the Company in connection with a DOJ investigation related to statements and decisions about airline capacity. The Company is working with the DOJ and has completed its response to the CID. The Company is not able to predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of the investigation. Beginning on July 1, 2015, subsequent to the announcement of the CID, UAL and United were named as defendants in multiple class action lawsuits that asserted claims under the Sherman Antitrust Act, which have been consolidated in the United States District Court for the District of Columbia. The complaints generally allege collusion among U.S. airlines on capacity impacting airfares and seek treble damages. The Company intends to vigorously defend against the class action lawsuits.
On October 13, 2015, United received a CID from the Civil Division of the DOJ. The CID requested documents and oral testimony from United in connection with an industry-wide DOJ investigation related to delivery scan and other data purportedly required for payment for the carriage of mail under United’sUnited's International Commercial Air Contracts with the U.S. Postal Service. The Company has been responding to the DOJ’sDOJ's request and cooperating in the investigation since that time. On November 8, 2016, the DOJ Criminal Division met with representatives from the Company and advised they are conducting an industry-wide investigation into the same matter. The Company is also cooperatingcontinues to cooperate with the government in this aspect of their investigation and on December 21, 2016, representatives from the Company have met with both the Civil and Criminal Divisions to provide additional information. The Company cannot predict what action, if any, might be taken in the future by the DOJ or other governmental authorities as a result of these investigations.
Other Legal ProceedingsProceedings.
The Company is involved in various other claims and legal actions involving passengers, customers, suppliers, employees and government agencies arising in the ordinary course of business. Additionally, from time to time, the Company becomes aware of potentialnon-compliance with applicable environmental regulations, which have either been identified by the Company (through internal compliance programs such as its environmental compliance audits) or through notice from a governmental entity. In some instances, these matters could potentially become the subject of an administrative or judicial proceeding and could potentially involve monetary sanctions. After considering a number of factors, including (but not limited to) the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, management believes that the ultimate disposition of these other claims and legal actions will not materially affect its consolidated financial position or results of operations. However, the ultimate resolutions of these matters are inherently unpredictable. As such, the Company’sCompany's financial condition and results of operations could be adversely affected in any particular period by the unfavorable resolution of one or more of these matters. | |
| ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
| |
| ITEM 5. | MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
UAL’s
UAL's common stock is listed on the
New York Stock Exchange (“NYSE”Nasdaq Global Select Market ("Nasdaq") under the symbol
“UAL.” The following table sets forth the ranges of high and low sales prices per share of UAL common stock during the last two fiscal years, as reported by the NYSE: | | | | | | | | | | | | | | | | |
| | | UAL | |
| | | 2017 | | | 2016 | |
| | | High | | | Low | | | High | | | Low | |
1st quarter | | $ | 76.75 | | | $ | 64.16 | | | $ | 61.41 | | | $ | 42.17 | |
2nd quarter | | | 83.04 | | | | 67.55 | | | | 58.90 | | | | 37.41 | |
3rd quarter | | | 81.39 | | | | 57.34 | | | | 54.53 | | | | 37.64 | |
4th quarter | | | 69.62 | | | | 56.51 | | | | 76.80 | | | | 51.34 | |
"UAL." As of February 14, 2018,18, 2020, there were 7,5345,073 holders of record of UAL common stock.
UAL did not pay any dividends in 2017 or 2016. Under debt agreements and certain indentures, UAL’s ability to pay dividends on or repurchase UAL’s common stock is subject to limits on the amount of such payments and to certain conditions, including that no default or event of default exists under those instruments and that after giving effect to the making of any such payments, UAL would be in compliance with a minimum fixed charge coverage ratio. Any future determination regarding dividend or distribution payments will be at the discretion of the UAL Board of Directors, subject to the foregoing limits and applicable limitations under Delaware law.
United paid dividends of $1.8 billion and $2.6 billion to UAL in 2017 and 2016, respectively.
The following graph shows the cumulative total stockholder return for
UAL’sUAL's common stock during the period from December 31,
20122014 to December 31,
2017.2019. The graph also shows the cumulative returns of the Standard and
Poor’sPoor's 500 Index
(“SPX”("SPX") and the NYSE Arca Airline Index
(“XAL”("XAL") of
1514 investor-owned airlines over the same five-year period. The comparison assumes $100 was invested on December 31,
20122014 in
each of UAL common stock, the SPX and the XAL.
Note: The stock price performance shown in the graph above should not be considered indicative of potential future stock price performance. The foregoing performance graph is being furnished as part of this report solely in accordance with the requirement under Rule14a-3(b)(9) to furnish our stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act or the Exchange Act.
The following table presents repurchases of UAL common stock made in the fourth quarter of 2017: | | | | | | | | | | | | | | | | | | |
Period | | | | Total number of
shares
purchased (a)(b) | | | Average price
paid per share (b)(c) | | | Total number of
shares purchased
as part of publicly
announced plans
or programs (a) | | | Approximate dollar value
of shares that may yet be
purchased under the
plans or programs (in
millions) (a) | |
| October 2017 | | | | | 2,852,917 | | | $ | 59.59 | | | | 2,852,917 | | | $ | 383 | |
| November 2017 | | | | | 5,342,435 | | | | 58.93 | | | | 5,342,435 | | | | 68 | |
| December 2017 | | | | | 1,084,498 | | | | 63.06 | | | | 1,084,498 | | | | 3,000 | |
| | | | | | | | | | | | | | | | | | |
Total | | | | | 9,279,850 | | | | | | | | 9,279,850 | | | | | |
| | | | | | | | | | | | | | | | | | |
2019:
|
| | | | | | | | | | | | | | |
| Period | | Total number of shares purchased (a) (b) | | Average price paid per share (b)(c) | | Total number of shares purchased as part of publicly announced plans or programs (a) | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (a) |
| October 2019 | | 1,071,915 |
| | $ | 87.65 |
| | 1,071,915 |
| | $ | 3,231 |
|
| November 2019 | | 430,400 |
| | 92.70 |
| | 430,400 |
| | 3,191 |
|
| December 2019 | | 922,600 |
| | 88.72 |
| | 922,600 |
| | 3,109 |
|
| Total | | 2,424,915 |
| | | | 2,424,915 |
| | |
(a) In
2017,2019, UAL repurchased approximately
2819.2 million shares of UAL common stock for
$1.8 billion, completing its July 2016 repurchase authorization.$1.6 billion. In December 2017,
UAL’sUAL's Board of Directors authorized a $3.0 billion share repurchase program to acquire UAL's common stock. In July 2019, UAL's Board of Directors authorized a new $3.0 billion share repurchase program to acquire
UAL’sUAL's common
stock.stock, in addition to any amounts remaining under the prior program. As of December 31,
2017,2019, the Company had approximately
$3.0$3.1 billion remaining to purchase shares under its
share repurchase
program.programs. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws.
(b) The table does not include shares withheld from employees to satisfy certain tax obligations due upon the vesting of restricted
stock units.stock. The United Continental Holdings, Inc. 2017 Incentive Compensation Plan and the United Continental Holdings, Inc. 2008 Incentive Compensation Plan,
each provide for the withholding of shares to satisfy tax obligations due upon the vesting of restricted
stock units.stock. However,
thethese plans do not specify a maximum number of shares that may be withheld for this purpose. A total of
1,4461,930 shares were withheld under the plans in the fourth quarter of
20172019 at an average price of
$64.46$89.67 per share. These shares of common stock withheld to satisfy tax withholding obligations may be deemed to be
“issuer purchases”"issuer purchases" of shares that are required to be disclosed pursuant to this Item.
