United Continental Plans To Cut Costs By $2 Bln Annually

(RTTNews) - United Continental Holdings, Inc. (UAL), the parent of airline operator United Airlines, said Tuesday that it has launched initiatives to reduce costs by $2 billion annually, increase ancillary revenue, and also boost pre-tax earnings by two to four times the current level by 2017. The company's shares are gaining more than 5 percent in the regular trading session.

United Continental, which is struggling to consolidate itself following the 2010 merger of United Airlines and Continental Airlines, said it will reveal the plans at its Investor Day conference later today in New York City.

United Continental said that in order to reduce costs by $2 billion a year, it plans to reduce fuel consumption as well as sourcing costs, increase productivity, improve maintenance processes and inventory procedures, as well as optimize distribution methods.

Over the next four years, United Continental plans to increase pre-tax earnings by two to four times the current level, and also generate sufficient cash to begin allocating capital to shareholders by 2015. This is in addition to the company's existing goal of achieving a 10 percent return on invested capital.

The company said it intends to increase ancillary or nonticket revenue by about $700 million, with a goal of generating more than $3.5 billion in ancillary revenue by 2017. The company expects to achieve this by providing customers new options, optimizing pricing on existing products, and expanding availability of ancillary products through additional distribution channels.

United Continental said it will leverage its trans-Pacific and trans-Atlantic joint ventures to further develop its route network. The company expects to improve results on its trans-Pacific network by redeploying certain widebody aircraft, including beginning a second daily Houston-Tokyo service, and eliminating Seattle-Tokyo flights.

In addition, United Continental will eliminate the Tokyo-Bangkok 747 service and use smaller planes on the Tokyo-Seoul route, reallocating those long-haul aircraft to more profitable routes. The company said that ANA, its trans-Pacific joint venture partner, will provide the appropriate amount of the beyond-Tokyo connectivity for United's trans-Pacific flights.

United Continental said it will use its Boeing 787 Dreamliner aircraft to provide service to new markets, including its previously announced service from San Francisco to Chengdu, China, subject to government approval. This is in addition to new 777 service from San Francisco to Taipei, effective March 29.

The company plans to capitalize on its ability to serve growing secondary markets in Asia directly from the U.S., similar to its strategy of serving secondary European markets non-stop from its East Coast hubs.

Further, United Continental said it is launching the next phase of its e-commerce strategy that provides an aligned set of tools to better address the needs of today's mobile traveler. In addition to the new mobile app launched last week, United today previewed the new united.com website.

Jeff Smisek, chairman, president and chief executive officer of United Continental said, "We are working together to build on United's core strengths and deliver excellent long-term results for our investors. We are committed to achieving sufficient and sustainable profitability that will benefit all of our stakeholders."

In late October, United Continental reported a profit for the third quarter that soared from last year. The results reflected higher revenues, a tight control on expenses and fewer one-time charges compared to the prior year.

The company's net income for the third quarter was $379 million or $0.98 per share, up from $6 million or $0.02 per share in the prior-year period. Total revenue for the quarter rose 3 percent to $10.23 billion from $9.91 billion in the same period last year.

In Tuesday's regular session, UAL is trading at $38.30, up $1.92 or 5.28 percent on a volume of 2.62 million shares.