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2010, United Continental Holdings Strategic Management Case Study Carter Vaillancourt, Megan Land, Emily Michaud UMFK.

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Presentation on theme: "2010, United Continental Holdings Strategic Management Case Study Carter Vaillancourt, Megan Land, Emily Michaud UMFK."— Presentation transcript:

1 2010, United Continental Holdings Strategic Management Case Study Carter Vaillancourt, Megan Land, Emily Michaud UMFK

2 Overview Company Overview A brief history of United Continental Holdings Existing Mission and Vision Statements New Mission and Vision Statements External Audit Industry Analysis Opportunities and Threats EFE Matrix CPM Matrix Internal Assessment Organizational chart Strengths and Weaknesses Financial Condition IFE Matrix Strategy Formation SWOT Matrix Space Matrix Grand Strategy Matrix Matrix Analysis QSPM Matrix 3 year-goals Implementation Strategies EPS/EBIT Projected Financials Projected Ratios United Update

3 History

4 United Airlines History Originating in Boise, Idaho, the carrier flew the first Contract Air Mail flight in the U.S. on April 6, 1926 In 1933, United began operating the Boeing 247 the first all-metal airliner. It was able to fly a transcontinental flight in 20 hours, which at the time was very fast. United merged with Capital Airlines in 1961 and regained its position as the United States' largest airline. In 1968, the company reorganized, creating UAL Corporation, with United Airlines as a wholly owned subsidiary In 1982, United became the first carrier to operate the Boeing 767, taking its first delivery of s on August In 1985, United expanded dramatically by purchasing Pan Am's entire Pacific Division, giving it a hub at Tokyo's Narita International Airport, and in 1991 purchased routes to London Heathrow Airport from ailing Pan Am, making it one of two US carriers permitted exclusive access to Heathrow 1985

5 United Airlines History 1995 In 1995, United became the first airline to introduce the Boeing 777 in commercial service During the September 11, 2001 terrorist attacks, two of the four airplanes hijacked and crashed by al-Qaeda terrorists were United Airlines aircraft which created an airline industry downturn In 2005, United announced it had raised US$3 billion in financing to exit bankruptcy and filed its Plan of Reorganization, as announced, on September 7, 2005

6 Continental Airlines History Continental Airlines' history dates back to 1934, when the carrier was operated under the name of Varney Speed Lines by its owners Walter Varney and Louis Mueller. They were operated out of El Paso, Texas In July 1937, Robert Six changed the name of Varney Speed Lines to Continental Airlines and the carrier moved its headquarters to Denver, Colorado 1937 During the 1940' and 50's, Continental Airlines was able to expand its fleet of aircraft and profits through its participation in World War II by providing air transportation to the military In 1983, Continental filed bankruptcy with losses of ($218,000,000.) 1983 By the end of 1984 Continental was able to turn a profit. In 1986 Continental took over Frontier Airlines and began flying its routes

7 United Continental Holdings Early in February 2008, United Airlines and Continental began advanced stages of merger negotiations In June 2008, CEOs of both United Airlines and Continental Airlines signed an alliance pact presaging their eventual merger On October 1, 2010, UAL Corporation completed its acquisition of Continental Airlines and changed its name to United Continental Holdings, Inc

8 Serving 1,290 destinations in 63 countries

9 Major Hubs Located in San Francisco, Chicago, Cleveland, Denver, Houston, Los Angeles, Newark, Washington Dulles, and Guam

10 Combining these two companies is the best way to position ourselves…to thrive in the changing and competitive airline industry. Continental is strong where United is weak; United is strong where Continental is weak. Putting these two carriers together is a match made in heaven – Jeff Smisek

11 Aircraft

12 Existing Mission and Vision Statement

13 New Mission and Vision

14 Vision (proposed) United Continental Holdings vision is to be the Worlds number one choice for airline travel.

15 Mission (Proposed) With great people, the worlds most comprehensive global route network(3), the best current aircraft order book among U.S. network carriers(4, 7) and the industry-leading loyalty program(2), United is well positioned to deliver meaningful profitability and sustainable long-term value for our customers, the communities we serve, our shareholders and our co-workers around the world(6). As we strive to meet the needs of travelers (1), we continue to grow as a company and increase our financial standings in the industry (5). Through our continued growth and valued employees, United Continental Holdings will continue to reach out to the communities in which we operate and meet the concerns of our customers (9). 1.Customer 2.Products or services 3.Markets 4.Technology 5.Concern for survival, profitability, growth 6.Philosophy 7.Self-concept 8.Concern for public image 9.Concern for employees