(c) Average price paid per share is calculated on a settlement basis and excludes commission.
| |
| ITEM 6. | SELECTED FINANCIAL DATA. |
UAL’s
UAL's consolidated financial statements and statistical data are provided in the tables below:
| | | | | | | | | | | | | | | | | | | | |
| |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Income Statement Data (in millions, except per share amounts): | | | | | | | | | | | | | | | | | | | | |
Operating revenue | | $ | 37,736 | | | $ | 36,556 | | | $ | 37,864 | | | $ | 38,901 | | | $ | 38,279 | |
Operating expense | | | 34,238 | | | | 32,218 | | | | 32,698 | | | | 36,528 | | | | 37,030 | |
Operating income | | | 3,498 | | | | 4,338 | | | | 5,166 | | | | 2,373 | | | | 1,249 | |
Net income | | | 2,131 | | | | 2,263 | | | | 7,340 | | | | 1,132 | | | | 571 | |
Basic earnings per share | | | 7.04 | | | | 6.86 | | | | 19.52 | | | | 3.05 | | | | 1.64 | |
Diluted earnings per share | | | 7.02 | | | | 6.85 | | | | 19.47 | | | | 2.93 | | | | 1.53 | |
Balance Sheet Data at December 31 (in millions): | | | | | | | | | | | | | | | | | | | | |
Unrestricted cash, cash equivalents and short-term investments | | $ | 3,798 | | | $ | 4,428 | | | $ | 5,196 | | | $ | 4,384 | | | $ | 5,121 | |
| Total assets | | | 42,326 | | | | 40,140 | | | | 40,861 | | | | 36,595 | | | | 36,021 | |
Debt and capital lease obligations | | | 14,392 | | | | 11,705 | | | | 11,759 | | | | 11,947 | | | | 12,293 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | | |
| Mainline | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Passengers (thousands) (a) | | | 108,017 | | | | 101,007 | | | | 96,327 | | | | 91,475 | | | | 91,329 | |
Revenue passenger miles (“RPMs”) (millions) (b) | | | 193,444 | | | | 186,181 | | | | 183,642 | | | | 179,015 | | | | 178,578 | |
Available seat miles (“ASMs”) (millions) (c) | | | 234,576 | | | | 224,692 | | | | 219,989 | | | | 214,105 | | | | 213,007 | |
Cargo ton miles (millions) | | | 3,316 | | | | 2,805 | | | | 2,614 | | | | 2,487 | | | | 2,213 | |
Passenger load factor (d) | | | 82.5% | | | | 82.9% | | | | 83.5% | | | | 83.6% | | | | 83.8% | |
Passenger revenue per available seat mile (“PRASM”) (cents) | | | 11.32 | | | | 11.31 | | | | 11.97 | | | | 12.51 | | | | 12.20 | |
Total revenue per available seat mile (cents) | | | 13.51 | | | | 13.50 | | | | 14.19 | | | | 14.81 | | | | 14.51 | |
Average yield per revenue passenger mile (“Yield”) (cents) (e) | | | 13.73 | | | | 13.65 | | | | 14.34 | | | | 14.96 | | | | 14.56 | |
Cost per available seat mile (“CASM”) (cents) | | | 12.59 | | | | 12.22 | | | | 12.42 | | | | 14.03 | | | | 14.31 | |
Average price per gallon of fuel, including fuel taxes | | $ | 1.72 | | | $ | 1.49 | | | $ | 1.96 | | | $ | 2.98 | | | $ | 3.12 | |
Fuel gallons consumed (millions) | | | 3,357 | | | | 3,261 | | | | 3,216 | | | | 3,183 | | | | 3,204 | |
Average stage length (miles) (f) | | | 1,806 | | | | 1,859 | | | | 1,922 | | | | 1,958 | | | | 1,934 | |
Average daily utilization of each aircraft (hours) (g) | | | 10:27 | | | | 10:06 | | | | 10:24 | | | | 10:26 | | | | 10:28 | |
Consolidated | | | | | | | | | | | | | | | | | | | | |
Passengers (thousands) (a) | | | 148,067 | | | | 143,177 | | | | 140,369 | | | | 138,029 | | | | 139,209 | |
RPMs (millions) (b) | | | 216,261 | | | | 210,309 | | | | 208,611 | | | | 205,559 | | | | 205,167 | |
ASMs (millions) (c) | | | 262,386 | | | | 253,590 | | | | 250,003 | | | | 246,021 | | | | 245,354 | |
Passenger load factor (d) | | | 82.4% | | | | 82.9% | | | | 83.4% | | | | 83.6% | | | | 83.6% | |
PRASM (cents) | | | 12.35 | | | | 12.40 | | | | 13.11 | | | | 13.72 | | | | 13.50 | |
Total revenue per available seat mile (cents) | | | 14.38 | | | | 14.42 | | | | 15.15 | | | | 15.81 | | | | 15.60 | |
Yield (cents) (e) | | | 14.98 | | | | 14.96 | | | | 15.72 | | | | 16.42 | | | | 16.14 | |
CASM (cents) | | | 13.05 | | | | 12.70 | | | | 13.08 | | | | 14.85 | | | | 15.09 | |
Average price per gallon of fuel, including fuel taxes | | $ | 1.74 | | | $ | 1.49 | | | $ | 1.94 | | | $ | 2.99 | | | $ | 3.13 | |
Fuel gallons consumed (millions) | | | 3,978 | | | | 3,904 | | | | 3,886 | | | | 3,905 | | | | 3,947 | |
Average stage length (miles) (f) | | | 1,460 | | | | 1,473 | | | | 1,487 | | | | 1,480 | | | | 1,445 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2019 | | 2018 (a) | | 2017 (a) | | 2016 | | 2015 |
| Income Statement Data (in millions, except per share amounts): | | | | | | | | | | |
| Operating revenue | | $ | 43,259 |
| | $ | 41,303 |
| | $ | 37,784 |
| | $ | 36,558 |
| | $ | 37,864 |
|
| Operating expense | | 38,958 |
| | 38,074 |
| | 34,166 |
| | 32,214 |
| | 32,698 |
|
| Operating income | | 4,301 |
| | 3,229 |
| | 3,618 |
| | 4,344 |
| | 5,166 |
|
| Net income | | 3,009 |
| | 2,122 |
| | 2,143 |
| | 2,234 |
| | 7,340 |
|
| Basic earnings per share | | 11.63 |
| | 7.70 |
| | 7.08 |
| | 6.77 |
| | 19.52 |
|
| Diluted earnings per share | | 11.58 |
| | 7.67 |
| | 7.06 |
| | 6.76 |
| | 19.47 |
|
| | | | | | | | | | | |
| Balance Sheet Data at December 31 (in millions): | | | | | | | | | | |
| Unrestricted cash, cash equivalents and short-term investments | | $ | 4,944 |
| | $ | 3,950 |
| | $ | 3,798 |
| | $ | 4,428 |
| | $ | 5,196 |
|
| Total assets | | 52,611 |
| | 49,024 |
| | 47,469 |
| | 40,208 |
| | 40,861 |
|
Debt and finance lease obligations (b) | | 14,818 |
| | 13,792 |
| | 13,576 |
| | 11,705 |
| | 11,759 |
|
(a) Amounts adjusted due to the adoption of Accounting Standard Update No. 2016-02, Leases(Topic 842). See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information.
