United Airlines 2012 Annual Report Download - page 6

Table of Contents
Continental. Under these capacity purchase agreements, the Company pays the regional carriers contractually-agreed fees (carrier-controlled costs) for
operating these flights plus a variable reimbursement (incentive payment for superior operational performance) based on agreed performance metrics. The fees
for carrier-controlled 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 are fixed monthly amounts. Under these
capacity purchase agreements, the Company is responsible for all fuel costs incurred as well as landing fees, facilities rent and other costs, which are passed
through by the regional carrier to the Company without any markup. In return, the regional carriers operate this capacity exclusively for United and/or
Continental, 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 program.
While the regional carriers operating under capacity purchase agreements comprise more than 95% of all regional flights, the Company also has prorate
agreements with Hyannis Air Service, Inc. (“Cape Air”), Silver Airways (“Silver”), SkyWest and Trans States. Under these commercial flying agreements,
the Company and its regional carriers agree to divide revenue collected from each passenger according to a formula, while both the Company and its regional
carriers are individually responsible for their own costs of operations. Unlike capacity purchase agreements, under a prorate agreement, the regional carrier
retains the control and risk of scheduling, and in most cases, market selection, local seat pricing and inventory for its flights, although the Company and its
regional carriers may coordinate schedules to maximize connections.
Financial information on the Company’s operating revenues by geographic regions, as reported to the U.S. Department of Transportation (the “DOT”), can be
found in Note 10 to the financial statements included in Item 8 of this report.
Alliances. United and Continental have a number of bilateral and multilateral alliances with other airlines, which enhance travel options for customers by
providing greater time of day coverage to common destinations, additional mileage accrual and redemption opportunities, and access to markets that United
and Continental do not serve directly. These marketing alliances typically include one or more of the following features: loyalty program reciprocity;
codesharing of flight operations (whereby seats on one carrier’s selected flights can be marketed under the brand name of another carrier); coordination of
reservations, ticketing, passenger check-in, baggage handling and flight schedules, and other resource-sharing activities.
United is a member of Star Alliance, a global integrated airline network co-founded by United in 1997 and the largest and most comprehensive airline alliance
in the world. As of January 1, 2013, Star Alliance carriers served 1,329 airports in 194 countries with over 21,900 daily flights. Current Star Alliance
members, in addition to United, are Adria Airways, Aegean Airlines, Air Canada, Air China, Air New Zealand, All Nippon Airways, Asiana Airlines,
Austrian Airlines, Avianca/Taca Airlines, Brussels Airlines, Copa Airlines, Croatia Airlines, EGYPTAIR, Ethiopian Airlines, LOT Polish Airlines,
Lufthansa, SAS Scandinavian Airlines, Shenzhen Airlines, Singapore Airlines, South African Airways, SWISS, TAM Airlines, TAP Portugal, THAI
Airways International, Turkish Airlines and US Airways. Star Alliance has announced that EVA Air will be a future Star Alliance member. On February 14,
2013, US Airways announced an agreement to merge with AMR Corporation and its intent to exit Star Alliance as a result of such merger.
United, Continental, Air Canada and the Lufthansa Group (which includes Lufthansa and its affiliates Austrian Airlines, Brussels Airlines and SWISS)
participate in a joint venture agreement covering trans-Atlantic routes. The joint venture, which enables the carriers to integrate the services they operate between
the United States and Europe and to capture revenue synergies, delivers highly competitive flight schedules, fares and services. The joint venture has a
revenue-sharing structure that will result in payments among participants based on a formula that compares current period unit revenue performance on trans-
Atlantic routes to a historic period, or “baseline,” which is reset annually. The payments are calculated on a quarterly basis and are subject to a cap. See
 below. The European Commission, which has been conducting a standard review of the competitive effects of the joint venture, has not
yet completed its review.
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