16 External Audit

17 Domestic Market Share in Airline Industry

18 Revenue % of Cash Cash as a Percentage of Revenue: 12 months ended 31-Mar-2010 Source: United AirlinesUnited Airlines

19 SWOT Opportunities With over 100 open skies agreements in effect, more access to international airports is allowed Maintenance operation center at SFO occupies 120 acres of land, 2.9 mil square feet of floor space, and nine aircraft hangar bays, lease up for renewal in 2013 and able to renew through 2023 Growing use of websites, alternative distribution systems, and new global distribution systems (GDS) entrants leads to a predicted 87% for online air ticket sales in 2011 Global penetration, in areas such as the pacific which accounts for only 17% of total revenue. The aviation industry is growing by a projected amount of 11.0 billion which will ultimately enable more people to fly. United Continental will be affected by the growth in the tourism industry expected to grow 3.2% in The merging of the two corporations, United and Continental is expected to deliver $1.0 billion to $1.2 billion in net annual synergies on a run-rate basis by 2013, and between $800 million and $900 million in incremental annual revenues. United Continental Holdings Inc. establishes a joint venture with Air Canada will likely result in a substantial lessening of competition on 19 trans-border city pair routes. After merging and earning the extra percentage in revenue s by 1.0 billion, United Continental will show strong liquidity give the new company a flexibility to pay down its debt. United Continental made plans to increase WIFI capabilities in 200 domestic Boeing 737 and 757 aircraft equipped with DIRECTV(R), providing onboard connectivity and more than 95 channels of live television programming to customers in late Threats Unstable fuel prices and availability can cause large expenses, accounting for 31% of total operating costs in 2010 With 72% of employees under labor organizations, union disputes, employee strikes, and other labor disputes are likely to occur. 100% of United employees and 53% of Continental employees are covered by collective bargaining agreements (CBA), significant increases in pay and benefits from new CBAs could financially harm the company New open skies agreements decrease value of routes, caused United $29 million impairment charge in 2010 for indefinite-lived Brazil route With an aging fleet, UAL will have to soon start replacing or fixing their planes. With a large amount of planes this will become very costly. Illnesses could affect travel and decrease the amount of passengers flying, UAL reported that H1N1 cost them roughly $50 Million in related revenue. The airline industry is vulnerable to terrorist attacks and other related security threats. The new threats have resulted in new security measures which will increase the security related costs adding to the already high number of operating costs at $22,253. Customer prior dissatisfaction with either United or Continental may inflict buyers decision to choose new merged company while United standing at 12 th in customer dissatisfaction and Continental standing at 8 th in ARM Corp is trailing United Continental Holdings co. by just 1059 million standing in third place for top revenue for airlines The company faces stiff competition from national and international airline companies which can affect competitive pressures and ultimately lowering $3billion market cap.

20 Key External Factors WeightsRatingWeighted Score 0.0 to 1.01 to 4 Opportunities With over 100 open skies agreements in effect, more access to international airports is allowed Maintenance operation center at SFO occupies 120 acres of land, 2.9 mil square feet of floor space, and nine aircraft hangar bays, lease up for renewal in 2013 and able to renew through Growing use of websites, alternative distribution systems, and new global distribution systems (GDS) entrants leads to a predicted 87% for online air ticket sales in Global penetration, in areas such as the pacific which accounts for only 17% of total revenue The aviation industry is growing by a projected amount of 11.0 billion which will ultimately unable more people to fly United Continental will be affected by the growth in the tourism industry expected to grow 3.2% in The merging of the two corporations, United and Continental is expected to deliver $1.0 billion to $1.2 billion in net annual synergies on a run-rate basis by 2013, and between $800 million and $900 million in incremental annual revenues United Continental Holdings Inc. establishes a joint venture with Air Canada will likely result in a substantial lessening of competition on 19 trans-border city pair routes After merging and earning the extra percentage in revenue s by 1.0 billion, United Continental will show strong liquidity give the new company a flexibility to pay down its debt United Continental made plans to increase WIFI capabilities in 200 domestic Boeing 737 and 757 aircraft equipped with DIRECTV(R), providing onboard connectivity and more than 95 channels of live television programming to customers in late Threats 0 Unstable fuel prices and availability can cause large expenses, accounting for 31% of total operating costs in With 72% of employees under labor organizations, union disputes, employee strikes, and other labor disputes are likely to occur % of United employees and 53% of Continental employees are covered by collective bargaining agreements (CBA), significant increases in pay and benefits from new CBAs could financially harm the company New open skies agreements decrease value of routes, caused United $29 million impairment charge in 2010 for indefinite-lived Brazil route With an aging fleet, UAL will have to soon start replacing or fixing their planes. With roughly 409 planes this will become very costly Illnesses could affect travel and decrease the amount of passengers flying, UAL reported that H1N1 cost them roughly $50 Million in related revenue The airline industry is vulnerable to terrorist attacks and other related security threats. The new threats have resulted in new security measures which will increase the security related costs adding to the already high number of operating costs at $22, Customer prior dissatisfaction with either United or Continental may inflict buyers decision to choose new merged company while United standing at 12 th in customer disatisfacation and Continental standing at 8 th in ARM Corp is trailing United Continental Holdings co. by just 1059 million standing in third place for top revenue for airlines The company faces stiff competition from national and international airline companies which can affect competitive pressures and ultimately lowering $3billion market cap Totals1 2.65