(b) Finance leases, under Topic 842, are the equivalent of capital leases under Financial Accounting Standards Board Accounting Standards Codification Topic 840, Leases.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Select operating statistics (a) | | | | | | | | | | |
Passengers (thousands) (b) | | 162,443 |
| | 158,330 |
| | 148,067 |
| | 143,177 |
| | 140,369 |
|
Revenue passenger miles ("RPMs") (millions) (c) | | 239,360 |
| | 230,155 |
| | 216,261 |
| | 210,309 |
| | 208,611 |
|
Available seat miles ("ASMs") (millions) (d) | | 284,999 |
| | 275,262 |
| | 262,386 |
| | 253,590 |
| | 250,003 |
|
Cargo revenue ton miles (millions) (e) | | 3,329 |
| | 3,425 |
| | 3,316 |
| | 2,805 |
| | 2,614 |
|
Passenger load factor (f) | | 84.0 | % | | 83.6 | % | | 82.4 | % | | 82.9 | % | | 83.4 | % |
| Passenger revenue per available seat mile ("PRASM") (cents) | | 13.90 |
| | 13.70 |
| | 13.13 |
| | 13.18 |
| | 13.11 |
|
| Total revenue per available seat mile ("TRASM") (cents) | | 15.18 |
| | 15.00 |
| | 14.40 |
| | 14.42 |
| | 15.15 |
|
Average yield per revenue passenger mile ("Yield") (cents) (g) | | 16.55 |
| | 16.38 |
| | 15.93 |
| | 15.90 |
| | 15.72 |
|
| Cost per available seat mile ("CASM") (cents) | | 13.67 |
| | 13.83 |
| | 13.02 |
| | 12.70 |
| | 13.08 |
|
| Average price per gallon of fuel, including fuel taxes | | $ | 2.09 |
| | $ | 2.25 |
| | $ | 1.74 |
| | $ | 1.49 |
| | $ | 1.94 |
|
| Fuel gallons consumed (millions) | | 4,292 |
| | 4,137 |
| | 3,978 |
| | 3,904 |
| | 3,886 |
|
Average stage length (miles) (h) | | 1,460 |
| | 1,446 |
| | 1,460 |
| | 1,473 |
| | 1,487 |
|
Average daily utilization of each mainline aircraft (hours:minutes) (i) | | 10:39 |
| | 10:45 |
| | 10:27 |
| | 10:06 |
| | 10:24 |
|
(a) Includes data from our regional carriers operating under CPAs unless otherwise noted.
(b) The number of revenue passengers measured by each flight segment flown.
(b)
(c) The number of scheduled miles flown by revenue passengers.
(c)
(d) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(d)
(e) The number of cargo revenue tons transported multiplied by the number of miles flown.
(f) RPM divided by ASM.
(e)
(g) The average passenger revenue received for each revenue passenger mile flown.
(f)
(h) Average stage length equals the average distance a flight travels weighted for size of aircraft.
(g)
(i) The average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival).
| |
| ITEM 7. | MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
United
ContinentalAirlines Holdings, Inc. (together with its consolidated subsidiaries,
“UAL”"UAL" or the
“Company”"Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries,
“United”"United"). As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted.
United’sUnited's operating revenues and operating expenses comprise nearly 100% of
UAL’sUAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of
UAL’sUAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words
“we,” “our,” “us,”"we," "our," "us," and the
“Company”"Company" in this report for disclosures that relate to all of UAL and United.
2017 Financial
20172019 net income was $3.0 billion, or $11.58 diluted earnings per share, as compared to $2.1 billion, or $7.02$7.67 diluted earnings per share.share, in 2018.
United’s consolidatedRevenue for 2019 increased $1.9 billion over 2018 due to a 3.5% growth in ASMs and a PRASM decreased 0.4%increase of 1.5% in 20172019 compared to 2016.2018.
Aircraft fuel cost increased 18.9% year-over-year due mainly to higher fuel prices.
In 2017,2019, UAL repurchased approximately 2819.2 million shares of UALits common stock for $1.8 billion, completing the $2.0 billion share repurchase program authorized by UAL’s Board of Directors in July 2016. In December 2017, UAL’s Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL’s common stock.$1.6 billion. As of December 31, 2017,2019, the Company had approximately $3.0$3.1 billion remaining to purchase shares under its share repurchase program.programs.
UAL ended the year2019 with $5.8$6.9 billion in unrestricted liquidity, which consisted of unrestricted cash, cash equivalents, short-term investments and available capacity under the revolving credit facility.facility of its Amended and Restated Credit and Guaranty Agreement (as amended, the "Credit Agreement").
2017 Operational Highlights
Consolidated RPMs for 20172019 increased 2.8%4.0% as compared to 2016,2018, and consolidated ASMs increased 3.5% from the prior year, resulting in a consolidated load factor of 82.4%84.0% in 20172019 versus 82.9%83.6% in 2016.2018.
For 20172019 and 2016,2018, the Company recorded a DOTU.S. Department of Transportation on-time arrival raterates of 81.9%77.9% and 81.3%79.8%, respectively, and a systemmainline completion factorfactors of 99.0% for each year.99.2%.
During 2017, the Company took deliveryResults of three new Boeing787-9s, four new Boeing737-800s, 12 new Boeing777-300ERs, 24 new Embraer E175s, two used Airbus A320s and six used Airbus A319s and retired 20 Boeing747-400s.Operations
Outlook
Set forth below is a
The following discussion
provides an analysis of
the principal matters that we believe could impact our financial and operating performance and cause our results of operations
in future periods to differ materially from our historical operating results and/or from our anticipated results of operations described in the forward-looking statements in this report. See Part I, Item 1A., Risk Factors, of this report and
the factors described under “Forward-Looking Information” belowreasons for
additional discussion of these and other factors that could affect us.In 2017, the Company had its best operational performance in its post-merger history. Operational reliability, service and experience underpin the Company’s long-term strategy. Our prioritiesmaterial changes therein for 2018 are continuedtop-tier operational reliability while strengthening our domestic network through growth, driving efficiency and productivity and continued investment in our employees, product and technology.
Economic Conditions. The aviation industry in 2018 is expected to show continued growth in the demand for air travel. Passenger numbers are expected to increase. Cargo volumes are also expected to grow, with some recovery in yields. Passenger revenue in all regions are expected to demonstrate improved performance in 2018.
Capacity. In 2018, the Company expects its consolidated ASMs to grow between 4% and 6% year-over-year. Most of this growth will be concentrated in our domestic network, especially in ourmid-continent hubs. We believe greater scale and connectivity at our hubs reinforces our relevance and value proposition to our customers. Rebanking at our hubs is expected to drive significant additional connection opportunities. We will also expand flights innon-peak times of the year to more efficiently use our aircraft and facilities with the objective of driving an increase in profitability.
