Irene E. Foxhall - Executive Vice President of Communications & Government Affairs Jonathan Ireland - Jeffery A.

Smisek - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Finance Committee James E. Compton - Vice Chairman and Chief Revenue Officer John D.

Rainey - Chief Financial Officer and Executive Vice President Gregory L. Hart - Senior Vice President of Operations

Hunter K. Keay - Wolfe Research, LLC Helane R.

Becker - Cowen and Company, LLC, Research Division John D. Godyn - Morgan Stanley, Research Division Jamie N.

Baker - JP Morgan Chase & Co, Research Division Michael Linenberg - Deutsche Bank AG, Research Division Daniel McKenzie - The Buckingham Research Group Incorporated Duane Pfennigwerth - Evercore Partners Inc., Research Division Joseph W. DeNardi - Stifel, Nicolaus & Company, Incorporated, Research Division Savanthi Syth - Raymond James & Associates, Inc., Research Division

Thank you, Brandon. Good morning, everyone, and welcome to United's second quarter 2014 earnings conference call.

Joining us in Chicago to discuss our results are Chairman, President and CEO, Jeff Smisek; Vice Chairman and Chief Revenue Officer, Jim Compton; Executive Vice President and Chief Financial Officer, John Rainey; and Executive Vice President and Chief Operations Officer, Greg Hart. Jeff will begin with some overview comments, after which, Jim will review operational performance, revenue and capacity.

John will follow with a discussion of our cost, fleet and capital structure. After which, we will open the call for questions, first from analysts and then from the media.

[Operator Instructions] With that, I'll turn it over to Jonathan Ireland.

Thanks, Nene. This morning, we issued our earnings release and separate investor update.

Both are available on our website at ir.united.com. Information in this morning's earnings release and investor update, and remarks made during this conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance.

All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations.

Please refer to our press release, Form 10-Q and other reports filed by the SEC by United Continental Holdings and United Airlines for a more thorough description of these factors. Also, during the course of our call, we will discuss several non-GAAP financial measures.

For a reconciliation of these non-GAAP measures to GAAP measures, please refer to the table at the end of our earnings release and investor update, copies of which are available on our website. Unless otherwise noted, special charges are excluded as we walk you through our numbers for the quarter.

These items are detailed in our earnings release. And now, I'd like to turn the call over to Jeff Smisek, Chairman, President and CEO of United.

Thanks, Nene and Jonathan, and thank you, all, for joining us on our second quarter 2014 earnings call. Today, we reported pretax earnings of $921 million, an increase of more than $300 million year-over-year.

We earned $2.34 per diluted share, a 49% increase, versus of the second quarter of last year. We're pleased that our second quarter unit revenue performance exceeded our initial guidance, and that our quarterly nonfuel unit cost decreased year-over-year.

Our second quarter financial performance reflects the progress we're making on initiatives we've been implementing over the last few quarters. Our revenue management and network improvements are delivering as expected.

We're exhibiting excellent cost control. We're making disciplined aircraft investments that are improving our fuel efficiency, and we're continuing to strengthen our balance sheet.

While we're pleased with the progress we made during the quarter, our entire management team is focused on continuing to improve our overall financial performance. We have a strong plan in place and our team is committed to executing against it.

We are working to accelerate our revenue growth. We have a tremendous set of assets, and we'll take the appropriate actions with our network and fleet to maximize the revenue we produce from those assets.

In a few minutes, Jim will walk you through the steps we're taking to optimize our network, regional operation and revenue management, all with the goal of improving our revenue and margin performance. At the same time, we continue to execute on Project Quality, our $2 billion annual cost savings program, to make meaningful gains in quality and efficiency.

Our employees have played a large part in this initiative, and I thank them for identifying and implementing durable, high-quality improvements across our business. I ascribe much of our excellent second quarter unit cost performance to the progress we're making in this area, and I'm confident that our team will continue to execute at a high level going forward.

In what is perhaps the clearest demonstration of our confidence and our ability to achieve the goals of a long-term plan we laid out at our Investor Day last fall, we announced this morning $1 billion share repurchase program, which we expect to complete within the next 3 years. We've made significant progress improving our overall capital structure, and initiating a shareholder return program is another step towards achieving a more balanced allocation of cash flow.

We are firmly committed to increasing the value we create for our shareholders, and our share repurchase program is indicative of that commitment. John will walk you through this program in greater detail in just a few minutes.

During the second quarter, we faced difficult operating conditions, particularly due to multi-month runway closures at our gateway San Francisco and Newark hubs. Our team stepped up throughout, demonstrating their professionalism, running a solid operation and providing good customer service.

We're focused on running a more reliable and efficient operation with a consistently high-quality product and service offering, and are confident in our ability to continue to improve in these areas. We made significant strides in the second quarter towards our goals, but recognize that we have much work ahead to achieve United's full potential.

