• Reported basic and diluted loss per share of $1.19 excluding certain largely non-cash accounting charges described below. United's reported GAAP loss per share was $21.47.
• Recorded $2.6 billion of previously announced accounting charges, including a $2.3 billion non-cash special charge for goodwill impairment.
• Continued its focus on controlling costs, with mainline cost per available seat mile (CASM), excluding fuel and the above mentioned accounting charges, up 2.6 percent versus the same period in 2007. Mainline CASM for the quarter was up 85.5 percent versus the second quarter of 2007, reflecting a 55.4 percent increase in mainline fuel price per gallon and the significant accounting charges.
• Strengthened its cash position by raising $90 million through new financings, asset sales and freeing up $130 million in restricted cash. In addition, the company expects to raise $330 million in cash in the third quarter through aircraft financings and the release of restricted cash, resulting in a total cash balance improvement of approximately $550 million.
• Announced further capacity cuts and the retirement of the entire B737 fleet as well as six B747s. In total, United will retire 100 aircraft and will reduce fourth-quarter mainline domestic capacity 15.5 percent to 16.5 percent year-over-year. In conjunction with the capacity reductions, the company expects to reduce its workforce by approximately 7,000 by year-end 2009.
• Announced an alliance partnership with Continental Airlines – a partnership that will create the most comprehensive domestic system by linking networks as well as creating potential for cost savings and operational efficiencies, while simultaneously benefiting customers.

Quarterly Net Loss Driven By Record High Fuel Prices

The company's financial results in the second quarter of 2008 were impacted by previously disclosed largely non-cash accounting charges that, coupled with a $773 million or 54.1 percent increase in consolidated fuel expense, caused the company's net, pre-tax and operating results to be significantly lower year-over-year.  The accounting charges include:

• A non-cash special charge of $2.3 billion for goodwill impairment.
• Non-cash special charges of $194 million relating to the impairment of B737 aircraft that are being retired from the company's operating fleet, aircraft pre-delivery deposits and certain indefinite-lived intangible assets other than goodwill net of a related tax benefit of $29 million.
• Severance charges of $82 million related to the staffing reductions that will result from the capacity reductions the company has announced. Cash payments related to severance will be incurred over time as we implement our capacity reduction plans.
• Other largely non-cash charges of $54 million related to certain projects that have been terminated or deferred and a non-cash adjustment to increase certain employee benefit obligations.
• A $29 million cash gain from a litigation settlement.

These accounting charges added $2.6 billion of largely non-cash expense to the company's operating costs for the quarter. The company may record additional accounting charges in future quarters related to its capacity reductions, including possible non-cash fleet and property and equipment impairment charges, further intangible asset impairment charges, expenses to terminate early certain facility and aircraft leases and additional severance costs. However, at this time, the company is unable to reasonably estimate the amount and timing of these future charges.

Excluding the above accounting charges, in the second quarter of 2008 the company generated an operating loss of $87 million, versus operating income of $537 million in the year ago period primarily as a result of the significant increase in fuel expense. The company generated a net loss, excluding these accounting charges, of $151 million in the second quarter of 2008, $425 million worse than the second quarter of 2007. Including the impact of these accounting charges, the company reported an operating loss for the quarter of $2.69 billion and a net loss of $2.73 billion.

Excluding a $29 million tax benefit related to the impairment of intangible assets, the company did not recognize any income tax benefit in the second quarter of 2008. Because of its Net Operating Loss carry-forwards, the company expects to pay minimal cash taxes for the foreseeable future.

Despite continued unit revenue growth, and better cost performance compared to its prior guidance, these gains were insufficient to offset the more than 55 percent increase in average fuel price per gallon. 

“Our industry is challenged as never before by the unrelenting price of oil, and United is taking aggressive action to offset unprecedented fuel costs and to strengthen the competitiveness of our business,” said Glenn Tilton, United president, chairman and CEO. “The elimination of our entire B737 fleet and our alliance with Continental are examples of the different approach we are taking to respond to dramatically changed market conditions to deliver better results for all our stakeholders.”

Taking Additional Actions to Address Unprecedented Fuel Costs

While the price of jet fuel has steadily increased over the last few years, the rise in 2008 has been unprecedented, with fuel increasing by more than 37 percent since the beginning of the year.  United is executing an aggressive plan to address the skyrocketing cost of fuel by:

• Sizing the business appropriately for the environment, leading the industry in permanently reducing capacity. United is removing 94 narrowbody aircraft and 6 widebody aircraft from its operations, retiring its entire fleet of B737s in the process.
• Using its capacity discipline to pass higher commodity costs to customers through fare and fuel surcharge initiatives.
• Creating new revenue streams by charging for a la carte service, such as checked bags.
• Reducing costs across the business.
• Reducing capital expenditures.
  