Fuel.The Company’s average aircraft fuel price per gallon including related taxes was $1.74 in 20172019 as compared to $1.492018. See "Results of Operations" in 2016. The pricePart II, Item 7. Management's Discussion and Analysis of jet fuel has increased since January 2016Financial Condition and remains volatile. Based on projected fuel consumption in 2018, a one dollar changeResults of Operations in the priceCompany's 2018 Annual Report on Form 10-K, filed with the SEC on February 28, 2019 (the "2018 Annual Report"), for analysis of a barrel of crude oil would change the Company’s annual fuel expense by approximately $96 million.
Results of Operations
In this section, we compare2018 results of operations for the year ended December 31, 2017 with results of operations for the year ended December 31, 2016, and results of operations for the year ended December 31, 2016 with results of operations for the year ended December 31, 2015.
2017as compared to 2016
2017.
Operating RevenueRevenue.
The table below illustrates the year-over-year percentage change in the Company’sCompany's operating revenues for the years ended December 31 (in millions, except percentage changes): | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | Increase
(Decrease) | | | % Change | |
Passenger—Mainline | | $ | 26,552 | | | $ | 25,414 | | | $ | 1,138 | | | | 4.5 | |
Passenger—Regional | | | 5,852 | | | | 6,043 | | | | (191) | | | | (3.2) | |
| | | | | | | | | | | | | | | | |
Total passenger revenue | | | 32,404 | | | | 31,457 | | | | 947 | | | | 3.0 | |
Cargo | | | 1,035 | | | | 876 | | | | 159 | | | | 18.2 | |
Other operating revenue | | | 4,297 | | | | 4,223 | | | | 74 | | | | 1.8 | |
| | | | | | | | | | | | | | | | |
Total operating revenue | | $ | 37,736 | | | $ | 36,556 | | | $ | 1,180 | | | | 3.2 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | 2019 | | 2018 | | Increase (Decrease) | | % Change |
| Passenger revenue | $ | 39,625 |
| | $ | 37,706 |
| | $ | 1,919 |
| | 5.1 |
|
| Cargo | 1,179 |
| | 1,237 |
| | (58 | ) | | (4.7 | ) |
| Other operating revenue | 2,455 |
| | 2,360 |
| | 95 |
| | 4.0 |
|
| Total operating revenue | $ | 43,259 |
| | $ | 41,303 |
| | $ | 1,956 |
| | 4.7 |
|
The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year changes: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Increase (decrease) from 2016 (a): | |
| | | Domestic | | | Atlantic | | | Pacific | | | Latin | | | Total
Consolidated | | | Mainline | | | Regional | |
Passenger revenue (in millions) | | $ | 809 | | | $ | 103 | | | $ | (128) | | | $ | 163 | | | $ | 947 | | | $ | 1,138 | | | $ | (191) | |
Passenger revenue | | | 4.2 % | | | | 1.9% | | | | (3.1)% | | | | 5.8% | | | | 3.0 % | | | | 4.5 % | | | | (3.2)% | |
| Average fare per passenger | | | 0.1 % | | | | 1.4% | | | | — % | | | | 4.1% | | | | (0.4)% | | | | (2.3)% | | | | 2.0 % | |
Yield | | | (0.4)% | | | | 0.9% | | | | (2.2)% | | | | 4.1% | | | | 0.1 % | | | | 0.6 % | | | | 2.4 % | |
PRASM | | | (0.6)% | | | | 1.5% | | | | (5.8)% | | | | 3.3% | | | | (0.4)% | | | | 0.1 % | | | | 0.6 % | |
Passengers | | | 4.2 % | | | | 0.5% | | | | (3.1)% | | | | 1.7% | | | | 3.4 % | | | | 6.9 % | | | | (5.0)% | |
RPMs (traffic) | | | 4.7 % | | | | 0.9% | | | | (0.9)% | | | | 1.6% | | | | 2.8 % | | | | 3.9 % | | | | (5.4)% | |
ASMs (capacity) | | | 4.9 % | | | | 0.4% | | | | 2.9 % | | | | 2.4% | | | | 3.5 % | | | | 4.4 % | | | | (3.8)% | |
Passenger load factor (points) | | | (0.2) | | | | 0.4 | | | | (3.0) | | | | (0.7) | | | | (0.5) | | | | (0.4) | | | | (1.5) | |
(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics.
Consolidated passenger
|
| | | | | | | | | | | | | | | |
| | | Increase (decrease) from 2018 (a): |
| | | Domestic | | Atlantic | | Pacific | | Latin | | Total |
| Average fare per passenger | | 3.4 | % | | (1.9 | )% | | (4.0 | )% | | 5.9 | % | | 2.4 | % |
| Passengers | | 2.1 | % | | 6.5 | % | | 4.0 | % | | 3.9 | % | | 2.6 | % |
| RPMs (traffic) | | 3.5 | % | | 6.9 | % | | 2.4 | % | | 4.0 | % | | 4.0 | % |
| ASMs (capacity) | | 3.8 | % | | 5.8 | % | | 0.5 | % | | 2.9 | % | | 3.5 | % |
| Passenger load factor (points) | | (0.2 | ) | | 0.8 |
| | 1.5 |
| | 0.9 |
| | 0.4 |
|
| (a) See Part II, Item 6. Selected Financial Data, of this report for the definition of these statistics. | | | | | | |
Passenger revenue increased $0.9$1.9 billion, or 3.0%5.1%, in 20172019 as compared to 20162018, primarily due to a 2.8%4.0% increase in traffic. Consolidated PRASMtraffic, continuing strong domestic demand, improvements in average fares in the Latin and Domestic markets, and increases in ancillary fees driven by improved product offerings.
Cargo revenue decreased 0.4%$58 million, or 4.7%, in 20172019 as compared to 2016. The2018, primarily due to an approximately 3% decrease in cargo ton miles and a 2% decline in PRASMcargo ton mile yield.
In December 2019, a novel strain of coronavirus ("COVID-19") was
driven by factors including more aggressivelow-cost carrier pricingreported in
our hub markets, temporary share loss duringroll-outWuhan, China. The World Health Organization has declared COVID-19 to constitute a "Public Health Emergency of
our Basic Economy pricing,International Concern." On January 30, 2020, the U.S. Department of State issued a Level 4 "do not travel" advisory for China. The U.S. government has also implemented enhanced screenings, quarantine requirements and
softertravel restrictions in connection with the COVID-19 outbreak. The Company has suspended its flights between the United States and each of Beijing, Chengdu, Shanghai and Hong Kong through April 24, 2020. These routes represented approximately 5% of the Company's 2020 planned capacity and the Company's other trans-Pacific routes represented an additional 10% of the Company's 2020 planned capacity. As of the date of this report, the Company is experiencing an approximately 100% decline in near-term demand
into China and
Guam. Our revenuean approximately 75% decline in
2017 was negatively impacted by severe storms duringnear-term demand on the
third quarter.Cargo revenue increased $159 million, rest of the Company's trans-Pacific routes. The extent of the impact of the COVID-19 on the Company's operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related travel advisories and restrictions and the impact of the COVID-19 on overall demand for air travel, all of which are highly uncertain and cannot be predicted. If traffic on the Company's trans-Pacific routes were to remain at these levels for an extended period, and/or 18.2%,routes in 2017 as comparedother parts of the Company's network begin to 2016 due to higher year-over-year international freight volume and yield.
see significant declines in demand, our results of operations for full year 2020 may be materially adversely affected.
Operating ExpenseExpense.
