Good morning and welcome to United Continental Holdings Earnings Conference Call for the Third Quarter of 2015. My name is Brandon and I will be your conference facilitator today. Following the initial remarks from management, we will open the lines for questions. [Operator Instructions] This call is being recorded and is copyrighted. Please note that no portion of the call may be recorded, transcribed or rebroadcast without the company's permission. Your participation implies your consent to our recording of this call. If you do not agree with these terms, simply drop off the line. I will now turn the meeting over to your host for today's call, Jonathan Ireland. Please go ahead, sir.

Thank you, Brandon. Good morning, everyone, and welcome to United's third quarter 2015 earnings conference call. 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 represents 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 with the SEC by United Continental Holdings and United Airlines for more thorough description of these factors. Also, during the course of our call we'll discuss several non-GAAP financial measures. For reconciliation of these non-GAAP measures to GAAP measures please refer to the tables at 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. Joining us here in Chicago to discuss our results are Acting CEO, Brett Hart; Vice Chairman and Chief Revenue Officer, Jim Compton; Executive Vice President and Chief Operations Officer, Greg Hart; and Senior Vice President, Finance and Acting Chief Financial Officer, Gerry Laderman. Brett will begin with some overview comments, after which Greg will an update on our operations. Jim will follow the discussion on the revenue and capacity. Gerry will review our costs, fleet and capital structure after which we will open the call for questions, first from analysts and then from the media. We'd appreciate it if you would limit yourself to one question and one follow-up. And now I'd like to turn the call over to Brett.

Thanks, Jonathan. And thank you all for joining us on our third quarter 2015 earnings call. As you are no doubt aware our new CEO, Oscar Munoz is currently on medical leave while he recovers from a heart attack he suffered late last week. The entire United family has Oscar in our thoughts and prayers. To provide leadership during this period, our Board of Directors had asked me to work with our experienced leadership team and serve as Acting CEO in Oscar's absence. We will continue to push forward the agenda we've laid out over the past six weeks, focuses on customer service, team work and innovation with safety always remaining paramount. Like Oscar, I believe United has the people to network and the assets to achieve the same or greater margins as our peers. And I with our management team will continue to take steps necessary to get us there. The last several weeks have been very eventful for United. With news of Oscar's heart attack hitting many of us hard. However, I want to assure you that the United team has never been more unified and committed to the goal of making United great again. Turning to our third quarter results. This morning we reported pretax earnings of $1.7 billion, marking the sixth consecutive quarter of margin expansion. Our return on invested capital was 19.8% over the last 12 months and we decreased our non-fuel unit cost in the quarter. Our employees' hard work is a significant contributor to these results. And I want personally thank them for the many contributions to our success. I will now turn the call over to Greg to provide more information on United's operational performance.

Thanks, Brett. And thank you to everyone for joining the call this morning. I'd like to take this opportunity to thank our employees for their tremendous work through the busy summer season. Day and day out United employees are showing their commitment to improving our operational performance and a considerable progress we made reflects their continued dedication and hard work. Our entire team recognizes that United still has an opportunity to improve the operation. And we are all focused on raising our performance to level we and our customers expect. However, I do want highlight the progress we have made this year. Year-to-date our consolidated on time performance is five points better than the same period last year. Year-to-date completion grade also improved significantly as we have cancelled over 30,000 fewer flights in last year which translates into 2.7 million. In fact, year-to-date including both the mainline and express operation, we have a better completion rate that our main competitors in New York and Chicago, and we have better completion in Houston that our major competitor in Dallas. Finally, in September we set an all time record for bag handling. And so far this year a mishandle bag rate is 9% better. Over the past several calls, I talked about the investments we've made to improve the operations. The third quarter results showed that these investments along with the hard work of our front line employees are beginning to take hold. I'd also like to highlight our cargo operation. Cargo revenue in the third quarter was approximately flat year-over-year. While this year has been challenging with declining surcharges and increasing industry cargo capacity, the team has done excellent work offsetting this pressure through an intense focus on expanding our market share. Year-to-date, United's market share A4 carriers improved approximately 10% compared to the same period last year. This led to approximately 8% growth in cargo revenue over the last 12 months. A period in which our major competitor saw their revenue decline. To the entire operation's team, I want to thank you for a very good year so far, but we still have a long journey ahead, you should all be proud of the significant progress we've made. With that, I'll turn the call over to Jim.