We have very experienced, highly skilled employees who are committed to our success. We'll continue to take the appropriate actions and make the necessary changes to get us to the level of earnings our shareholders and this management team expect.

Now I will turn the call over to Jim and John.

Thanks, Jeff. First, I'd like to reiterate Jeff's recognition of our employees for running a reliable airline this quarter, while continuing to operate more efficiently.

I'd also like to thank our customers for choosing United. We are working hard every day to improve the flyer-friendly experience we deliver and we appreciate your business.

In the second quarter, United's consolidated PRASM grew 3.7% on approximately flat capacity year-over-year, above our original PRASM guidance range of 1% to 3%. The improvement, relative to guidance, was primarily driven by better-than-expected performance in the Pacific and domestic regions.

We've been on a path to optimize our Pacific footprint, and we're beginning to see benefits from the changes we've implemented. We're restructuring our Asia flying to leverage our West Coast hubs, flying west from Tokyo to Asian destinations; and instead, flying directly from the West Coast to secondary Asian cities.

We've recently added 2 new Pacific routes, San Francisco to Taipei and San Francisco to Chengdu, and they are both performing better than expected. We've also optimized our 747 deployment after investing in the fleet's reliability last year.

As part of the 747 optimization, we've more appropriately matched capacity with demand in Australia by downgauging our flying to 777 aircraft, and we saw a double-digit PRASM increase in Australia in the second quarter. In addition, we experienced better-than-anticipated yields this quarter in China, despite the added competitive capacity, with yields in China slightly positive year-over-year.

We expect this positive trend to continue through the peak summer months. Although we anticipate that accelerating industry capacity growth in China will put pressure on yields after the seasonal peak.

That said, we are seeing the benefits of the actions we've taken to grow our leading Pacific franchise, and we'll continue to take the appropriate steps to build on this area of strength for United. In the second quarter, our consolidated domestic unit revenue grew nearly 6%.

The largest unit revenue gain of all entities, driven by a solid demand environment, as well as strong execution on our revenue management initiatives. The improvements we've made to optimize our booking curve, taking fewer early bookings and holding more seat inventory for later, higher-yielding bookings drove approximately 0.75 point of consolidated PRASM growth in the second quarter.

We expect to drive 1 full point of year-over-year PRASM growth in the third quarter. Additionally, we recently restructured the premium cabin fares on many of our domestic and short-haul Latin flights.

This initiative drove our consolidated paid premium-cabin load factor up 5 points, to 47%, and it resulted in approximately 0.5 point of consolidated PRASM growth in the second quarter. We continue to make gains with our corporate partners.

In the second quarter, revenue for large corporate accounts, which is what we've typically reported, grew by 3%, despite decreased year-over-year corporate revenue in April due to the Easter holiday shift. Additionally, we're seeing good growth from the rest of our corporate portfolio, primarily from our PerksPlus product, which is a points-based loyalty program for small- to medium-size businesses.

Our overall corporate portfolio, inclusive of PerksPlus, grew approximately 6% in the second quarter. Ancillary revenue grew at a solid clip in the second quarter, increasing 7.9% per passenger.

Our paid premium upgrade product performed extremely well in the second quarter, with a 28% revenue increase year-over-year. In alignment with the domestic premium cabin pricing at the time of booking, that I spoke about earlier, we've taken a similar approach with our premium cabin upgrade product.

We're restructuring the prices and improving the targeting of our product and customer marketing, and are seeing a material increase in take rates and revenue as a result. As Jeff said, while we are pleased that we exceeded our guidance for the second quarter, we have significant opportunities to improve on these results.

My team is intent on doing just that. We have a comprehensive effort underway to improve our revenue and margin performance.

The initiative falls into 3 broad categories: network and scheduling, our regional operation and revenue management. We have identified meaningful areas of opportunity in each of these areas.

And while many of the changes we'll make in these areas will yield near-term benefits, several of the changes will take a period of time to implement and drive results. I'll highlight a few of the examples of these initiatives, but be assured that we have identified and will continue to identify additional opportunities.

First, in the network and scheduling area. We plan to redesign the flight bank structure at our Chicago hub, as well as at our Denver and Houston hubs, which we announced last quarter.

We will implement these changes between the fourth quarter of this year and the spring of 2015. These changes will allow us to build more efficient, directional flows and shorten connection times.

Beginning this fall, we are adding more seasonal shaping to our schedule, increasing the amount of flying we do in the seasonal peaks and decreasing our schedule during the trough periods. For example, in 2015, we expect to fly approximately 25% more capacity in July versus February, compared to just 13% in 2012.

We will accomplish this by more optimally timing our maintenance visits, flight crew training and flight crew hiring. We will continue to make disciplined and thoughtful decisions regarding the comprehensive structure and performance of our overall network.

As we've consistently said, each hub has to earn its place in the network, and we will make return-driven decisions regarding the optimal hub network for United. Further, we are working to maximize the utility of our gate and slot portfolio to increase the scale and operability of better performing hubs.