The table below includes data related to the Company’sCompany's operating expense for the years ended December 31 (in millions, except percentage changes): | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | Increase
(Decrease) | | | % Change | |
Salaries and related costs | | $ | 11,045 | | | $ | 10,275 | | | $ | 770 | | | | 7.5 | |
Aircraft fuel | | | 6,913 | | | | 5,813 | | | | 1,100 | | | | 18.9 | |
Landing fees and other rent | | | 2,240 | | | | 2,165 | | | | 75 | | | | 3.5 | |
Regional capacity purchase | | | 2,232 | | | | 2,197 | | | | 35 | | | | 1.6 | |
Depreciation and amortization | | | 2,149 | | | | 1,977 | | | | 172 | | | | 8.7 | |
Aircraft maintenance materials and outside repairs | | | 1,856 | | | | 1,749 | | | | 107 | | | | 6.1 | |
Distribution expenses | | | 1,349 | | | | 1,303 | | | | 46 | | | | 3.5 | |
Aircraft rent | | | 621 | | | | 680 | | | | (59) | | | | (8.7) | |
Special charges | | | 176 | | | | 638 | | | | (462) | | | | NM | |
Other operating expenses | | | 5,657 | | | | 5,421 | | | | 236 | | | | 4.4 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | $ | 34,238 | | | $ | 32,218 | | | $ | 2,020 | | | | 6.3 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | 2019 | | 2018 | | Increase (Decrease) | | % Change |
| Salaries and related costs | $ | 12,071 |
| | $ | 11,458 |
| | $ | 613 |
| | 5.3 |
|
| Aircraft fuel | 8,953 |
| | 9,307 |
| | (354 | ) | | (3.8 | ) |
| Regional capacity purchase | 2,849 |
| | 2,649 |
| | 200 |
| | 7.6 |
|
| Landing fees and other rent | 2,543 |
| | 2,449 |
| | 94 |
| | 3.8 |
|
| Depreciation and amortization | 2,288 |
| | 2,165 |
| | 123 |
| | 5.7 |
|
| Aircraft maintenance materials and outside repairs | 1,794 |
| | 1,767 |
| | 27 |
| | 1.5 |
|
| Distribution expenses | 1,651 |
| | 1,558 |
| | 93 |
| | 6.0 |
|
| Aircraft rent | 288 |
| | 433 |
| | (145 | ) | | (33.5 | ) |
| Special charges | 246 |
| | 487 |
| | (241 | ) | | NM |
|
| Other operating expenses | 6,275 |
| | 5,801 |
| | 474 |
| | 8.2 |
|
| Total operating expenses | $ | 38,958 |
| | $ | 38,074 |
| | $ | 884 |
| | 2.3 |
|
Salaries and related costs increased $770$613 million, or 7.5%5.3%, in 20172019 as compared to 20162018, primarily due to higher contractual pay rates, andhigher benefit expenses, driven by collective bargaining agreements finalized in 2016,higher employee incentives and a 2.5%4.0% increase
in average full-time equivalent employees,employees. Employee incentives included $157 million increase in profit sharing in 2019 as compared to 2018.
Aircraft fuel expense decreased $354 million, or 3.8%, in 2019 as compared to 2018, primarily due to a 7.1% decrease in fuel prices, partially offset by
a decrease in profit sharing and other employee incentives.Aircraft fuel expense increased $1.1 billion, or 18.9%, primarily due to increased fuel prices and a 3.5% increase in capacity. The table below presents the significant changes in aircraft fuel cost per
gallon for the years ended December 31 (in millions, except percentage changes): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (In millions) | | | %
Change | | | Average price per gallon | |
| | | 2017 | | | 2016 | | | | 2017 | | | 2016 | | | %
Change | |
| Total aircraft fuel purchase cost excluding fuel hedge impacts | | $ | 6,911 | | | $ | 5,596 | | | | 23.5 | | | $ | 1.74 | | | $ | 1.43 | | | | 21.7 | |
| Hedge losses reported in fuel expense | | | 2 | | | | 217 | | | | NM | | | | — | | | | 0.06 | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fuel expense | | | 6,913 | | | | 5,813 | | | | 18.9 | | | | 1.74 | | | | 1.49 | | | | 16.8 | |
| Total fuel consumption (gallons) | | | 3,978 | | | | 3,904 | | | | 1.9 | | | | | | | | | | | | | |
Landing feeschanges and other rent increased $75 million, or 3.5%, in 2017 as compared to theyear-ago period due to higher rental and landing fee rates.
per gallon data):
|
| | | | | | | | | | | |
| | | 2019 | | 2018 | | % Change |
| Fuel expense | | $ | 8,953 |
| | $ | 9,307 |
| | (3.8 | ) |
| Total fuel consumption (gallons) | | 4,292 |
| | 4,137 |
| | 3.7 |
|
| Average price per gallon | | $ | 2.09 |
| | $ | 2.25 |
| | (7.1 | ) |
Regional capacity purchase costs increased
$35$200 million, or
1.6%7.6%, in
20172019 as compared to
theyear-ago period despite regional capacity being down 3.8% in 2017 as compared to 20162018, primarily due to
increasesa rate increase under various capacity purchase agreements with regional carriers and a 4.1% increase in
annual rates, maintenance cycle-related costs and lease return costs.regional flying.
Depreciation and amortization increased
$172$123 million, or
8.7%5.7%, in
20172019 as compared to
20162018, primarily due to
the additions of new and used aircraft
aircraft improvements and
increases in information technologynew capital projects related both to infrastructure and
application development projects.information technology.
Aircraft
maintenance materials and outside repairs increased $107rent decreased $145 million, or
6.1%33.5%, in
20172019 as compared to
2016 primarily due to an increase in airframe and engine maintenance visits and additional repairs to wireless and inflight entertainment equipment.Aircraft rent decreased $59 million, or 8.7%, in 2017 as compared to 20162018, primarily due to the purchase of leased aircraft and lower lease renewal rates.
the conversion of certain operating leases to finance leases.
The table below presents special charges incurred by the Company during the years ended December 31 (in millions):
| | | | | | | | |
| | | 2017 | | | 2016 | |
Severance and benefit costs | | $ | 116 | | | $ | 37 | |
Impairment of assets | | | 25 | | | | 412 | |
Cleveland airport lease restructuring | | | — | | | | 74 | |
Labor agreement costs | | | — | | | | 64 | |
(Gains) losses on sale of assets and other special charges | | | 35 | | | | 51 | |
| | | | | | | | |
Total special charges | | $ | 176 | | | $ | 638 | |
| | | | | | | | |
|
| | | | | | | |
| | 2019 | | 2018 |
| Impairment of assets | $ | 171 |
| | $ | 377 |
|
| Severance and benefit costs | 16 |
| | 41 |
|
| Termination of an engine maintenance service agreement | — |
| | 64 |
|
| (Gains) losses on sale of assets and other special charges | 59 |
| | 5 |
|
| Total special charges | $ | 246 |
| | $ | 487 |
|
See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Other operating expenses increased $236$474 million, or 4.4%8.2%, in 20172019 as compared to 20162018, primarily due to increased purchased services related to airport operations weather-related costs, in food, marketingtechnology initiatives, catering costs, facility projects and technology associated with the Company’s enhanced customer experience initiatives, and due to volume-driven increases in cargo trucking and handling costs.crew-related expenses.
