United Airlines 2009 Annual Report Download - page 12

Table of Contents
United also has independent marketing agreements with other air carriers including Aer Lingus, Great Lakes Aviation, Gulfstream International, Hawaiian,
Island Air, Qatar Airways, TACA Group and TAM Airlines.
Mileage Plus. Mileage Plus builds customer loyalty by offering awards and services to frequent travelers. Mileage Plus members can earn mileage credit
for flights on United, United Express, members of the Star Alliance and certain other airlines that participate in the program. Miles can also be earned by
purchasing the goods and services of our non-airline partners, such as hotels, car rental companies and credit card issuers. Mileage credits can be redeemed for
free, discounted or upgraded travel and non-travel awards. There are more than 56 million members enrolled in Mileage Plus. In 2009, 2.1 million Mileage Plus
travel awards were used on United, as compared to 2.3 million and 2.2 million in 2008 and 2007, respectively. These amounts represent the number of awards for
which travel was provided and not the number of available seats that were allocated to award travel. These awards represented 8.3%, 9.1% and 8.0% of United’s
total revenue passenger miles in 2009, 2008 and 2007, respectively. In addition, Mileage Plus members redeemed miles for approximately 885,000 non-United
travel awards in 2009 as compared to 613,000 in 2008. Non-United travel awards include Red Carpet club memberships, car and hotel awards, merchandise and
travel solely on another air carrier, among others. The increase in the number of non-United travel awards redeemed was due to the expansion of the merchandise
programs, and the launch of a new car and hotel award program in the fourth quarter of 2009. Total miles redeemed for travel on United in 2009, including
class-of-service upgrades, represented 86% of the total miles redeemed (for both completed and future travel). For a detailed description of the accounting
treatment of Mileage Plus program activity, see Critical Accounting Policies in Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Distribution Channels. The majority of United’s airline seat inventory continues to be distributed through the traditional channels of travel agencies and
GDS, such as Sabre and Galileo. The growing use of alternative distribution systems, including www.united.com and GDS new entrants, provides United with an
opportunity to lower its ticket distribution costs. To encourage customer use of lower-cost channels and capitalize on these cost-saving opportunities, the
Company will continue to expand the capabilities of its website.
Industry Conditions
Seasonality. The air travel business is subject to seasonal fluctuations. Historically, revenues are better in the second and third quarters, which reflect
higher travel demand, than the first and fourth quarter revenues, which reflect lower travel demand.
Economic Conditions. The Company’s costs and revenues are highly correlated to the economic health and growth of the United States and the global
markets it serves. The global recession experienced over the past two years has resulted in declines in industry passenger demand, accompanied by a reduction in
fare levels. The drop in demand has been higher among business and premium cabin travelers, as corporations have significantly reduced their spending on
business travel. As discussed further in Item 1A, Risk Factors, and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations, the current economic conditions have had, and may continue to have, negative impacts on passenger demand, revenues, the level of credit card sales
activity and our cargo operations. In response to these economic conditions, United and other carriers in the industry implemented significant reductions in
domestic and international capacity during 2008 and 2009.
Domestic Competition. The domestic airline industry is highly competitive and dynamic. In domestic markets, new and existing U.S. carriers are generally
free to initiate service between any two points within the United States. United’s competitors consist primarily of other airlines, and, to a lesser extent, other
forms of transportation and emerging technological substitutes such as videoconferencing. Competition can be direct in the form of another carrier flying the
exact non-stop route or indirect where a carrier serves the same two cities non-stop from an alternative airport in that city, or via an itinerary requiring a
connection at another airport.
8