21 CPM UALDALAAMRQ Critical Success factorsWeightsRatingWeighted ScoreRatingWeighted ScoreRatingWeighted Score 0.0 to 1.01 to 4 Advertising Product Quality Price Competitiveness Financial Position Customer Loyalty Global Expansion Market Share Organization Structure Customer Service Production Capacity Employee Dedication Totals

22 Internal Audit

23 Organizational Chart Jeff Smisek President and CEO Mike Bonds Executive Vice President, Human Resources and Labor Relations Jim Compton Vice President and Chief Revenue Officer Jeff Foland Executive Vice President and Mileage Plus Holdings LLC Nene Foxhall Executive Vice President Communicati ons and Government Affairs Keith Halbert Executive Vice President and Chief Information Officer Brett Hart Senior Vice President, General Counsel and Secretary Pete McDonald Executive Vice President and Chief Operations Officers Zane Rowe Executive Vice President and Chief Financial Officer

24 SWOT Strengths Passenger revenue increased 43% in 2010 Unrestricted cash and cash equivalents hit a record $8.7 billion Aircraft rent expense decreased by 6% in 2010 They employ roughly 85,000 employees, the highest among their competitors. UAL offers premium seating with spacious accommodations for those who seek a more comfortable trip. The U.S. and Canada market account for 61.7% of total revenue. Net income grew 38% from a loss in 2009 to a profit in United Continental has strong strategic collaborations. The company has a number of bilateral and multilateral alliances with other airlines such as the largest alliance which is the Star Alliance who serves approximately 1,290 destinations in 189 countries. Because of United Continental Holdings flight completion factors of 98.5% and 99%, it has a very strong brand utilization and trustworthiness. United is the largest of 2 U.S carrier to the Peoples Republic of China and maintains a large operation throughout Asia. Weaknesses Operating expenses increased $2.2 billion in 2010 Interest expense increased by 23% in 2010 Removal of Boeing 737 fleet and some Boeing 747 aircraft caused impairment charges of $165 million in 2010 In relation with salaries and related costs increasing, Pension liability increased by $1,380,000 in 2010 They are behind Delta Airlines (DAL) in market cap by over $3Billion. From the income statement it appears that they have no money spent on research and development for the past 3 years. At 16.0 cents, UAL has the highest cost per available seat mile in their industry compared to AirTran Holdings at 11.0 cents. UAL has assets of $20.1 Billion, liabilities of $22.9 Billion and equity of -$2.76 Billion. This may make it hard for them to get loans when their assets are currently less than their liabilities. United Continental puts heavy dependence on third party providers, many of the operations such as customer care, aircraft maintenance, aircraft fueling are outsourced, which adds to the overall expense amount of $22,253 million. The overall age of aircrafts totals about 14.3 years old, which gives higher expense to the operating costs because they are less fuel efficient and require more maintenance.