United also recently announced a framework agreement to form a unique partnership with Continental Airlines, one that responds to the need for different thinking and solutions in an industry confronted by extraordinary and volatile fuel costs and dramatically changed market conditions. This agreement will result in extensive cooperation, linking networks and services worldwide to the benefit of customers while creating revenue opportunities, cost savings and other operating efficiencies. In addition, Continental plans to join United in the Star Alliance, the largest airline alliance in the world. This week, Continental Airlines, United Airlines and eight other member airlines in the Star Alliance plan to ask the U.S. Department of Transportation (DOT) to allow Continental to join the group of carriers that already hold antitrust immunity. Approval by the DOT would enable Continental, United and the other immunized Star Alliance carriers to work closely together to deliver highly competitive flight schedules, fares and service.

Strengthened Cash Position With $550 Million Raised From New Transactions

During the quarter, the company raised $90 million through new aircraft financing transactions and asset sales and freed up $130 million in restricted cash by replacing it with a $100 million letter of credit.

In addition, early in the third quarter, the company received funds from a $241 million aircraft financing transaction whereby it raised additional debt.   The company freed up another $50 million of restricted cash by replacing it with letters of credit worth $34 million.  The company also reached agreements in principle for the sale of assets worth approximately $40 million.

As a result of all these actions, the company raised approximately $550 million in cash.

Despite escalating fuel prices, the company generated positive operating and free cash flow during the quarter. The company realized $217 million of operating cash flow and $127 million of free cash flow, defined as operating cash flow less capital expenditures, during the second quarter.

The company reduced total on and off balance sheet debt by $292 million in the quarter to $11.1 billion, despite entering into new debt financing. The company ended the quarter with an unrestricted cash balance of $2.9 billion and a restricted cash balance of $655 million. The company's quarter-end cash balance does not include any cash deposits associated with collateral from its fuel hedge counterparties.

In addition to its strong cash balance, and subsequent to the financings and asset sales previously discussed, the company continues to have over $3 billion in unencumbered hard assets that it can use to further enhance liquidity through asset sales and/or secured financing transactions. 

“We continue to take the difficult, but necessary action across the company to reduce our costs, including reducing our workforce by more than 7,000 people,” said Jake Brace, United executive vice president and CFO. “We are maintaining our cost guidance for the year even as we dramatically reduce capacity, and are improving our liquidity, ensuring United is well positioned to weather the current environment.”

Capacity Discipline Drives Revenue Growth

The company's focus on capacity discipline and strong revenue management drove continued revenue growth. Total revenues increased by 3.0 percent in the second quarter of 2008 compared to the same period in 2007, as growth in passenger unit revenue and cargo more than offset the year-over-year reduction in capacity. The company's mainline RASM increased by 5.1 percent year-over-year from the second quarter of 2007 due to strong passenger and cargo yield performance partially offset by lower passenger load factors.

The company's cargo business continued its strong performance with a 30.9 percent year-over-year increase in revenue. Higher fuel surcharges, foreign exchange gains and strong yield improvements contributed to the cargo revenue increase.

Total passenger revenues increased by 2.6 percent in the second quarter compared to the prior year as a result of a 7.7 percent gain in consolidated yield, more than offsetting the 3 point decline in system load factor.  Mainline domestic PRASM for the quarter increased by 5.9 percent, aided by a 4.8 percent reduction in capacity. International PRASM grew 3.2 percent in the second quarter compared to the same period last year, despite a 3.7 percent increase in international capacity year-over-year.  Consolidated PRASM increased 3.9 percent year-over-year.

The company's change to deferred revenue accounting for the Mileage Plus program, from the previous incremental cost method, decreased consolidated passenger revenue by approximately $42 million in the second quarter of 2008.  The change to the expiration period for Mileage Plus accounts without activity from 36 to 18 months, which the company instituted in January 2007, did not impact the company's revenue results in the second quarter of 2008, as it did in the second quarter of 2007.

In the second quarter of 2007 deferred revenue accounting increased consolidated passenger revenue by a net $1 million, including $47 million of non-cash revenue recognized from the expiration policy change. In total, these Mileage Plus accounting changes resulted in a net year-over-year decrease in consolidated passenger revenues of $43 million for the second quarter of 2008 compared to the same period in 2007.

As the company no longer follows the incremental cost method of accounting, differences between the two accounting methods are calculated using the company's best estimate of the incremental cost method. Excluding Mileage Plus accounting impacts, consolidated PRASM increased 4.9 percent year-over-year.

Regional affiliate PRASM was up 0.3 percent compared to last year, with a 6.6 percent increase in yield and a 1.1 percent capacity decline. Load factor for regional affiliates decreased 4.7 points in the second quarter of 2008 compared to the second quarter of 2007, while stage length for regional affiliates was up 5.3 percent for the same period.