Thanks, Greg. Again this quarter, I'd like to thank our customers for fly in United. Many of you have noted the improvement in our products and our operation. And we are continuing to do more everyday to deliver the product you desire. In the third quarter, our consolidated unit revenue declined 5.8% in line with our expectations. The four factors we discussed in our prior earnings call, a strong US dollar, and the effects of lower oil prices, pressure as a result of margin accretive initiative and competitive pricing actions contributed to negative unit revenue growth year-over-year. In the third quarter, we amended our co-branded credit card agreement with Chase and Visa more than two years before the original expiration date. We expect the multiyear extension will generate in an incremental $200 million of revenue in the second half of the year and approximately $400 million of incremental revenue for 2016. Turning to the fourth quarter. We expect our unit revenue to decline approximately 4% to 6% year-over-year. The major drivers of a fourth quarter decline are similar to those in the third quarter. We expect the foreign exchange impact to account for 1.5 points of year-over-year PRASM pressure. Assuming current conditions continue, we anticipate that the impact of lower surcharges particularly in Japan will account for approximately one point of weakness. We continue to see degradation from our corporate energy customers. With revenue down approximately 35% year-over-year representing roughly one point of PRASM decline. We also expect the current competitive pricing actions will drive approximately 1.5 points of decline in the quarter. Finally, the margin accretive actions we are taking such as installing slimline seats are anticipated to drive approximately 0.5 PRASM decline. I'd like to take this opportunity to speak briefly about our presence in China. China continues…

Thanks, Jim. Good morning, everyone. Let me also thank our employees for another record quarter which was a direct result of their hard work and dedication. In the third quarter, our pretax profit was $1.7 billion excluding special items, the pretax margin of 16.6%. We increased our earnings per share by 65% year-over-year, generated $1.3 billion of operating cash flow and achieved a 12 months return on invested capital of 19.8%. Our GAAP net income was $4.8 billion but that includes a non-cash special item of $3.2 billion related to the reversal of our tax valuation allowance in the quarter. Non fuel cost performance in the third quarter was excellent. With consolidated CASM excluding fuel profit sharing and third party business expense decreasing 1.5% year-over-year. We expect CASM excluding those items to be flat to up 1% for the fourth quarter and to be down approximately 0.5% for the full year. Sensible cost management is critical for United's financial success. To the first nine months of this year, we've achieved approximately $600 million in non fuel savings through our project quality efficiency initiative and we expect to realize $800 million for the full year. We continue to expect achieve our goal of $1 billion in annual non fuel cost savings by the end of next year, a full year in advance of our initial expectations. Turning to fuel expense. We recorded a hedge loss of approximately $250 million in the quarter. For the fourth quarter we are approximately 23% hedged and based on the October 15 forward curve, we expect to incur approximately $275 million in hedge losses while participating in approximately 81% of any future price declines. For 2016, we have about 17% of our expected fuel consumption hedge. This hedge is currently in a loss position of approximately…

Thanks, Gerry. Thank you again to everyone who joined the call this morning. This had been a challenging few weeks for us. And we are proud of how the United family has come together. Now let me go, we ask our customers and our employees to tell us how we could do things better. And we have heard from thousands of you. We are reading and listening to every single suggestion and in the upcoming weeks, we will be announcing some changes that are a direct result of your feedback. We believe like you that United can be great again. And it is with your ideas, your support and dedication that we will as one United team be successful. I'll now turn the call over to Jonathan to open the call for questions.

Thank you, Brett. First, we will take questions from the analyst community. Then we will take questions from the media. Please limit yourself to one question and if needed one follow up question. Brandon, please describe the procedure to ask the questions.

[Operator Instructions] Thank you. From Deutsche Bank we have Michael Linenberg. Please go ahead.

Yes, Hey, good morning, everybody. Question to Jim. Jim, when you highlighted the sort of the four issues that have been undermining the revenue performance, you talked about the fourth one being this competitive pricing issue. And I know you sort of characterized it as such on this call. But when we look at the guidance that was put out today, I mean rather than competitive pricing I mean it's referenced as softening of domestic yields and maybe I'm just reading too much into it, but when I sort of see that it tells me maybe this is a bigger issue and maybe it is more of a demand issue rather than just a carriers going rogue on pricing. Can you just give us some additional thoughts on that?