We are excited about the long-term revenue opportunities these network and scheduling initiatives will drive. It is important to recognize that changes in this area, by their very nature, are more strategic and will take more time to implement than some of the other areas of our business.

We also have a significant opportunity to optimize our regional operations. In particular, continuing to reduce the number of 50-seat aircraft in our fleet and improving the reliability of our regional flying.

Over the course of this year and next, we will remove the equivalent of more than 130 50-seat regional jets from our schedule. We will replace 70 of these with 76-seat Embraer 175s that we are now taking delivery of.

And many, we will not replace at all. At the beginning of this year, we flew approximately 8% of our overall capacity with 50-seat and smaller aircraft.

But by the end of 2015, we expect that to decline to only 5% of our total capacity. We are also taking a number of actions to improve the reliability of our regional operation beyond simply flying fewer 50-seat jets.

One particular area of focus is reducing the complexity of our regional flying by consolidating the number of regional flying partners we utilize in a given hub. We are also reducing the number of hubs from which we -- which regional partners operate.

For example, today, we have 8 express operators flying out of our Washington Dulles hub, and we will reduce that to just 4 partners by this September. By concentrating on our regional operations with fewer regional carriers in a hub, we will reduce complexity and variability, and thus drive improved reliability.

We expect the changes we'll make in our regional operations will have a revenue benefit, as we improve our predictability and our onboard product; as well as a cost benefit, as we'll be flying much more efficient E175s instead of 50-seat aircraft. These examples illustrate only a few of the opportunities we have to grow United's revenue.

Through the enhancements we'll make to our network, our schedule, our regional operation and our approach to revenue management, we will significantly improve our revenue performance over the next 18 months. We'll provide more detail on our progress in the coming quarters.

For the third quarter, we expect PRASM to grow between 2% and 4%, on capacity growth of between 0.2% and 1.2% year-over-year. For the full year, we now expect capacity to be between flat and up 1%, 1 full point lower than the guidance we provided at the beginning of 2014.

In conclusion, I'm pleased with our improved performance. However, we still have significant runway ahead.

My team and I are committed to improving our revenue growth, and we are very optimistic about our strategy to do so. With that, I'll turn the call over to John.

Thanks, Jim, and thanks to all of you for joining us this morning. I would also like to thank our employees for their efforts in the second quarter.

Throughout the company, we are making long-term, sustainable improvements, and I appreciate everyone's hard work in developing and implementing these important initiatives. Today, we reported $921 million of pretax income for the second quarter, generating earnings per diluted share of $2.34.

This represents a pretax margin of 8.9%, an improvement of nearly 3 points year-over-year. Additionally, in the second quarter, we generated $1.5 billion of operating cash flow, and nearly $600 million of free cash flow.

While we are pleased with our improvement, we have significant opportunity to expand upon these results to generate the level of earnings we expect. Second quarter consolidated CASM, excluding fuel, third-party business expense and profit sharing, was 0.2% lower year-over-year, much better than our initial expectation for the quarter.

Results from our cost-saving initiatives during the quarter exceeded our expectations, and we also renegotiated certain maintenance contracts. Additionally, some expenses we originally anticipated to incur in the second quarter shifted into the third.

Year-to-date, our CASM performance have exceeded our expectations, despite the fact that we reduced our capacity by more than 1 point in the first half of the year from our initial plan for 2014. We expect this strong performance to continue in the second half of the year, with third quarter and full year nonfuel CASM each increasing between 1% and 2%.

I attribute much of our good cost performance to outstanding execution of our Project Quality initiative. This initiative is designed to generate $2 billion of annual cost savings by 2017.

Through Project Quality, our team is making fundamental, permanent changes to how we do business. For 2014, we expect to achieve nearly $200 million in fuel efficiency savings, and approximately $300 million in nonfuel savings from this initiative, which is at the high end of the range we previously provided.

The progress we're making in this area is clearly evident in our second quarter CASM performance. One area in which we're seeing meaningful gains already is productivity.

In the second quarter, we improved our productivity by 3.9% year-over-year, the fourth consecutive quarter of improvement. For the full year, we are on track to improve productivity by 3%, versus 2013.

Since our merger, we have evolved how we allocate capital at United. And today, we announced the next phase of our capital allocation plan with a $1 billion share repurchase program, which we expect to complete within the next 3 years.

This amount represents approximately 6% of our market cap. In conjunction with this announcement, we have initiated a $200 million accelerated share repurchase program, which will be completed within the next 3 months.

In addition, during the second quarter, we spent $62 million to retire convertible debt, which would've converted into 1.5 million shares of United stock. Over the last year, I have consistently talked about 2 gating items prior to initiating a shareholder return program.