¹ASM (available seat miles)
²Consolidated Passenger Revenue and PRASM adjusted for Mileage Plus effects (See Footnote 5[b]).
 
Focus On Improving Operating Performance

For the twelve month period ending May 31, 2008, the latest available, United ranked fifth among the six major U.S. network carriers in Department of Transportation on-time rankings.  As part of the company's efforts to improve performance, it has implemented an operational agenda that stresses the day-to-day actions required to provide a reliable product, deliver good service and maintain industry leading safety standards and practices. To improve reliability performance, the company is increasing crew reserves, increasing average scheduled ground time and improving its arrival readiness at gates.  This, coupled with the reduction in ground delays expected to result from the industry-wide cut in capacity as well as the new O'Hare runway that will come online in November, is expected to materially improve the company's on-time performance.

“Our focus and our energy are all about generating a step change in our performance,” said John Tague, United executive vice president and COO. “We've set the targets, put the right leaders in place, and we're executing against our plan with a clear understanding of what we need to achieve, how we need to do it, and that we are ultimately accountable for that outcome.”

Continued Focus on Cost Control

Mainline CASM increased by 85.5 percent year-over-year to 20.39 cents reflecting the large special charge and other largely non-cash accounting charges that the company took in the second quarter, as well as the steep increase in fuel expense.  Second quarter mainline CASM, excluding these charges and fuel, increased by 2.6 percent from the year-ago quarter to 7.80 cents, better than the company's guidance due to lower than expected maintenance costs and an airport rent cost. This result demonstrates United's continued focus on controlling non-fuel costs.

The company has classified the majority of its various fuel hedging positions as economic hedges for accounting purposes. The company recorded a net gain of $238 million on hedge contracts in the second quarter - a realized gain of $30 million relating to the current quarter and an unrealized gain of $208 million relating to contracts settling in future periods. The cash benefit of hedging during the quarter was $51 million. These gains were recorded in mainline aircraft fuel expense and resulted in lower fuel expense, than would otherwise be the case, for the second quarter.

The company also recognized a net gain of $22 million from fuel hedges that did not qualify as economic hedges and were therefore reported as non-operating income; $1 million of this gain was realized during the current quarter.

Business Highlights

• In June, the company announced a new fee of $15 for first checked bags. The company anticipates that this charge along with the $25 second checked bag fee and several other changes to bag fees will generate $275 million of incremental revenue on an annualized basis.
• United became the first U.S. carrier to offer iPod and iPhone connectivity to its in-flight entertainment system, enabling customers to enjoy their individual content on a 15.4-inch personal television, all while the iPod or iPhone charges. United's entire fleet of international, widebody aircraft are being reconfigured over the next two years with lie-flat seats, on-demand entertainment, and iPod and iPhone connectivity in first and business class.
• United announced several new codeshare partnerships during the second quarter including new relationships with Hawaiian, Jet Airways and Aer Lingus. These partnerships will significantly expand the number of flights available to United customers in Hawaii, India and Ireland.
• On June 12, 2008, the company held its annual meeting of shareholders. At the meeting, the company's shareholders overwhelmingly elected each of its directors to a one-year term and also approved an equity incentive plan that will enable United to attract, retain and reward key leaders.
  

Fresh Start Reporting

Upon emergence from its Chapter 11 reorganization in February 2006, the company adopted fresh-start reporting in accordance with SOP 90-7. The company's emergence resulted in a new reporting entity with no retained earnings or accumulated deficit as of February 1, 2006. Accordingly, the company's financial information shown for periods prior to February 1, 2006, is not comparable to consolidated financial statements presented on or after that date. For further discussion of fresh-start reporting, please refer to the company's 2006 and 2007 Form 10-Ks as filed with the Securities and Exchange Commission (SEC).

To offer additional information for investors, the company has identified certain items consisting only of major non-cash fresh-start reporting and exit-related credits and charges (Note 7). While it is not practical for the company to present information for all items that are not comparable in the pre- and post-exit periods, the company believes that the items identified in Note 7 are the material non-cash fresh-start reporting and exit-related items and that such information is useful to investors in understanding year-over-year performance. These fresh-start and exit-related items are discussed in the company's 2006 and 2007 Form 10-Ks.

Outlook

In response to higher fuel prices and a weaker domestic economic environment, the company is reducing its capacity for 2008 and 2009 and currently expects the following year-over-year capacity changes:

Despite the significant reduction in capacity, the company expects 2008 full-year mainline CASM, excluding fuel, special items and the largely non-cash accounting charges discussed earlier, to increase between 1.5 and 2.5 percent, in line with prior guidance, as a result of its newly expanded $500 million cost reduction program, an increase of $100 million. Mainline CASM, excluding fuel, severance and special items, is anticipated to increase between 1.5 and 2.5 percent in the third quarter of 2008.