Hey, Mike, excellent question. We are not seeing --if I talk about let's break it out, top of the domestic based on your question. We actually see what I would call a lukewarm or tepid demand and really good demand continuing kind of what we have seen in the third quarter and so for as we head into the fourth quarter. And so that as we think about our guidance, the items that highlighted whether be it foreign exchange, we still have that impact year-over-year and if you took today's current exchange rates, you would begin to fully lap that in the second quarter of 2016. Then there is the internationally jumping there is lower surcharges but that also flows across to domestic and impact domestic also, that given current surcharges with lap itself also in second quarter. And then we are somewhat unique with energy. And in the energy as I mentioned we are seeing about 35% declines in our corporate revenue associated with that sector. And quite frankly that we talked about that in 20% in the first quarter, 30% in the second quarter so 35% in the third. We continue to see a drift towards that 40%, so as I think about the fourth quarter that would be kind of demand maybe that you are point to that we would see given our presence in Houston that might be what you are alluding to. But at the end of the day also if you think about the course of the year, our expectations of demand at the beginning of the year are clearly lower as reflected in where GDP has gone through the year. So as we think about next year, many of those elements will start to lap but we are still focused on where that demand will be versus our expectations. We are planning around 2% to 3% GDP in 2016 but like this year we want to keep our eyes and monitor on where demand versus expectations go.

Great, very helpful. Then just my second question and this is to Gerry on the fleet. If I sort of look at your latest fleet schedule and I kind of look back the last time you published it, doesn't seem like there's much change on mainline. I think be holding a 747, you're holding onto it a little bit longer that maybe what you had previously expected. But when I look at the regional side, it does look like that your holding onto some of those airplanes a little bit longer. I think there was a bigger reduction in the regional fleet a few months back. Is that a function of maybe some of the issues that one of your regional carriers is facing and so in order to maybe back fill for some of that it makes sense to maybe keep some of these airplanes in the fleet longer? What's driving that?

Mike, it is really just kind of timing issue on a few aircraft. It doesn't change sort of our long term view on where the fleet is headed and you will see over time less regional flying, more mainline flying as we up gauge but I wouldn't read too much into the change in the year end number.

From Buckingham Research we have Daniel McKenzie on line. Please go ahead.

Hey, good morning, guys. Brett, congratulations on being selected to step up here and my condolences, I know you guys are all close to Oscar. I know you're still getting your feet wet in the role here but given your customer service responsibility this year I'm wondering if that's something you would want to talk to. What have you found? Where's the low hanging fruit and where do we go from here?

Yes, appreciate that Dan. We have been focused for some time and course of the year on improving customer service and identifying areas where we can impact make a difference and where possible make a difference in the short run. Oscar certainly coming in and taking the time to talk to customers and employees, he is laser focused on that area as well. And this would be certainly one of those areas where we could say that our efforts are being expedited. I think that you see changes and improvement and you probably already are in areas like our ability to do with regular operations. And you will see us addressing the boarding process. You will see a number of changes related to the overall in flight experience. But we should keep in mind that at the very core, operational reliability is really the driver for customer satisfaction. I can ask Greg to add anything that he likes to add on this point as well.

Yes. Oscar obviously capable of as Brett mentioned a laser like focused on a number of things. One of which was reliability and it is really continuing the trend we started little bit over a year ago in terms of making improvements in the operations and rethinking really everything that we do each and everyday. And exciting thing for all of us is we are on the front end of a whole host of activities that we've engaged in over the past year to improve the operation. We got a wave of things that are coming to, that will help carry us forward in terms of improvements.

Very good. I guess just second follow-up here. One message that I'm really hearing from you is 59% of the departures getting a heck of a lot better from a margin profitability perspective just given the RJ restructuring and you are obviously talking about getting back to margins relative to your peers. What are you seeing exactly in that part of the business in terms of profit improvement and where to be go from here? What any there in really with the RJ restructuring?

Hey, Dan. This is Jim. If you think about in two pieces and we feel lot obviously strong initiative introducing the E-175 into the network. And we are very far along in that path and we finish that rolling out that path as we move into 2016, we are very far along. I would say in terms of the regional piece and becoming less depended on it, if you think about continuing to remove 50 seat regional jets for about halfway in total when you combined that with where we are in the 76 seater in terms of restructuring the network. So we are very excited about it. You are right we are seeing the benefits that product of two class cabin, it is comes in a number of ways. One is just more competitive in this high business market. Secondly, it is introducing the ability to drive ancillary revenue which have been very successful on this year, introduces with that 76 seater we put in mainline when it substituting for 50 seater, a first class and economy class. So the network is responding really, really well in terms of as we gauge really gauging strategy to be much more competitive across the domestic network.

From Cowen and Co we have Helane Becker on line. Please go ahead.