First, we wanted to address the $800 million, 6 3/4% secured notes, for which we now have a plan in place, and I'll speak to the details shortly. And second, we wanted to have a level of earnings and cash generation that supported the capital distribution to shareholders, and our earnings outlook does just that.

At this time, we believe the best method to distribute capital to shareholders is through a share repurchase program. We have confidence in our earnings potential and believe that we are trading at a discount to our intrinsic value.

As we continue to demonstrate progress against our plan, increase our earnings and further pay down debt, we will evaluate if and when we should complement our share repurchase program with a dividend. In addition to returning cash to our shareholders, our long-term capital structure goals include reducing our non-aircraft-related debt and managing total debt at approximately $15 billion, while maintaining an unrestricted liquidity balance of $5 billion to $6 billion.

In the second quarter, we made $333 million of debt payments; and for the second half of 2014, we expect approximately $575 million of scheduled debt payments. We are seeing a clear benefit from the balance sheet improvements we're making.

We expect our 2014 interest expense to be approximately 30% lower, versus just 4 years ago. In keeping with our goal of reducing non-aircraft debt on our balance sheet, we intend to redeem the entire $800 million of 6 3/4% secured notes.

We expect that this redemption will occur this September when the notes become pre-payable at par. Also in September, we expect to close on a transaction under our existing $1.9 billion credit facility, in which we will increase the size of our undrawn revolving credit facility by $350 million to a total of $1.35 billion, and issue an additional $500 million tranche of term loan debt.

These transactions will allow us to reduce our balance sheet debt and interest expense, while continuing to maintain an appropriate level of liquidity. As we look forward, our debt and capital lease payments over the next 4 years are approximately $1.1 billion annually, about half of what our annual maturities have been over the last 4 years.

In addition to reducing our debt, we are making high return investments in our business. In the third quarter, we expect approximately $650 million of gross capital expenditures.

We plan to take delivery of 4 737-900ERs and 2 787s, including our first 787-9 during the quarter. We introduced our first 7 highly efficient Embraer 175s in the second quarter and we expect to take an additional 12 in the third.

We expect to have 70 of these operating by the end of 2015. Additionally, we are working to meaningfully reduce our capital expenditures over the next 4 years by working with the aircraft manufacturers and continuing to explore opportunities in the used aircraft market.

I'm encouraged by our second quarter financial performance and by the progress in our Project Quality initiative. We expect to expand earnings year-over-year in the third quarter and to continue this momentum as we move forward.

We are pleased to take an initial step toward returning cash to our shareholders, and we'll continue to make prudent, return-driven investments in our people, fleet, product and technology. Through the actions we've taken, and will continue to take, to improve our revenue and operations, our efforts to improve the efficiency and quality of everything we do and a more balanced allocation of cash flow going forward, we're creating a great foundation for increasing shareholder value.

I'll now turn it over to Jonathan to open up the call for questions.

Thank you, John. First, we will take questions from the analyst community, then we will take questions from the media.

[Operator Instructions] Operator, please describe the procedure to ask a question.

So, John, a little bit more on the cash discussion. If we think about your CapEx being about $3 billion a year as of today, next year or in the year -- a couple of years after that, and then you got $1.1 billion in debt payments and then some degree of repo, obviously, going on, how should we think about how much debt you're going to raise, right?

So I mean, are you just going to be paying down these -- the $1.1 billion of debt maturities as they come due? How much of the CapEx do you see yourself financing?

How much cash comes in that you're going to raise in the capital markets? On a steady-state scenario.

Well, Hunter [ph] -- yes. As a general rule, we would expect to finance aircraft with debt.

The efficiency in that market right now is outstanding. When we can raise debt at 4% to purchase assets, that's a very good use of cash, that also lowers our overall cost of capital.

Where we will be opportunistic with paying down debt is in some of the non-aircraft debt categories. We still have the term loan, as well as several tranches of unsecured debt, which happens also to be at all-time low rates for the airline industry.

But the key thing here, Hunter, is balance. We've evolved how we allocate cash flow since our merger.

Initially after our merger, the best way to create shareholder value was to continue to delever and derisk this business. We've also made a lot of core investments in the company and in our infrastructure.

And we're at a point now where we've complemented that with the first phase of capital distribution to shareholders. And going forward, we will be opportunistic in terms of paying down debt, overfunding our pension, investing in our business and continuing to deploy cash to shareholders.

Okay, and is Greg Hart there?

Yes.

Yes, Hunter.

Greg, I have a question for you on the regional side and, Jim, you might have some color on this, too. But I was going to ask you, and Jim, you answered a lot of it, is -- obviously, you're kind of consolidating the regional footprint a little bit.

And I think a lot of United's problems over the last couple of years can be really tied back to the regional operation, whether it's just basic operational reliability, on-time performance or fleet type, whatever you want to call it. But my question is really, how much of that can you actually control?

I mean, if your regional providers are showing up late or behaving badly, how much control do you really have over that? Obviously, you can fire them.

