July 12, 2005 - Update on Progress in Cargo

Hi, it's Glenn, and it's Tuesday, July 12. I'm calling from Washington D.C and joining me on the call today is Scott Dolan, who is calling in from Chicago .

As we have said on the last couple of calls, we're turning United toward exit as a much more competitive company. Yet, we all know that our industry continues to face tremendous challenges.

We also know that when we're faced with a challenge at United -- after almost three years of hard work against what many said were impossible odds -- we know that we must simply apply the same relentless determination to discover a solution that we have applied to so many aspects of our restructuring overall.

As I said a moment ago, today on the call with me is Scott Dolan, our senior vice president of United's Cargo division. Cargo, today, is an excellent example of a significant piece of United's overall business that is putting creative solutions into play that will benefit all of us at United, as Cargo is integrated more closely into the larger enterprise.

I've asked Scott to talk to us briefly on the call about how Cargo is doing so far this year, and also about some of the creative solutions they are implementing to offset the challenges that United is facing as we move forward together, as one company. So Scott, over to you...

Scott Dolan:

Thanks, Glenn...

As you know, Cargo had a strong second half of last year and we have continued the same aggressive sales efforts and operational focus for the first five months of 2005.

Year-to-date through May, we have grown cargo traffic by 10 percent year-over-year.

With continued yield management, yield increased in the same period by 4 percent year-over-year, and our overall revenue is up 14 percent year-over-year.

More traffic, higher yield, more revenue...equal a fully loaded profit increase of 45 percent on a 12-month rolling basis year-over-year.

While most of the increase is driven by revenue improvements, we have continued to drive cost down and improve our cost control initiatives.

Of the top 20 largest cargo carriers globally, year-to-date through May, United was the second fastest in growth. We grew 17 percent year-over-year in International Freight Ton Miles, only outpaced by Emirates. The industry average was a growth rate of 3 1/2 percent.

However, we are beginning to see some weakness in the cargo sector. For example, in May, while United achieved a 3 percent growth rate in traffic year over-year, all the rest of the major U.S. carriers saw traffic shrink from 5 to 10 percent over the same period a year ago.

The price of fuel affects the airline industry and it also appears to be triggering some slowdown in commercial activity worldwide. Globally, industry demand in May was down 2 percent year-over-year, while cargo capacity was up 7 percent.

We can't just sit by and expect to continue organic growth that might counteract the industry slowdown. We have got to go out and explore other, creative ways to get more business.

I would like to tell you about three initiatives currently underway in the Cargo Division to do just that:

First, internally, Cargo Sales is working collaboratively with Airport Operations in high-demand origin markets like Asia , L.A. and Zurich to proactively sell, load and utilize the manual pits in our widebody aircraft to free up container space for more revenue cargo.

A B777 and B747, for example, holds roughly 30 LD3 container-equivalent positions, of which roughly 10 are used for passenger bags, leaving 20 for the Cargo Division to sell for revenue freight and mail. In the manual pits, there is also room for up to 100 passenger bags, or the equivalent of up to 3 LD3 container positions. The manual pits have traditionally been used for spillover and standby bags and bulk freight and mail. Loading of these is more challenging than the containers and require more work and coordination with the downline stations, and are used only when container positions are completely filled.

We are now pre-planning the inventory and usage of the manual pits on heavy cargo flights, working in concert with Airport Ops. We are seeing real success with this initiative in Hong Kong , Bangkok , China and Australia , with manual pit load factor up from 35 percent to 70 percent year-over-year on "zero-empty" flights.

There are, of course, many, many people who have helped make this effort a success, but I would like to thank our cargo regional managers in Asia --Raymond Chan in the South Pacific and Hiro Matsumoto in the North -- for working together to find every opportunity to increase loads and generate revenue, along with our airport ramp managers worldwide -- with special thanks to Manabu Shinjo from Tokyo, who helped launch this effort in Narita in March.

Next, in the European market, we are expanding our trucking partnership network to cross-feed flights at our online stations. (Our trucking partnerships in Europe are Cargo's equivalent of United Express for passenger traffic here in the U.S. )

By tripling the size of this network, we are creating a greater catchment area for cargo in and out of Europe . That means we can work with cargo customers in Warsaw , for instance, through Frankfurt , feeding cargo to and from cities we do not serve directly by air.

I'd like to recognize Mark Albrecht and Sarah Hausen and their teams for the great work they have done on the European trucking program.

Finally, we are also negotiating interline partnerships that extend our global reach and offer our customers broader scope. We have a new partnership with Gulf Air to feed cargo traffic to and from the Middle East , and we have finalized contracts with Sri Lankan Airways to feed cargo to and from Sri Lanka to London and Tokyo and beyond.

We have also gotten tremendous traffic support to Japan from Manila through interlining with the Japanese carriers. In addition, we are working to also feed Japan from Vietnam with Vietnam Airlines.

Going after new business opportunities like this is hard work and requires a lot of service execution --freight doesn't walk between gates at the airports -- but we believe it will pay off for United. Going forward, we will be expanding these interline initiatives.

In addition, we will be expanding our perishable business despite a reduction in domestic widebody capacity, utilizing more of the narrowbody transcon service from L.A. to the East Coast, which again will require extensive teamwork between Cargo Sales and local operations.

Back over to you Glenn...

Glenn:

Thanks very much Scott, and my personal congratulations to your team. Cargo's approach focuses on providing more and better service to existing customers, combined with reaching out to bring in new customers.

And as you can see, and as you heard on the call, they are tapping every resource they need across the company. Obviously, this isn't just good for Cargo, this is a success for all of us -- for every employee at United Airlines.

And this is how we'll continue to move forward -- as one company, one United. Pulling together, gaining strength everyday. We can accomplish so much more together than any division or individual can in the company on their own.

This is the kind of competitive response it takes to meet the challenges we face as a company -- rigorous analysis of the obstacles and the opportunities, followed by innovative thinking, collaboration and excellent execution across United.

I'll be talking to you again soon. I want to thank Scott and the entire Cargo Division as we close. Until next time, stay focused on our customers and stay United.