25 Income Statement

26 Balance Sheet

27 Balance Sheet (2)

28 Net Worth United Continental Worth Analysis for 2010 (in millions) Shareholder's equity - Goodwill - Intangibles (7,713) Net Income * 5 1,265 (Stock Price/EPS) * NI 4,940 # of Shares Out * Stock Price 7,813 Four Method Average 1,576

29 Financial Ratios 2010 Ratio (2010) United Continental HoldingsDelta Liquidity Ratios Current Quick Leverage Ratios Debt to total assets Debt to equity Long-term debt to equity Times-interest-earned ratio Activity Ratios Fixed Assets Turnover Total Assets Turnover Inventory Turnover Profitability Ratios Gross Profit Margin % EBT Margin % Net Profit Margin % Return on total assets % Return on Stockholder's equity Price-earnings ratio Growth Ratios Sales Growth (3-years)4.87%18.35% Net Income Growth (3-years Average)-14.37%-28.35% Earnings per share Growth (3-year Average)-27.12%-49.45% Dividends per share Growth % (3-years)--

30 IFE Key Internal FactorsWeightsRatingWeighted Score 0.0 to 1.01, 2, 3 or 4 Internal Strengths 3 or 4 Passenger revenue increased 43% in Unrestricted cash and cash equivalents hit a record $8.7 billion Aircraft rent expense decreased by 6% in They employ roughly 85,000 employees, the highest among their competitors They lead among the industry in revenue by roughly $.48 Billion The U.S. and Canada market account for 61.7% of total revenue Net income grew 38% from a loss in 2009 to a profit in United Continental has strong strategic collaborations. The company has a number of bilateral and multilateral alliances with other airlines such as the largest alliance which is the Star Alliance who serves approximately 1,290 destinations in 189 countries Because of United Continental Holdings flight completion factors of 98.5% and 99%, it has a very strong brand utilization and trustworthiness United is the largest of 2 U.S carrier to the Peoples Republic of China and maintains a large operation throughout Asia Internal Weaknesses 1 or 2 Operating expenses increased $2.2 billion in Interest expense increased by 23% in Removal of Boeing 737 fleet and some Boeing 747 aircraft caused impairment charges of $165 million in In relation with salaries and related costs increasing, Pension liability increased by $1,380,000 in They are behind Delta Airlines (DAL) in market cap by over $3Billion From the income statement it appears that they have no money spent on research and development for the past 3 years At 16.0 cents, UAL has the highest cost per available seat mile in their industry compared to AirTran Holdings at 11.0 cents UAL has assets of $20.1 Billion, liabilities of $22.9 Billion and equity of -$2.76 Billion. This may make it hard for them to get loans when their assets are currently less than their liabilities United Continental puts heavy dependence on third party providers, many of the operations such as customer care, aircraft maintenance, aircraft fueling are outsourced, which adds to the overall expense amount of $22,253 million The overall age of aircrafts totals about 14.3 years old, which gives higher expense to the operating costs because they are less fuel efficient and require more maintenance Totals

31 Strategic Formulation

32 1. Increase R&D spending to take advantage of aviation and tourism growth through the production of new global distribution systems. (W6, O3, O5, O6) 2. Utilize extra percentage in revenue, obtained through merging, to pay down liabilities. (W8, O2) 3. Renew Maintenance lease at SFO to ultimately decrease the dependence on outsourced aircraft maintenance. (W9, O2) 1. Utilize unrestricted cash and equivalents of roughly $8.7 billion to replace aging fleet with more fuel efficient airplanes. (S2,S3,T1,T5) 2. Utilize unrestricted cash and equivalents to lease or purchase new aircrafts equipped with state of the art air purification and filtration systems. (S2, T5, T6, T8, T10) 1. Require employees to participate in stock ownership to decrease or prevent pension liability increases and to increase employee work satisfaction. (W4, T2, T3) 2. Increase R&D to research methods that would increase the gap between competitive airlines both nationally and internationally. (W6, T9, T10). Strengths Weaknesses Opportunities Threats SWOT Matrix SO WO ST WT

33 Financial StrengthRatings 1 Cash Flow6.0 2 Price Earnings Ratio5.0 3 Earnings per Share4.0 4 Working Capital4.0 5 Liquidity5.0 6 Net Income4.0 7 Return on Assets2.0 Financial Strength Total4.29 Industry Strength Rating s 1 Profit Potential4.0 2 Financial Stability4.0 3 Resource Utilization2.0 4 Productivity, capacity utilization3.0 5 Market Entry3.0 6 Growth Potential5.0 7 Extent Leveraged3.0 Industry Strength Total3.43 Environmental Stability Rate of Inflation Barriers to Enter the Market Competitive Pressure Price Elasticity Demand Variability Price Range of Competing Products Ease of Exit from Market-6.0 Evironmental Stability Total-4.86 Competitive advantage Market Share Product Quality Costomer Loyalty Capacity Utilization Technologically Advanced Global Expansion Product Life Cycle-4.0 Competitive Advantage-3.00 Space Matrix FPFP SPSP IPIP ConservativeAggressive DefensiveCompetitive FSFS CSCS ESES ISIS Conser vative Aggre ssive Comp etitive Defen sive