But in terms of what you can do to fix it in the immediate term, what can you control and what can you not control on the regional side?

That's a good question, Hunter. And I think there's certainly lots of things we can control and there's investments, for example, we can make on our end that'll provide a better environment for our regional partners to operate in.

For example, as a result of our experience in the first quarter with all the weather, we've invested in a quite a bit of technology that's going to provide the opportunity for us to better cancel flights and provide the regional operators a better chance to recover much quicker than what they have historically been able to do. So that's an example of some of the things we're doing to better facilitate their operations, both in wintertime as well as summer storm times.

So there's lots of things we're doing along those lines to help the regional carriers perform better.

Can I just ask Greg a question, actually? How -- or somebody said 8% of your operation is regional, and that's going to be declining.

Is there a way to determine what percent of your cancellations and, therefore, some of the reliability issues are actually weather-related versus operational difficulties?

Helane, I think what Jim mentioned, as it relates to the 8%, was 8% of our flying is on 50-seaters and that's declining to...

Oh, got you.

5% over the course of the next 18 months or so. Obviously, we track our regional carriers' performance each and every day, and understand each and every flight that is either delayed or canceled and the reasons why.

It's something we've got laser-like focused on, and are focused on not only taking advantage of the opportunities that, that data provides, but building better flexibility within the schedule to provide better opportunities to recover. Jim talked about consolidating the number of operators in Dulles, for example.

As you can imagine, as we built schedule depth for those operators in Dallas, they've got better capabilities to recover themselves.

Okay, but there's no way to know how much is weather-related, how much is pilots, because of weather, not being available, there's no way to actually determine that?

Well, for us, we have that data and we measure it every day. It's not anything we talk about publicly, but we have contractual relationships, actually, with our providers that account for weather-related delays differently than mechanical or pilot-driven delay or cancellation.

Okay. And then could I just ask John a question?

I think you mentioned that you thought your shares were -- I think he used the word intrinsically undervalued relative to your peer group. Do you have like an amount that you think you're undervalued by?

Nothing that I would want to disclose, Helane. The point being, though, is that we have a lot of confidence in our plan and in our ability to execute on that plan.

And if you believe that the preferred method of deploying capital to shareholders is through a share repurchase program, you want to do that at a point where you're trading at a discount to that future earnings potential. We believe that's the inflection point that we're at.

We've got a lot of confidence in our plan going forward. And we'll -- we believe that now is the right time to do this for United shareholders.

John, I wanted to follow up on the repurchase a bit. You described it as sort of the initial step, and I think it's great to see an industrial company do a buyback before they hit their inflection.

How do you think about sort of a more steady state return of capital, assuming that all the initiatives play out over the next kind of 18 months or so?

Well, you're right, John. This is a first step, and I will add that I think it's a watershed moment in the airline industry, where you have the largest 4 carriers returning cash to shareholders.

I think that, that speaks volumes about how this industry has changed, how it's de-risked the business and the sustainability of those earnings going forward. One way that we look at this is the amount of cash that we're deploying relative to our market cap.

Today's announcement is about 6% of our market cap. We're going to -- as we begin to act more like an industrial, I think we should begin to measure ourselves more against industrials and have returns of capital that aspire to be similar to those.

That's very helpful. On a separate topic, I'm very interested in the fact that you guys are on the cusp of some major upgauging here, and you have been doing some replacement of aircraft as well.

Are there any anecdotes, numbers, sound bites that you can give us in terms of the differential in the economics of different aircraft just to help us kind of model the impact over the next 18 months or so of some of these initiatives, because they sound like they could be meaningful?

Are you referring specifically to the used versus new market? Or just in terms of the CapEx materiality, the reduction?

Two things I'd be interested in. Number one, when you think about, perhaps, the per seat CASM x fuel differential, approximately, some of the larger-gauge aircraft you're bringing in versus the 50-seaters that you're swapping out.

And secondarily, in the past, you've offered some thoughts on sort of replacement economics and talked about how 737s save you quite a lot of money versus 757s. I'm just trying to kind of put the whole picture together and looking for some more of those data points.

Sure. Well, the 70-seater obviously is appreciably better from a CASM perspective than the 50-seat product.

Equally, it puts some pressure on the revenue side. Now I think balancing that on the revenue side, just to go there for a second, is that it's a much better product for our customers.

And where we're flying a 50-seat RJ today, wingtip to wingtip, with a competitor that's flying a mainline jet, it's an inferior product and customers book away from that. So I view that more as a kind of a scratch on the revenue side, and it provides a fairly material improvement on the cost side.

With respect to replacement economics, we've often talked about the fact that for each 757 that we replaced with a 900ER, it's a couple of million dollars to the bottom line each year. One of the things that we're looking at right now is the used aircraft market.

And that market varies widely, based upon which aircraft type you're talking about. And I'll give you an example.