Nonoperating Income (Expense)
. The following table illustrates the year-over-year dollar and percentage changes in the Company’sCompany's nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | Increase
(Decrease) | | | % Change | |
Interest expense | | $ | (643) | | | $ | (614) | | | $ | 29 | | | | 4.7 | |
Interest capitalized | | | 84 | | | | 72 | | | | 12 | | | | 16.7 | |
Interest income | | | 57 | | | | 42 | | | | 15 | | | | 35.7 | |
Miscellaneous, net | | | 3 | | | | (19) | | | | (22) | | | | NM | |
| | | | | | | | | | | | | | | | |
Total nonoperating expense, net | | $ | (499) | | | $ | (519) | | | $ | (20) | | | | (3.9) | |
| | | | | | | | | | | | | | | | |
2016 compared to 2015
Operating Revenue
The table below illustrates the year-over-year percentage change in the Company’s operating revenues for the years ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | Increase
(Decrease) | | | % Change | |
Passenger—Mainline | | $ | 25,414 | | | $ | 26,333 | | | $ | (919) | | | | (3.5) | |
Passenger—Regional | | | 6,043 | | | | 6,452 | | | | (409) | | | | (6.3) | |
| | | | | | | | | | | | | | | | |
Total passenger revenue | | | 31,457 | | | | 32,785 | | | | (1,328) | | | | (4.1) | |
Cargo | | | 876 | | | | 937 | | | | (61) | | | | (6.5) | |
Other operating revenue | | | 4,223 | | | | 4,142 | | | | 81 | | | | 2.0 | |
| | | | | | | | | | | | | | | | |
Total operating revenue | | $ | 36,556 | | | $ | 37,864 | | | $ | (1,308) | | | | (3.5) | |
| | | | | | | | | | | | | | | | |
The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year changes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Increase (decrease) in 2016 from 2015 (a): | |
| | | Domestic | | | Atlantic | | | Pacific | | | Latin | | | Total
Consolidated | | | Mainline | | | Regional | |
Passenger revenue (in millions) | | $ | (523) | | | $ | (512) | | | $ | (215) | | | $ | (78) | | | $ | (1,328) | | | $ | (919) | | | $ | (409) | |
Passenger revenue | | | (2.7)% | | | | (8.6)% | | | | (4.9)% | | | | (2.7)% | | | | (4.1)% | | | | (3.5)% | | | | (6.3)% | |
Average fare per passenger | | | (4.7)% | | | | (5.2)% | | | | (5.6)% | | | | (7.9)% | | | | (5.9)% | | | | (8.0)% | | | | (2.2)% | |
Yield | | | (3.8)% | | | | (4.6)% | | | | (7.4)% | | | | (7.7)% | | | | (4.8)% | | | | (4.8)% | | | | (3.1)% | |
PRASM | | | (4.2)% | | | | (8.4)% | | | | (6.7)% | | | | (5.5)% | | | | (5.4)% | | | | (5.5)% | | | | (2.7)% | |
Passengers | | | 2.1 % | | | | (3.7)% | | | | 0.7 % | | | | 5.7 % | | | | 2.0 % | | | | 4.9 % | | | | (4.3)% | |
RPMs (traffic) | | | 1.1 % | | | | (4.3)% | | | | 2.7 % | | | | 5.4 % | | | | 0.8 % | | | | 1.4 % | | | | (3.4)% | |
ASMs (capacity) | | | 1.6 % | | | | (0.2)% | | | | 2.0 % | | | | 2.9 % | | | | 1.4 % | | | | 2.1 % | | | | (3.7)% | |
Passenger load factor (points) | | | (0.3) | | | | (3.3) | | | | 0.6 | | | | 2.0 | | | | (0.5) | | | | (0.6) | | | | 0.3 | |
(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics.
Consolidated passenger revenue decreased $1.3 billion,
|
| | | | | | | | | | | | | | |
| | 2019 | | 2018 | | Increase (Decrease) | | % Change |
| Interest expense | $ | (731 | ) | | $ | (670 | ) | | $ | 61 |
| | 9.1 |
|
| Interest capitalized | 85 |
| | 65 |
| | 20 |
| | 30.8 |
|
| Interest income | 133 |
| | 101 |
| | 32 |
| | 31.7 |
|
| Unrealized gains (losses) on investments, net | 153 |
| | (5 | ) | | 158 |
| | NM |
|
| Miscellaneous, net | (27 | ) | | (72 | ) | | (45 | ) | | (62.5 | ) |
| Total nonoperating expense, net | $ | (387 | ) | | $ | (581 | ) | | $ | (194 | ) | | (33.4 | ) |
Interest expense increased $61 million, or 4.1%9.1%, in 20162019 as compared to 2015. Consolidated PRASM decreased 5.4%2018, primarily due to the conversion of certain operating leases to finance leases and debt issued for the acquisition of new aircraft.
Interest income increased $32 million, or 31.7%, in 20162019 as compared to 2015. The decline in PRASM was driven by factors including a competitive domestic fare environment, lower surcharges, a strong U.S. dollar and reductions from energy-related corporate travel.
Cargo revenue decreased $61 million, or 6.5%, in 2016 as compared to 2015 due to lower freight yields and lower mail volumes year-over-year, partially offset by an increase in freight volumes. Freight yields were negatively impacted as air freighter competitors increased capacity in response to lower fuel prices. Another contributing factor to the year-over-year decrease was a U.S. West Coast port labor dispute that resulted in an increase in air freight results in the first quarter of 2015. The labor dispute was resolved during the first quarter of 2015.
Operating Expense
The table below includes data related to the Company’s operating expense for the years ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | Increase
(Decrease) | | | % Change | |
Salaries and related costs | | $ | 10,275 | | | $ | 9,713 | | | $ | 562 | | | | 5.8 | |
Aircraft fuel | | | 5,813 | | | | 7,522 | | | | (1,709) | | | | (22.7) | |
Regional capacity purchase | | | 2,197 | | | | 2,290 | | | | (93) | | | | (4.1) | |
Landing fees and other rent | | | 2,165 | | | | 2,203 | | | | (38) | | | | (1.7) | |
Depreciation and amortization | | | 1,977 | | | | 1,819 | | | | 158 | | | | 8.7 | |
Aircraft maintenance materials and outside repairs | | | 1,749 | | | | 1,651 | | | | 98 | | | | 5.9 | |
Distribution expenses | | | 1,303 | | | | 1,342 | | | | (39) | | | | (2.9) | |
Aircraft rent | | | 680 | | | | 754 | | | | (74) | | | | (9.8) | |
Special charges | | | 638 | | | | 326 | | | | 312 | | | | NM | |
Other operating expenses | | | 5,421 | | | | 5,078 | | | | 343 | | | | 6.8 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | $ | 32,218 | | | $ | 32,698 | | | $ | (480) | | | | (1.5) | |
| | | | | | | | | | | | | | | | |
Salaries and related costs increased $562 million, or 5.8%, in 2016 as compared to 20152018, primarily due to higher pay rates and benefit expenses driven by new and extended collective bargaining agreements, an increaselevels of cash balances throughout the year.