Hi, guys. Thanks for the time. So just one question here with respect to-- actually I have two questions. There were some stories in the press this morning about some of the Chinese airlines merger cargo and operations and then some speculation that maybe some of the larger airlines would merge. I don't necessarily want you to comment on what you can't comment on, but I am just kind of curious China Southern is a sky team member in Air China is star lines member so have you thought about how something like that would affect your operations in China going forward?

Hey, Helane. This is Jim. Air China is a tremendous partner of ours and quite frankly we are continuing to build that relationship as we grow in China. And lot of degrees here to your questions obviously China is a very competitive market and as I mentioned we see non UA capacity growing 35% in the fourth quarter. I'll tell you it's very profitable for us and its profitability quarter-over-quarter has continue through the first three quarters this year and I expect that to continue into the fourth quarter. And is built on really strong plan that we've talked about in the past. One is capturing the demand that is very strong out of China. If you think about the demand in China what we are finding is that although there is a large capacity increase, as the economy grows it stimulates more traffic. There is also existing traffic from China to the US many times goes over other connecting point such as Korea. So it is non stop come in but we capturing of that traffic too. So not only is that a market that's growing in new demand, we are actually recapturing some of that connecting traffic over hub such in Korea. That being said, our strategy again is also depended on the secondary cities not just the Beijing and Shanghai. And a lot of studies have shown that the demand for China will double by 2020, half of that demand is going to come from secondary cities. So when we are look at our due service out of San Francisco, it's exceeding our expectations in doing very well year-over-year. And that's heart of that strategy which is why we are excited about our second secondary city San Francisco to Shiyan. So I know I answered your question, China is an important part of our network, very profitable, extremely competitive in whether it's cargo or whether it's passenger carriers, but we think we are really well positioned to keep building on the profitability that we have there.

Hi, Helane. This is Brett. Just to put a point on that I think the second part of your question. We are just in a position to speculate on rumors related to potential mergers.

Okay, no, that's fine. And then I just have a completely unrelated question. How far along are you in -- I know this I'm not saying it the right way. But how close are you to the cap on 70 C aircraft with respect to your scope clause?

Helane, based on what we have in the pipeline, we would hit that cap sometime next year as we bring in the rest of the 175's.

From Wolfe Research we have Hunter Keay online. Please go ahead.

Good morning. One of the things that investors point to continually with United is the free cash flow yield. But you guys don't really talk about cash flow. You don't talk about free flow, I don't think you ever guided to and if you talk with people that believe in your stock, it has the potential to be one of the best free cash flow stories around. Good and even better industrial companies guide to free cash flow regularly so I guess two questions for you. Why aren't you talking about your free cash flow more and highlighting what can really be sort of industry best in story there? Is it something that we need to know about that maybe we're getting ahead of ourselves and if you care to put in a guidepost how should think about free cash generation next year, I would love to hear that too.

So, Hunter, it is Gerry. This year as you know has been a great year for free cash flow and really kind of the first year that we made terrific progress in that direction. So it is something we look at. I personally get little bothered by the way it's typically calculated only because in airline has a significant CapEx exposure to new aircraft and depending on how we choose to finance new aircraft that has a material impact on free cash flow. So what we are doing is kind of thinking about the best way to look at that and manage that and work with you and others on how best to deliver that message. But it is a focus of ours.

Okay. And then in the context of capital returns, I know that you guys said that you're going to be ramping up the buyback in the fourth quarter which is great. It's good to see that certainly, but do we need new leadership to come in and to really sort of bless a more aggressive capital deployment strategy? Or is this something that the current leadership team has the willingness and ability to do on an interim basis in the event that you can be opportunistic on your stock in terms of buying it back and in the event that you guys do have a bunch of cash coming into the business next year either be a debt which are going to raise for new aircraft acquisitions or the free cash flow itself, is there any recent think why the pace of the share buyback should not be materially increase in all of equal environment as we move through the course of 2016?