34 Strong Competitive Position Slow Market Growth Quadrant II 1. Market development 2. Market penetration 3. Product development 4. Horizontal integration 5. Divestiture 6. Liquidation Quadrant III 1. Retrenchment 2. Related diversification 3. Unrelated diversification 4. Divestiture 5. Liquidation Quadrant IV 1. Related diversification 2. Unrelated diversification 3. Joint ventures Quadrant I 1. Market development 2. Market penetration 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Related diversification GSM

35 Alternative StrategiesIESPACEGRANDBCGCOUNT Forward Integrationxx2 Backward Integrationxx2 Horizontal Integrationxx2 Market Penetrationxx2 Market Developmentxx2 Product Developmentxx2 Related Diversificationx1 Unrelated Diversification Retrenchment Divestiture Liquidation Matrix Analysis

36 Possible Strategies Increase marketing in foreign countries to take advantage of the over 100 open skies agreements and increase global penetration in china, Asia, and the pacific. (S8, S10, O1, O4) Backward Integration Renew Maintenance lease at SFO to ultimately decrease the dependence on outsourced aircraft maintenance. (W9, O2) Horizontal Integration Increase R&D to research methods that would increase the gap between competitive airlines both nationally and internationally. (W6, T9, T10). Retrenchment Require employees to participate in stock ownership to decrease or prevent pension liability increases and to increase employee work satisfaction. (W4, T2, T3) Utilize extra percentage in revenue, obtained through merging, to pay down liabilities. (W8, O2) Product Development Increase premium seating and flatbed seats to enhance travel experience and increase customer satisfaction on long flights. (S5, O5, O8) Utilize unrestricted cash and equivalents of roughly $8.7 billion to replace aging fleet with more fuel efficient airplanes. (S2,S3,T1,T5) Increase R&D spending to take advantage of aviation and tourism growth through the production of new global distribution systems. (W6, O3, O5, O6) Market Development

37 QSPM Quantitative Strategic Planning Matrix-QSPM Increase marketing in foreign countries and increase global penetration in China, Asia, and the Pacific Lease or purchase new aircraft equipped with state of the art air purification and filtration systems Key factors WeightASTASASTAS External 1 to 4 Opportunities 1. With over 100 open skies agreements in effect, more access to international airports is allowed Maintenance operation center at SFO occupies 120 acres of land, 2.9 mil square feet of floor space, and nine aircraft hangar bays, lease up for renewal in 2013 and able to renew through Growing use of websites, alternative distribution systems, and new global distribution systems (GDS) entrants leads to a predicted 87% for online air ticket sales in Global penetration, in areas such as the pacific which accounts for only 17% of total revenue The aviation industry is growing by a projected amount of 11.0 billion which will ultimately unable more people to fly United Continental will be affected by the growth in the tourism industry expected to grow 3.2% in The merging of the two corporations, United and Continental is expected to deliver $1.0 billion to $1.2 billion in net annual synergies on a run-rate basis by 2013, and between $800 million and $900 million in incremental annual revenues United Continental Holdings Inc. establishes a joint venture with Air Canada will likely result in a substantial lessening of competition on 19 transborder city pair routes After merging and earning the extra percentage in revenue s by 1.0 billion, United Continental will show strong liquidity give the new company a flexibility to pay down its debt United Continental made plans to increase WIFI capabilities in 200 domestic Boeing 737 and 757 aircraft equipped with DIRECTV(R), providing onboard connectivity and more than 95 channels of live television programming to customers in late Threats 1. Unstable fuel prices and availability can cause large expenses, accounting for 31% of total operating costs in With 72% of employees under labor organizations, union disputes, employee strikes, and other labor disputes are likely to occur % of United employees and 53% of Continental employees are covered by collective bargaining agreements (CBA), significant increases in pay and benefits from new CBAs could financially harm the company New open skies agreements decrease value of routes, caused United $29 million impairment charge in 2010 for indefinite-lived Brazil route With an aging fleet, UAL will have to soon start replacing or fixing their planes. With roughly 409 planes this will become very costly Illnesses could affect travel and decrease the amount of passengers flying, UAL reported that H1N1 cost them roughly $50 Million in related revenue The airline industry is vulnerable to terrorist attacks and other related security threats. The new threats have resulted in new security measures which will increase the security related costs adding to the already high number of operating costs at $22, Customer prior dissatisfaction with either United or Continental may inflict buyers decision to choose new merged company while United standing at 12th in customer disatisfacation and Continental standing at 8th in ARM Corp is trailing United Continental Holdings co. by just 1059 million standing in third place for top revenue for airlines The company faces stiff competition from national and international airline companies which can affect competitive pressures and ultimately lowering $3billion market cap