The 737-800, a 10-year-old 800 is not priced as low, relative to a new 800, as like an Airbus or some of the other older-generation planes. So we need to be opportunistic with respect to which particular aircraft types we look at if we're looking at the used market.

But while we do trade maybe some of the operating economics for a plane that's not newer generation, as we've consistently said, one of the ways that we look at returns in this business, and a very important way, is return on invested capital. And where we may be trading the top line, the numerator, the notepad, we're actually benefiting it by the lower invested capital.

And so that's one of the factors that we will take into this decision.

John, this is Jim. I would just add to John's comment on the revenue side.

The [indiscernible] of the 50-seaters with the 70-seaters also presents a first-class cabin and Economy Plus cabin. We're excited about the ancillary opportunities.

I've mentioned a little bit about what we're seeing on upsell, as well as first-class pricing in the premium cabin domestically. So we're excited about the opportunity that as those 70 airplanes come into the system over the next 18 months, what that will drive on the ancillary side.

Jim, Delta made the point yesterday about their long-standing relationships with -- in United's JV partners within the context of trans-Atlantic pricing and scheduling. Lufthansa has announced some capacity cuts, but apparently -- at least not yet in the Atlantic.

I know you don't have veto power over your partners' schedules, but how closely do you coordinate? I mean, can you influence, can you compel more capacity discipline at the Star Alliance level?

Or you just -- only at the United mainline level?

Jamie, so we have a great working relationship with our JV partners. And whether it's Lufthansa, ANA, Air Canada, all of our JV partners, we coordinate very closely on capacity, as well as the pricing and sales -- and the sales agreements that we have in the marketplace.

You are right, though, at the end each carrier is free to make decisions that they feel best for them. But I will tell you that the relationships that we have with our JV partners and our coordination is very tight.

As we look at the trans-Atlantic capacity, we're relatively flattish in the second quarter. Some of the seasonal shaping that I mentioned in my comments have a direct impact on the trans-Atlantic, in that you'll see our capacity relatively flat in the winter 2015 off [ph] season.

But to your point, we work really closely with our JV partners.

And I assume that means you share schedules, plan schedules well before they're loaded. You're not like us where you have to rely on monitoring schedule tapes and stuff?

Absolutely. There's -- the network teams have far-out looking discussions in terms of what capacity and what works for each carrier.

Okay. That's what I figured.

And a question for Greg. When we think about the first quarter's unprecedented meteorological mayhem, if we were to repeat that in winter 2015, are there any particular initiatives you can point to that would make the outcome less severe for you guys?

Or, I guess, I don't know, put differently, were there operational takeaways? Or do you just treat last winter's weather as a one-off, sort of Chicago's own, well, Super Typhoon Paka, if you will?

Jamie, great question, and we are certainly not treating first quarter's weather as a one-off. We are expecting more of the same moving forward, and are preparing for that.

And we've got a lot of things ongoing to help us better manage weather events at the airport. And a couple of examples I can point to.

One is we're working on a tool that's going to provide the opportunity to better rebook our passengers over our network. Today's tool isn't that sophisticated when it comes to being able to rebook our passengers over every itinerary we can provide in our network.

And obviously, with the 7 hubs here in the Continental U.S., we've got a lot of different itineraries that we can put people over. So we're working on a tool that's going to better do that.

We also are working on a tool, that I mentioned earlier, that's going to help us better get the airline back on its feet after a winter storm. We're going to cancel flights such that we're going to better understand where our crews are, where they have time, and where the airplanes are to help the airplane recover much quicker than what we have been able to do historically.

And there's several other examples I can point to across all of the divisions that we're working on to better provide the opportunity to get our passengers to where they want to be much quicker than what we have historically.

John, the question about exploring opportunities in the used aircraft market, where do you see a need? Is it -- are you looking at widebodies, narrowbodies?

What's behind that?

It's on the narrowbody side. We are making some investments in our fleet on the widebody side to prolong the life of those planes.

But this is more about being disciplined and balanced with respect to CapEx. And as we shift from relying less on the 50-seat RJs and more on the regional fleet, we need to do that in a financially disciplined way.

I'm a big believer in the new aircraft that the manufacturers are putting out, but there's a limit to what we should go out and spend, and we need to be balanced with our capital, balanced with the amount of debt we're putting on and actually do this in a way that enables us to return cash to shareholders.

Great. And then just my second question, and this is -- it's probably a question for Jim.

I think there was -- it was an article in some of the -- it seemed like some of the papers picked it up not that long ago about maybe United should shut down its Dulles hub. And I guess the question is, as I recall -- I don't know, this wasn't even that long ago, I recall hearing where, I believe, the DC and Northern Virginia area had one of United's highest concentrations of 1K and Global Service members, and some of the average one-way fares out of Dulles, at least on mainline, were among some of the highest in its system.

And I don't know if that's changed. Maybe that has changed with the merger and the integration.