Unrealized gains (losses) on investments, net increased $158 million in
employee incentive expenses due to improvements in operational performance and a 2.2% increase in average full-time equivalent employees, partially offset by a reduction in profit sharing expense in 20162019 as compared to
2015, a reduction in medical and dental costs and the results of certain costs savings initiatives in 2016.The decrease in aircraft fuel expense was primarily attributable to decreased fuel prices and a reduction in fuel hedge losses, partially offset by the impact of a 1.4% increase in capacity. 2016 fuel expense includes the benefit of a $20 million fuel tax refund. The table below presents the significant changes in aircraft fuel cost per gallon for the years ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | (In millions) | | | %
Change | | | Average price per gallon | |
| | | 2016 | | | 2015 | | | | 2016 | | | 2015 | | | %
Change | |
| Total aircraft fuel purchase cost excluding fuel hedge impacts | | $ | 5,596 | | | $ | 6,918 | | | | (19.1) | | | $ | 1.43 | | | $ | 1.78 | | | | (19.7) | |
| Hedge losses reported in fuel expense | | | 217 | | | | 604 | | | | NM | | | | 0.06 | | | | 0.16 | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fuel expense | | | 5,813 | | | | 7,522 | | | | (22.7) | | | | 1.49 | | | | 1.94 | | | | (23.2) | |
| Total fuel consumption (gallons) | | | 3,904 | | | | 3,886 | | | | 0.5 | | | | | | | | | | | | | |
Depreciation and amortization increased $158 million, or 8.7%, in 2016 as compared to 20152018, primarily due to additions of new aircraft, conversions of operating leases to capital leases, aircraft improvements, accelerated depreciationthe change in market value of certain assets related to several fleet typesof its equity investments and increases in information technologyderivative assets.
Aircraft maintenance materials See Notes 9 and outside repairs increased $98 million, or 5.9%, in 2016 as compared to 2015 primarily due to a year-over-year increase in airframe maintenance visits as a result of the cyclical timing of these visits and volume-driven increases in component costs, partially offset by a reduction in costs due to the timing of maintenance on certain engines.
Aircraft rent decreased $74 million, or 9.8%, in 2016 as compared to 2015 primarily due to lease expirations, the purchase or capital lease conversion of several operating leased aircraft and lower lease renewal rates for certain aircraft.
The table below presents special charges incurred by the Company during the years ended December 31 (in millions):
| | | | | | | | |
| | | 2016 | | | 2015 | |
Impairment of assets | | $ | 412 | | | $ | 79 | |
Cleveland airport lease restructuring | | | 74 | | | | — | |
Labor agreement costs | | | 64 | | | | 18 | |
Severance and benefit costs | | | 37 | | | | 107 | |
(Gains) losses on sale of assets and other special charges | | | 51 | | | | 122 | |
| | | | | | | | |
Total special charges | | $ | 638 | | | $ | 326 | |
| | | | | | | | |
See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.
Other operating expenses increased $343
Miscellaneous, net decreased $45 million, or 6.8%62.5%, in 20162019 as compared to 20152018, primarily due to increasesmore favorable foreign exchange rates and the remeasurement of postretirement plans due to a plan change.
Income Taxes. See Note 6 to the financial statements included in ground handling costs, food and technology costs associated with the Company’s enhanced customer experience initiatives, rate-driven increases in hotel expensesPart II, Item 8 of this report for crews, increases in marketing expensesinformation related to the 2016 Summer Olympics and volume-driven increases in cargo costs.Nonoperating Income (Expense)
The following table illustrates the year-over-year dollar and percentage changes in the Company’s nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):
| | | | | | | | | | | | | | | | |
| | | 2016 | | | 2015 | | | Increase
(Decrease) | | | % Change | |
Interest expense | | $ | (614) | | | $ | (669) | | | $ | (55) | | | | (8.2) | |
Interest capitalized | | | 72 | | | | 49 | | | | 23 | | | | 46.9 | |
Interest income | | | 42 | | | | 25 | | | | 17 | | | | 68.0 | |
Miscellaneous, net | | | (19) | | | | (352) | | | | (333) | | | | (94.6) | |
| | | | | | | | | | | | | | | | |
Total nonoperating expense, net | | $ | (519) | | | $ | (947) | | | $ | (428) | | | | (45.2) | |
| | | | | | | | | | | | | | | | |
The decrease in interest expense of $55 million, or 8.2%, in 2016 as compared to 2015 was primarily due to the prepayment of certain debt issuances in 2015 and declining balances of other debt, partially offset by interest expense on debt issued for the acquisition of new aircraft, the conversion of certain operating leases to capital leases and certain constructed airport assets accounted for as capital leases.
In 2015, Miscellaneous, net included losses of $80 million from fuel derivatives not qualifying for hedge accounting. Foreign currency losses were approximately $43 million and $129 million in 2016 and 2015, respectively. Foreign currency results included $8 million and $61 million of foreign exchange losses for 2016 and 2015, respectively, related to the Company’s cash holdings in Venezuela. Miscellaneous, net for 2015 also includes a $134 million special charge related to thewrite-off of unamortizednon-cash debt discounts for the early redemption of the 6% Notes due 2026 (the “2026 Notes”) and the 6% Notes due 2028 (the “2028 Notes”).
taxes.
Liquidity and Capital Resources
As of December 31,
2017,2019, the Company had
$3.8$4.9 billion in unrestricted cash, cash equivalents and short-term investments,
a decreasean increase of
$0.6approximately $1.0 billion from December 31,
2016.2018. The Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the
Company’s Amended and Restated Credit
and Guaranty Agreement
dated as of March 29, 2017 (as amended by the First Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of November 15, 2017, the “2017 Credit Agreement”) available for borrowings as of December 31,
2017. As of December 31, 2017, the Company had $109 million of restricted cash and cash equivalents, which is primarily collateral for letters of credit and collateral associated with obligations for facility leases and workers’ compensation. We may be required to post significant additional cash collateral to provide security for obligations. Restricted cash and cash equivalents at December 31, 2016 totaled $124 million.2019.
We have a significant amount of fixed obligations, including debt, aircraft leases,
and financings, leases of airport property and other facilities and pension funding obligations. At December 31,
2017,2019, the Company had approximately
$14.4$14.8 billion of debt and
capitalfinance lease obligations, including
$1.7$1.5 billion that are due within the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of new aircraft and related spare engines. As of December 31,
2017,2019, our current liabilities exceeded our current assets by approximately
$5.6$6.7 billion. However, approximately
$6.1$7.3 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel in the near future and not cash outlays. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations.
The Company will continue to evaluate opportunities to prepay its debt, including open market repurchases, to reduce its indebtedness and related interest.
For
2018,2020, the Company expects
between $3.6 billion and $3.8approximately $7.0 billion of gross capital expenditures. See Note 13 to the financial statements included in Part II, Item 8 of this report for additional information on commitments.
As of December 31,
2017,2019, a substantial portion of the
Company’sCompany's assets, principally aircraft, route authorities
and airport slots,
and loyalty program intangible assets, was pledged under various loan and other agreements.
Collateral pledged under these loans continues to be sufficient to satisfy the loan covenants. We must sustain our profitability and/or access the capital markets to meet our significant long-term debt and
capitalfinance lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines. See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on assets provided as collateral by the Company.
The following is a discussion of the
Company’sCompany's sources and uses of cash
from 2015 through 2017.Operating Activities
2017for 2019 as compared to 2016
2018. See "Liquidity and Capital Resources" in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2018 Annual Report for a discussion of the Company's sources and uses of cash in 2018 as compared to 2017.