38 QSPM Continued… Internal 1 to 4 Strengths 1. Passenger revenue increased 43% in Unrestricted cash and cash equivalents hit a record $8.7 billion Aircraft rent expense decreased by 6% in They employ roughly 85,000 employees, the highest among their competitors UAL offers premium seating with spacious accommodations for those who seek a more comfortable trip U.S. and Canada market account for 61.7% of total revenue Net income grew 38% from a loss in 2009 to a profit in United Continental has strong strategic collaborations. The company has a number of bilateral and multilateral alliances with other airlines such as the largest alliance which is the Star Alliance who serves approximately 1,290 destinations in 189 countries Because of United Continental Holdings flight completion factors of 98.5% and 99%, it has a very strong brand utilization and trustworthiness United is the largest of 2 U.S carrier to the Peoples Republic of China and maintains a large operation throughout Asia Weaknesses 1. Operating expenses increased $2.2 billion in Interest expense increased by 23% in Removal of Boeing 737 fleet and some Boeing 747 aircraft caused impairment charges of $165 million in In relation with salaries and related costs increasing, Pension liability increased by $1,380,000 in They are behind Delta Airlines (DAL) in market cap by over $3Billion From the income statement it appears that they have no money spent on research and development for the past 3 years At 16.0 cents, UAL has the highest cost per available seat mile in their industry compared to AirTran Holdings at 11.0 cents UAL has assets of $20.1 Billion, liabilities of $22.9 Billion and equity of -$2.76 Billion. This may make it hard for them to get loans when their assets are currently less than their liabilities United Continental puts heavy dependence on third party providers, many of the operations such as customer care, aircraft maintenance, aircraft fueling are outsourced, which adds to the overall expense amount of $22,253 million The overall age of aircrafts totals about 14.3 years old, which gives higher expense to the operating costs because they are less fuel efficient and require more maintenance

39 3 Year Goals Year 1-Expand further into China Year 2-Expand throughout Asia to regions such as South Asia and India Year 3-Expand into Russia

40 Strategy Implementation

41 EPS/EBIT Analysis Capital Needed 750,000,000 EBIT Range($100mil.) - $900mil. Interest Rate5% Tax Rate25% Stock Price (Sep. 30, 2010-year end)23.82 Current Shares Outstanding327,922,565 CS Shares needed 31,486,146 Assumptions Common Stock Financing RecessionNormalBoom EBIT (100,000,000) 500,000, ,000,000 Interest EBT (100,000,000) 500,000, ,000,000 Taxes - 125,000, ,000,000 EAT (100,000,000) 375,000, ,000,000 # of Shares 359,408,711 EPS Debt Financing RecessionNormalBoom EBIT (100,000,000) 500,000, ,000,000 Interest 37,500,000 EBT (137,500,000) 462,500, ,500,000 Taxes - 115,625, ,625,000 EAT (137,500,000) 346,875, ,875,000 # of Shares 327,922,565 EPS

42 EPS/EBIT Cont. 90% Stock - 10% Debt Financing RecessionNormalBoom EBIT (100,000,000) 500,000, ,000,000 Interest 3,750,000 EBT (103,750,000) 496,250, ,250,000 Taxes - 124,062, ,062,500 EAT (103,750,000) 372,187, ,187,500 # of Shares 356,260,096 EPS Stock needed 675,000,000 Debt needed 75,000,000 Interest 3,750,000 CS shares needed 28,337,531 Assumptions 10% Stock - 90% Debt Financing RecessionNormalBoom EBIT (100,000,000) 500,000, ,000,000 Interest 33,750,000 EBT (133,750,000) 466,250, ,250,000 Taxes - 116,562, ,562,500 EAT (133,750,000) 349,687, ,687,500 # of Shares 331,071, EPS Stock needed 75,000,000 Debt needed 675,000,000 Interest 33,750,000 CS shares needed 3,148,615 Assumptions