But historically, I actually thought that, that was a very profitable operation for United. I realize you don't get into profitability of hub-by-hub economics, but is there anything that you can say to, I don't know, refute that or just give us some color?

Mike, this is Jim. I think my comments would be that we have, as I talked about, our revenue initiatives and the 3 areas that we're focused on: network and schedule, the regional operations and revenue management.

Within network and schedule, we're very focused on how our traffic flows across all our hubs, and how each hub participates into the overall network performance. Within that, the team -- very granular analysis, and the granular analysis includes many of the things that you just mentioned in terms of where our most loyal customers are, the lifetime spend and our expectations with that going forward.

So I think I would just summarize by saying that we are very much focused on revenue initiatives that we've implemented, that we're going to implement, and those that we're researching, and that includes the overall look at the network.

Jim, I guess, if I could just follow-up on Mike's question. I think one of the comments I heard is that each hub, pardon me, has to earn its way into the network and sort of alluded to the fact that maybe more decisions could be on the way.

I know you're not willing to make any announcements today as, of course, these are long-term strategic decisions you have to live with. But I wonder if you can provide some perspective about when you might expect to reach a decision first?

And I guess secondly, from where you sit today, does any potentially required surgery seem extensive or perhaps more modest?

Dan, this is Jeff. Let me take that question if I could.

I would say that nothing is off the table, and we'll take the actions that we need take to maximize the value of our enterprise for our shareholders. We have demonstrated an ability and willingness to take tough actions.

Cleveland's a good example of that. We have a lot of initiatives underway, and we're taking a lot -- a look at a lot of others.

I'm not going to put a timeframe on that, nor will I talk about, nor will we as a company talk about directionally where we'll go until we're ready to talk about something. But I want to assure you that this team is committed to improving our margin performance, to improving our value for our shareholders, to improving our product, to improving our operational reliability, and we will take whatever actions are necessary to do just that.

Understood, I appreciate that. And then I guess just -- if I could follow up with one more question on the capital return.

I appreciate the perspective you guys have already shared. And I guess, just going back to the original goal, it was initially to return it in 2015.

And so, I'm wondering if you can -- and maybe you've already shared this, but provide some more perspective on what led you to conclude that it made sense to bump it up by 1 year. So I guess, in particular, is it really just the intrinsic value of the stock?

Or is there a view, perhaps, that the core business is on track to recover more quickly than you previously anticipated?

Well, it's absolutely both those, Dan. I would emphasize that when we first articulated our plan to return cash to shareholders last fall, we were deliberately vague with the timeframe, and we said by sometime in 2015.

And at that point, we were very early on in several of the key initiatives that we're working on right now. We now have a few quarters underneath our belt, and you can see the results of those performance in our financial and cost performance this morning.

We have a clear line of sight into the cash flows that exist out into the timeframe that we talked about and we've got a lot of confidence in our plan, and that's what this action today reflects.

Jim, wondering if you could talk a little bit more about rebanking, specifically. I don't know if it was just Chicago or a number of hubs.

When we look at your connecting RASM, it actually appears pretty good. It's running ahead of your existing primary competitor.

So it looks like, philosophically, you already appreciate the value of connecting revenue. Can you talk about what's actually changing and what revenue you feel like you're leaving on the table and maybe how large this opportunity is?

Yes. The opportunity is, obviously, to improve that.

The -- and what we're focusing on is, beginning in the fourth quarter in Denver and beginning in Houston towards the end of the year and into the first part of the year, and then Chicago by spring of 2015, looking at rebanking those 3 hubs. What it will do is it makes -- what it does is it reduces the connection time, and the opportunity to drive more connections at a higher yield than what you're already seeing today.

So yes, we do really well in the connecting business today, but we think it's an opportunity to drive it even higher as we tighten those things up and driving more connecting opportunities for our customers.

And also, the one thing I would add, Duane, is that as we have had a lot of focus on improving our operations, we have more confidence in our operational reliability going forward to permit those connections to occur without undue misconnects.

Jim, I'm wondering if you could talk a little bit about on the commentary you provided on the Pacific, maybe quantify or put into context kind of how the initiatives that you've put into place on that market should help alleviate some of the capacity growth that you're seeing kind of going into fourth quarter, maybe on a year-over-year basis.

Joe, yes, the Pacific performed better than our expectation in the second quarter, so we're pleased with the progress that we're making on our Pacific initiative. But it kind of falls -- it falls into 4 categories.

Restructuring our Narita flying, working with our ANA -- with our JV partner, ANA, to do that. Which means, for instance, in March 2014, we no -- we suspended flying Narita to Bangkok and are now connecting that traffic that we carry over the trans-Pacific, over ANA, to Bangkok.

The tech ops team, the maintenance team invested in a great program in the reliability of 747. Last year, we talked about that.