Operating Activities. Cash flow provided by operations for the year ended December 31, 20172019 was $3.4$6.9 billion compared to $5.5$6.2 billion in the same period in 2016, the decrease resulting from lower2018. The increase is primarily attributable to an increase in operating income and reduced cash flows from certain changes in working capital items. Excludingthe non-cash impairment of the Newark slots, operating incomewhich was $4.3 billion for 2017 was approximately $1.2 billion lower than 2016. Working capital changes reduced cash flow from operations by an additional $1.2 billion year-over-year in 20172019 as compared to 2016. $3.2 billion for 2018.
Investing Activities. The following were significant working capital items in 2017:$0.9 billion decrease in advanced purchase of miles due to increased utilizationof pre-purchased miles.
$0.4 billion increase in prepayments for maintenance contracts.
2016 compared to 2015
Cash flow provided by operations for the year ended December 31, 2016 was $5.5 billion compared to $6.0 billion in the same period in 2015. Working capital changes reduced cash flow from operations by
$0.5 billion year-over-year in 2016 as compared to 2015. The following were significant working capital items in 2016:
Frequent flyer and advance purchase of miles decreased $0.6 billion due to increased utilization ofpre-purchased miles.
Other assets, including spare parts, increased by $0.3 billion as part of the Company’s efforts to improve fleet reliability.
Accounts payable increased $0.2 billion, driven by the timing of payments.
Investing Activities
2017 compared to 2016
The Company’sCompany's capital expenditures were $4.0$4.5 billion and $3.2$4.1 billion in 2017and 2016,2019and 2018, respectively. The Company’sCompany's capital expenditures for both years were primarily attributable to the purchase of new aircraft, aircraft improvements, facility and fleet-related costs and the purchase of information technology assets.
2016 compared to 2015
The Company’s capital expenditures were $3.2 billion and $2.7 billion in 2016and 2015, respectively. The Company’s capital expenditures for both years were primarily attributable
In December 2019, United issued the AVH Convertible Loan. For additional information regarding the AVH Convertible Loan, see Note 8 to the purchasefinancial statements included in Part II, Item 8 of aircraft, facilitythis report.
In November 2018, United, as lender, entered into a Term Loan Agreement (the "BRW Term Loan Agreement") with, among others, BRW Aviation Holding LLC and
fleet-related costsBRW Aviation LLC ("BRW"), as guarantor and
borrower, respectively. BRW Aviation Holding LLC and BRW are affiliates of Synergy Aerospace Corporation, and BRW is the
purchasemajority shareholder of
AVH. Pursuant to the BRW Term Loan Agreement, United provided to BRW a $456 million term loan (the "BRW Term Loan"), secured by a pledge of BRW's equity, as well as BRW's 516 million common shares of AVH (which are eligible to be converted into the same number of preferred shares, which may be deposited with the depositary for AVH's American Depositary Receipts ("ADRs"), the class of AVH securities that trades on the New York Stock Exchange (the "NYSE"), in exchange for 64.5 million ADRs) (such equity and shares, collectively, the "BRW Loan Collateral"). BRW is currently in default under the BRW Term Loan Agreement. The BRW Term Loan was made in conjunction with a revenue-sharing joint business agreement among United, Aerovías del Continente Americano S.A ("Avianca"), a subsidiary of AVH, and Copa as described in Part 1, Item 1 of this report. For additional information
technology assets.regarding the BRW Term Loan Agreement and related agreements, see Notes 8, 9 and 13 to the financial statements included in Part II, Item 8 of this report.
In April 2018, through a wholly-owned subsidiary, the Company invested $138 million in Azul Linhas Aéreas Brasileiras S.A. ("Azul") thus increasing its preferred equity stake in Azul to approximately 8% (representing approximately 2% of the total capital stock of Azul).
Financing ActivitiesActivities.
Significant financing events in 20172019 were as follows:
Share RepurchasesRepurchases.
The Company used $1.8$1.6 billion of cash to purchase approximately 2819.2 million shares of its common stock during 2017, completing its July 2016 repurchase authorization.2019. In December 2017, UAL’sUAL's Board of Directors authorized a $3.0 billion share repurchase program to acquire UAL's common stock. In July 2019, UAL's Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL’sUAL's common stock. As of December 31, 2017,2019, the Company had approximately $3.0$3.1 billion remaining to purchase shares under its share repurchase program.programs.
Debt IssuancesIssuances.
During 2017,2019, United received and recorded $1.8 billion of proceeds as debt related to enhanced equipment trust certificate (“EETC”("EETC") offerings created in 2016 and 20172019 to finance the purchase of aircraft.In 2017, UAL issued, Also, United received and United guaranteed, (i) $400recorded $350 million aggregate principal amount of unsecured 4.25%proceeds from the 4.875% Senior Notes due October 1, 2022,January 15, 2025 and (ii) $300 million aggregate principal amount of unsecured 5% Senior Notes due February 1, 2024.
In 2017, United and UAL, as borrower and guarantor, respectively, increased the term loan under the 2017 Credit Agreement by approximately $440 million.
During 2017, United borrowed approximately $497$105 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017.
2019. As of December 31, 2019, United had recorded approximately $39 million of debt to finance the construction of an aircraft maintenance and ground service equipment complex at Los Angeles International Airport.
Debt and CapitalFinance Lease Principal PaymentsPayments.
During the year ended December 31, 2017,2019, the Company made debt and capitalfinance lease principal payments of $1.0$1.4 billion. Significant financing events in 20162018 were as follows:
Share RepurchasesRepurchases.
The Company used $2.6$1.2 billion of cash to purchase 50approximately 17.5 million shares of its common stock during 2016 under its share repurchase programs.2018.
Debt IssuancesIn 2016, United completed two EETC offerings for a total principal amount of $2.0 billion. Of the $2.0 billion,Issuances.
During 2018, United received and recorded $708 million$1.2 billion of proceeds as debt as of December 31, 2016related to EETC offerings created in 2018 to finance the purchase of 17 aircraft.In 2016, Also, United borrowed approximately $369$424 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2016.
2018.
Debt and CapitalFinance Lease Principal PaymentsPayments.
During the year ended December 31, 2016,2018, the Company made debt and capitalfinance lease principal payments of $1.4$1.8 billion.Significant financing events in 2015 were as follows:
Share Repurchases
The Company used $1.2 billion of cash to purchase 21 million shares of its common stock during 2015 under its share repurchase programs.
Debt Issuances
During 2015, United issued $1.4 billion of debt related to EETC offerings to finance aircraft.
In 2015, United borrowed approximately $590 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2015.
Debt and Capital Lease Principal Payments
During the year ended December 31, 2015, the Company made debt and capital lease principal payments of $2.3 billion, including the following prepayments:
UAL used cash to repurchase all $321 million par value 2026 Notes.
UAL used cash to repurchase all $311 million par value 2028 Notes.
UAL used cash to prepay, at par, $300 million principal amount of its $500 million term loan due September 2021.
For additional information regarding these Liquidity and Capital Resource matters, see Notes 3,2, 10, 11 and 12 13to the financial statements included in Part II, Item 8 of this report. For information regardingnon-cash investing and financing activities, see the Company’sCompany's statements of consolidated cash flows.