So, Hunter, as Brett said earlier we are moving forward with our plan and certainly my plan in finance is to balance capital deployment. It has been in place for quite while. Now granted in the third quarter, our share buyback may not have been what some people would have expected, but keep in mind that was the circumstances we were dealing within the third quarter. We just felt it was prudent to maintain the steady pace we were at. But as you can see what we have done this month already between what we actually purchase in the open market and the ASR that we entered into that's $400 million dedicated to the share repurchase in this month. So we are absolutely committed to contributing our current $3 billion program at or ahead of schedule. So that will continue. And let me talk about the other parts of the capital deployment strategy. It is absolutely essential that we make the investments we have to make in our people and our processes now systems and our product. It's going to be done sensibly and these investments need to be margin neutral or margin accretive. And I think that those investments will be made within the CapEx guidance that we've been giving out. And then we got continued de-risking of our balance sheet. That's an area that we don't have a luxury any more for pre paying substantial amount of high coupon debt. As you know, we've done all that. So going forward as we continue to manage to the right level of debt, that will be a combination of the debt that amortizes over the next few years, it is billions of dollars. First of all, we manage financing for new aircraft then it's interesting situation because that's an area that we can access capital really, really cheaply whether it's through the capital market or through the banks. And we continue to manage that and in the process while I would expect that we would continue to finance most of our aircraft deliveries, we may not finance them to the level that we have in the past. And that's another way of getting to our goal of de-leveraging. But there is no question and as you saw given our commitment this month, we are very focused on as part of that also doing the right thing with returning capital to shareholders.

From Credit Suisse we have Julie Yates online. Please go ahead.

Good morning. Thanks for taking my question. Are you guys ready to give a split between the domestic and international growth embedded in the 2016 capacity guide?

Hey, Julie. This is Jim. We've guided to consolidated 1.5% to 2.5%. Right now as we look at capacity for 2016, we'd be up 1% to 2% on the domestic side and 2% to 3% on the international, so that's how we would split that 1.5% to 2.5%. And I've always say were going to keep our eye on demand and make sure that we have a best align or demand with capacity but we're really comfortable with that breakout right now.

Okay, great. And then any comments just directionally how that 2% to 3% internationally was split between the three geographies?

I will give you some direction that we recently and we're very excited about some markets we just announced, San Fran and Auckland, San Fran to Shiyan, China as well as San Fran -Tel Aviv. So San Francisco is a key focus for us to continue to capture the benefit in Asia as well as we have a terrific long history in Israel that we feel really excited about the San Francisco, Tel Aviv flights. So a lot of that off is West Coast or some -- there's a little bit of run rate in some areas this year, but that would be things that were ready to talk about right now.

Okay, very helpful. And then Jim on the domestic PRASM, looks like that improves sequentially to a decline of 1.6% in Q3 which is about 180 basis points better than Q2 primarily on load factors, that's nicely ahead of the A4 average, it is pretty impressive given the pressures in Chicago and Houston. What's allowing you guys to outperform on domestic unit revenues and do you expect the domestic entity can continue to improve sequentially in the fourth quarter and into 2016 as well?

Julie, I think it is a number of things. And first point to some of the things that we talked about and the improvement on the operations as we gone through the year. The operations teams done a tremendous job. And so we are building that for a liability that we need to build and as Greg mentioned we have more to go and we are going to continue to do that. And so from revenue perspective you can clearly see that, that when you become carrier of choice and at the margin you build on that you see that incremental revenue come to us, we are very excited about that. The revenue management team although there is competitive pricing out there. We approach that as not one size result and so not into a lot of detail but the revenue management team works extremely hard particularly at high demand period to make sure that the best mix of demand is on the aircraft like and pull that off to really strong way. The network as we talked about as we begin our up gauging introducing two cabin aircraft into business market, it is giving up -- it is at the early stages of giving those results. So in number of those things and yet we do have those pressures not because of price expansion but the fact that the energy sector is now, I think the team has done a terrific job. Actually if you take a look at it and you referenced the 84A, our consolidated domestic length apologist arousing in the third quarter was it high it has been since 2011 on a relative basis to 84A peers, so we are really excited about the initiatives that teams driving, actually more excited about what we have come forward.

From JPMorgan we have Jamie Baker on line. Please go ahead.

Hi, good morning. A question for Brett. We met with Oscar recently and he indicated and these are his words that United had lost its front line. And I for one appreciated the bluntness of that statement. He also indicated that he expected to have the final bench, manage of bench in place by year end. I know you spoke about pushing forward with the current agenda but I'm curious if your views on the front line and the timetable from management clearly are consistent with his.