The second quarter was the beginning of the repositioning of those 747s, and allowing those airplanes to fly the missions that, from a network perspective, from a revenue perspective, they want to fly. That has a lot -- in addition, our secondary Asian city strategy really is exceeding our expectations in new routes from San Fran to Taipei and Chengdu are exceeding our expectations, is that third prong of the strategy.

And then the last one is rightsizing the missions with the 787. We used to fly San Francisco to Osaka on a larger airplane, it's now on the 787 and the economics are significantly better, as an example of the flexibility of our fleet that we have as we take deliveries of 787s to optimize the network going forward.

So in the context of the competitive pressure that you talked about, we're actually -- we're building on the great footprint we have in the Pacific, and the uniqueness that we can bring to the market allows us to manage against that pressure that we see as the capacity, particularly into China, accelerates through the rest of this year.

Just wanted to ask about what you're seeing in the Latin America region. It looks like your capacity has been increasing, but it's seen a bit of recovery and maybe not similar to what we have seen elsewhere.

And I'm just wondering if what you're seeing? And maybe, where the growth is being concentrated?

And we are seeing increase in Latin -- in our investor update we actually talked about over the next several weeks, we're booked up about 4.5 points in the Latin America division. And so we're confident with our capacity growth in the market.

We're seeing strong growth looking forward in the leisure beach destinations, as well as into Mexico -- the business markets. And I will tell you that a lot is driven by the Houston hub.

It's a great connecting point, it's a great facility as a gateway into Latin America. So as we -- again, as we face competitive pressures, we'll monitor what's happening in the marketplace and make sure that we keep capacity in line with the demand.

But we're really confident where we're at and the results that we're seeing in Latin America right now.

Got it. And then just as you look across your hubs, I was just wondering, we've seen a lot more of Frontier adding a lot of capacity into more of your markets.

And I know that's a very different product, but I -- just wondering what the impact has been and what your response has been.

Obviously, we compete amidst many carriers across our system. And we think that we have a terrific product, it is a different product than the ultra-low-cost carrier product.

And we view that as we build our operational reliability, as we improve on the predictability of product that we have in the marketplace, we're well-positioned to compete, really, against anybody, including Frontier.

I have 2 questions, one's easy and one's hard. The easy one is about Chengdu.

You said the flights are doing well. I'd like you to say a little more about that, and the reason for it and might you increase frequencies.

And secondly, to Jeff, there's been a lot of complaints a couple of months ago about -- from the pilots. I haven't heard you address that.

But have you been listening to that, consulting with them? Does that explain any of the improvement?

Ted, this is Jim. The first question on Chengdu.

Relative to our expectation, what we're really pleased with is the point of sale out of China exceeding our expectations. And so that's where we've seen most of the upside versus what our initial forecast said.

So we're looking forward to that continuing. We work really closely with the officials in Chengdu and have developed great relationships, and we're seeing the fruit of that bear out.

But again, like any route, we'll monitor capacity and demand. And if the demand is there to warrant increase in frequency, we clearly have the opportunity again.

And I'll go back to the 787, it's really a terrific airplane that allows us to do many things in the Pacific and across our network. So we'll continue, like we do in every market, monitor the capacity and demand and react to that appropriately.

This must give you a lot of faith that you can continue to do great things with the 787 in China, open more cities.

That's exactly right. I mean, China is a market that -- is an economy that continues to grow at a very strong pace.

And there are many opportunities in China that you can develop markets with, particularly with that 787.

And Ted, this is Jeff. In answer to your second question, certainly, at the beginning of the year, with moving everybody to a single crew management system and FAR 117, the new flight duty time, we had some hiccups in some of those implementation, which adversely affected some of our pilots.

But we've certainly also allow [ph] an enormous amount of focus to that. All our folks in ops and our technology worked together hard to make sure to make their lives more predictable and reliable.

And certainly, the amount of focus we've had and investments we've had in improving our operational reliability makes the pilots' lives better, makes the flight attendants' lives better, makes our passengers' lives better. I think we have a good relationship with ALPA, in the joint collective bargaining agreement.

We are in close consultations with our pilots on many matters. And we continue to develop that relationship, and we expect that relationship will continue to improve over time.

We want to make sure that we have the right culture with everybody at this company, including our pilots, and I think we're making good progress.

I wanted to ask about the Tel Aviv flights. And did you plan to resume those all along as soon as the FAA lifted the NOTAM?

Or did you conduct your own assessment? And if it is the latter, can you please explain your decision, what went into it?

Sure. Well, first of all, the safety of our passengers and crews is paramount, and we don't fly missions that we don't have confidence are safe.

We have consulted extensively with the U.S. government, as well as our own people on the ground in Tel Aviv, and that is -- and we believe it's safe to fly and that's why we're commencing -- recommencing our flights.

Okay. With that, we're out of time, so we'll conclude.

Thanks to all of you for joining us today. Please call Media Relations if you have any further questions.

We look forward to talking to you next quarter. Goodbye.