United Airlines 2012 Annual Report Download - page 37

Table of Contents
deposited into those MileagePlus accounts award miles equal to OnePass members’ award miles balance. As a result of the conversion to a single passenger
service system, the Company now operates using a single reservations system, carrier code, flight schedule, website and departure control system.
The Company continued to redeploy aircraft across its global network, better matching aircraft and demand on a route by route basis.
The United and Continental pilots represented by the Air Line Pilots Association, International (“ALPA”) ratified a new joint collective bargaining agreement
with the Company.
Some key initiatives for the Company in 2013 include maintaining reliable operational performance, investing in customer service training and tools for its
frontline co-workers, completing the installation of flat-bed seats in the premium cabins of its international widebody aircraft, installing global satellite based
WiFi on approximately 300 of its mainline aircraft, and reaching competitive joint collective bargaining agreements with its union-represented employee groups.
UAL expects the Merger to deliver $1.0 billion to $1.2 billion in net annual synergies on a run-rate basis when the integration is complete and synergy benefits
are fully realized.
The Company has incurred substantial expenses in connection with the Merger. The Company incurred approximately $739 million of integration-related cash
costs in 2012 and expects this amount to decrease significantly in 2013 to approximately $250 million. There are many factors that could affect the total
amount or the timing of those expenses, and many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. See Notes 1 and 21
to the financial statements included in Item 8 of this report and Item 1A, Risk Factors, for additional information on the Merger.
The Company plans to merge United Air Lines, Inc. and Continental Airlines, Inc. into one legal entity in 2013. Once this legal merger occurs, the financial
statements of United and Continental will be combined at their historical cost for all periods presented beginning on October 1, 2010, the date on which
Continental became a wholly-owned subsidiary of UAL, and there will no longer be a requirement to separately report the historical financial statements of
Continental.
Economic Conditions. The economic outlook for the aviation industry in 2013 is characterized by stagnant to modest U.S. and global economic growth. We
cannot predict whether the demand for air travel will improve or the rate of such improvement. Continuing economic uncertainty, including continued
European sovereign debt uncertainty and political and socioeconomic tensions in regions such as the Middle East, may result in diminished demand for air
travel and may impair our ability to achieve profitability in 2013.
Capacity. Over the past year, UAL leveraged the flexibility of its combined fleet to better match market demand and added new routes from its hubs to
international destinations such as Istanbul, Turkey; Manchester, England; Dublin, Ireland; Buenos Aires, Argentina; Monterrey, Mexico; San Salvador, El
Salvador; Kelowna, British Columbia, Canada; and Doha, Qatar via Dubai, United Arab Emirates. In addition, for 2013, UAL expects to add new routes
from its hubs to Taipei, Taiwan; Shannon, Ireland; Paris, France; Edmonton, Alberta, Canada; Fort McMurray, Alberta, Canada; Thunder Bay, Ontario,
Canada; and Denver’s first service to Asia with non-stop service to Tokyo, subject to government approval. We expect consolidated capacity for 2013 to be
lower than consolidated capacity in 2012. Should fuel prices increase significantly or should U.S. or global economic growth outlooks decline substantially,
we would likely adjust our capacity plans to reflect the different operating environment.
Fuel Costs. Fuel prices continued to be volatile in 2012. UAL’s average aircraft fuel price per gallon including related taxes was $3.27 in 2012 as compared to
$3.06 in 2011. If fuel prices rise significantly from their current levels, we may be unable to raise fares or other fees sufficiently to fully offset our increased
costs. In addition, high fuel prices may impair our ability to achieve profitability. Based on projected fuel consumption in 2013, a one dollar change in the
price of a barrel of crude oil would change UAL’s annual fuel expense by approximately $94 million. To protect against increases in the prices of aircraft fuel,
the Company routinely hedges a portion of its future fuel requirements.
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