As United reduces capacity, it is reducing the number of salaried, management and frontline employees.  In addition to the 1,500 person or 20 percent reduction in the salaried and management workforce that the company announced last quarter, the company now expects to reduce its frontline workforce by more than 5,500 employees by the end of 2009. United is working to reduce the impact of capacity reductions on employees through voluntary programs.

As previously announced, the company has also set a non-aircraft capital budget of $450 million for 2008, $200 million less than originally planned.

As of July 21, the company had hedged approximately 44 percent of its estimated 2008 third quarter mainline fuel consumption, of which approximately 34 percent is through three-way collars with upside protection beginning on average at a crude equivalent price of $111 per barrel and capped at $127 per barrel, with payment obligations beginning on average at a crude equivalent price below $107 per barrel. The remaining 10 percent is hedged through collars with upside protection beginning at an average crude equivalent price of $111 per barrel with payment obligations on average beginning at crude equivalent price below $100 per barrel.

As of the same date, United had hedged 47 percent of its forecasted mainline fuel consumption for the fourth quarter of 2008, of which 29 percent is through three-way collars with upside protection on average beginning from $113 per barrel and capped at $134 per barrel with payment obligations on average beginning if crude oil drops below $107 per barrel.  The remaining 18 percent is hedged through collars with upside protection on average beginning at a crude oil equivalent price of $109 per barrel with payment obligations on average beginning if crude oil drops below $99 per barrel.

As of the same date, United had hedged 14 percent of its forecasted mainline fuel consumption for the full year of 2009, of which 10 percent is through three-way collars with upside protection on average beginning from $121 per barrel and capped at $152 per barrel with payment obligations on average beginning if crude oil drops below $102 per barrel.  The remaining 4 percent is hedged through collars with upside protection on average beginning at a crude oil equivalent price of $119 per barrel with payment obligations on average beginning if crude oil drops below $108 per barrel. 

The company expects mainline jet fuel price per gallon, including the impact of hedges, to average $4.08 per gallon in the third quarter of 2008.

Note 5 and 8 to the attached Statements of Consolidated Operations provides a reconciliation of net income or loss reported under GAAP to net income or loss adjusted for special items and accounting charges for all periods presented as well as a reconciliation of other non-GAAP financial measures.

About United

United Airlines (NASDAQ:  UAUA) operates more than 3,200* flights a day on United and United Express to more than 200 U.S. domestic and international destinations from its hubs in Los Angeles, San Francisco, Denver, Chicago and Washington, D.C.  With key global air rights in the Asia-Pacific region, Europe and Latin America, United is one of the largest international carriers based in the United States.  United also is a founding member of Star Alliance, which provides connections for our customers to 965 destinations in 162 countries worldwide.  United's 55,000 employees reside in every U.S. state and in many countries around the world.  News releases and other information about United can be found at the company's Web site at united.com.
*Based on United's flight schedule between Jan. 1, 2008, and Dec. 31, 2008.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:  Certain statements included in this press release are forward-looking and thus reflect the company's current expectations and beliefs with respect to certain current and future events and financial performance.  Such forward-looking statements are and will be subject to many risks and uncertainties relating to the operations and business environment of the company that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements.  Factors that could significantly affect net earnings, revenues, expenses, costs, load factor and capacity include, without limitation, the following: the company's ability to comply with the terms of its credit facility; the costs and availability of financing; the company's ability to execute its business plan; the company's ability to realize benefits from its resource optimization efforts and cost reduction initiatives; the company's ability to attract, motivate and/or retain key employees; the company's ability to attract and retain customers; demand for transportation in the markets in which the company operates; general economic conditions (including interest rates, foreign currency exchange rates, crude oil prices and energy refining capacity in relevant markets); the effects of any hostilities or act of war or any terrorist attack; the ability of other air carriers with whom the company has alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aircraft insurance; the costs of jet fuel; our ability to cost-effectively hedge against increases in the price of jet fuel; the costs associated with security measures and practices; labor costs; industry consolidation; competitive pressures on pricing and on demand; capacity decisions of United and/or its competitors; U.S. or foreign governmental legislation, regulation and other actions, including the effect of open skies agreements; the company's ability to utilize its net operating losses; the ability of the company to maintain satisfactory labor relations and our ability to avoid any disruptions to operations due to any potential actions by our labor groups; weather conditions; and other risks and uncertainties set forth from time to time in UAL's reports to the United States Securities and Exchange Commission. Consequently, the forward-looking statements should not be regarded as representations or warranties by the company that such matters will be realized.  The company disclaims any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

Second Quarter 2008 UAL Corporation and Subsidiary Companies Statments of Consolidated Operations (Unaudited)