43 Projected Financial Assumptions Capital needed750,000,000 Debt needed750,000,000 Interest (estimate)5% Stock Price (Dec. 31, year end)23.82 Shares Outstanding327,922,565 Additional Interest 37,500,000

44 Projected Financials 2011 Income Statement Projected Income Statement (in millions) Total Revenues16,335 23,229 30,198Increase by 30% Cost of Revenue6,526 9,609 12,492Percentage of total revenue Gross Profit9,809 13,620 17,706 Operating expenses- - 1,856Estimated increase Research and Development Increase by 188 mil (1/4 of 750 mil) Selling General and Administrative8,679 10,896 11,458Increase by 562 mil (3/4 of 750 mil) Nonrecurring % increase Others917 1,079 1,403Percentage of total revenue Total Operating Expenses- -- Operating Income or Loss (161)976 1,898 Income from Continuing Operations Total Other Income/Expense Net56 57 Same as previous year Earnings Before Interest and Taxes (105)1,033 1,955 Interest Expense Increase from additional interest for expansion Income Before Tax (672)250 1,135 Income Tax Expense (17) % tax rate Income before equity in earnings (655) Equity in earnings 4 3 3Same as previous year Net Income (651) Earnings (loss) per share, basic (4.32)

45 Balance Sheet 2011 Projected Projected Balance Sheet (in millions) Assets Current Assets Cash and Cash Equivalents 3,170 8,106 3,258 Short-term Investments - 6,111 6,4165% increase Net Receivables 806 2,2042,424 10% increase Inventory % increase Other Current Assets Same Total Current Assets 5,105 12,045 13,241 Long-Term Investments % increase Property Plant and Equipment 9,840 16,945 19,825 17% increase Goodwill - 4,523 Same Intangible Assets 2,455 4,917 5,2617% increase Accumulated Amortization Other Assets 1,196 1,065 Same Deferred Long-term Asset Changes --- Total Assets 18,68439,598 44,033

46 Balance Sheet Cont. Liabilities Current Liabilities Accounts Payable 2,996 6,273 7,52820% Increase Short/Current Long-term Debt 971 2,6632,888Add 30% of 750 mil. Debt Other Current Liabilities 2,506 3,709 4,26515% Increase Total Current Liabilities 6,473 12,645 14,681 Long-Term Debt 7,572 12,470 12,995 Remaining 70% of 750 mil. Debt Other Liabilities4,1797,6808,67813% increase Deferred LT Liability Changes3,2715,076 Same Minority Interest--- Negative Goodwill--- Total Liabilities21,49537,87141,430 Stockholder's Equity Common Stock 3 3 3Same Retained Earnings (5,956) (5,703) (4,827)Increased from net income Treasury Stock (28) (31) Same Capital Surplus3,1367,071 Same Other Stockholder's Equity Same Total Stockholder's Equity (2,811) 1,727 2,603 Total Liabilities and Stockholder's Equity 18,648 39,598 44,033

47 Projected Ratios Current Ratio Quick Ratio Debt to Total Assets Debt to Equity Total Asset Turnover Return on Stockholders' Equity

48 Update

49 United Continental Holdings Update In 2012, United and United Express carried more passenger traffic than any other airline in the world and operated nearly two million flights carrying 140 million customers United is investing in upgrading its onboard products and now offers more flat- bed seats in its premium cabins and more extra-legroom economy-class seating than any airline in North America In 2013, United became the first U.S.-based international carrier to offer satellite-based Wi-Fi on long-haul overseas routes The airline also features DIRECTV® on nearly 200 aircraft, offering customers more live television access than any other airline in the world The company expanded its industry-leading global route network in 2012, launching nine new international and 18 new domestic routes. Business Traveler magazine awarded United Best Airline for North American Travel for 2012, and readers of Global Traveler magazine have voted Uniteds Mileage Plus program the best frequent flyer program for nine consecutive years.

50 Stock Price

51 Measured Revenue

52


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