Yes, I appreciate that question, Jamie. I think first you have to put in the context what Oscar was doing in his seven weeks with the company and his commitment first and foremost was to get out into the operations to get down into break room or is to get out on the ramp to talk to employees and the focus very specifically on what they would like to see change. And he heard it at every location that he went to and it's very healthy for us to receive that feedback. And Oscar had a level of urgency with respect to addressing; getting our employees the tools they need to provide terrific customer service which is at the end of the day his clearly are objective. So I think what you may have read from that perspective into Oscar's comments was a real sense of urgency which we all need to have about ensuring that our employees, our front line employees are able to provide the level of service that they would like to provide and in some respect we really acknowledge that we can do better and we are working very hard on that. But I wouldn't misinterpret Oscar's desire to create urgency in that area which is appropriate with an outcome perspective to disconnect between our front line employees and management so we are very focused on it and we expect to continue to move forward with the momentum that Oscar brought in that area. As relates to the management team, look this is added score, this is a team that has been here through first quarter which resulted in record results, and the second quarter which was already in record results and the third quarter which we resulted in a record results. We would expect -- you would expect every new CEO to come and evaluate his management team that is the CEO's prerogative, any changes that are made are based upon what's perceived as we needed and in parts what that CEO perceives that he or she need. So I don't think that's out of the ordinary for a new CEO. I'll tell you that the team that we have here now is fully capable of and well in fact execute the plan to rest of this year. And we feel very confident about that and we feel very confident about our ability to continue to connect with the front line employees and move forward as the unified organization.

Excellent. I appreciate that. Second question follow up with Jim on domestic pricing. How much stronger are pricing trends in markets where discounters do not file fair's than in the O&D where they do and the reason I ask the question is that I am trying to assess whether domestic revenue pressures are a function solely of discounter influence or perhaps there's also room for pricing improvements in markets where discounters do not have an influence, any color on that?

Hey, Jamie, Jim. Yes, clearly the competitor pricing pressures that we talked about in Houston, Dallas and Chicago continue and so it is -- those competitor pricing pressures are more isolated in those markets. I would add that the energy sector becomes a little bit more spread both international and the domestic where we have seen that demand. But outside of that we see good demand, relatively -- relative to -- obviously energy relatively strong demand and so I think that as we manage price relative that demand we will continue to do that. And but I think there is a strong demand outside those markets that you refer to.

From Stifel we have Joseph DeNardi on line. Please go ahead.

Thank you. Brett, just on your comments about closing the margin gap between you and your peers, I guess your few innings into on the cost side and a fuel adjusted basis margin having a close much so, is the story here that you just have to wait for Houston and domestic yields in the Pacific to get better before the gap starts to close or what are the main levers over the next 24 months that you see closing that gap?

Well, clearly this is Jim. Clearly the energy is putting pressure on us. And so as that sector moves and whether it softens a little bit more and begin to improve that will obviously have an impact on us because the corporate energy business and that sector and our hub in Houston is very much affected by that business. In terms of growing margins from a networks perspective, I separate that because the networks on a past as I saw as we kind of refer to what we are doing with two cabin aircraft becoming less depended on regional jets that are up gauging strategy is very much a margin accretive strategy. And so --and we are going to continue -- that is our path to continue into 2016. In addition that up gauging just a piece of that is slimline activity that we began this year. Remember that we've talked about it before, it comes out of $0.04 to $0.06 rise depending on the fleet in the market and it comes out of about $0.01 to $0.02 CASM depending on the market, very much margin accretive. So I think would summarize is that being the team's initiative going forward are to continue to drive incremental margin and we are really confident that we can do that. There are some extra things obviously such as the energy that put pressure on that. But we are moving forward, the network will continue to contribute to that.

Yes. Joe, it is Gerry. On the cost side, keep in mind that brings next year as we continue with project quality initiative. We hit that run rate of $1 billion, that's couple hundred million incremental to this year, so there is some real benefit there. We got to continue de-leveraging that helps on interest expense and yes don't forget as we continue on the reliability initiatives efficiency is going to drive cost down as well.

Okay, thanks for that. And Gerry, I guess just on project quality, just the $200 million in savings expected in 4Q just given the pace that you guys are moving out, how much upside is there to the $1 billion at this point and then if you could just -- is there an interest expense target that you think is appropriate for next year just given the de-leveraging?

On project quality, it is too soon to tell kind of pace going forward beyond the initial initiative. We'll have more color I think when we start our talking about 2016 cost guidance in January. But I can tell you that nobody is stopping. The $1 billion will reach and the sort of the sensible cost management culture is embedded in everyone's DNA here, so we will continue with those efficiencies. As Jim said, as we update we are going to get some benefits there on the cost side as well. So we will have more color for you into next year. But we are hopeful of that, that we will continue with the progress we've made.

Okay. Then just on the interest expense, is there a target, do you think you guys can get to next year?

Not really. We're not going to that yet. Will take a look at so where the opportunities are there and will have more color on that in January.

And our last question from Bank of America, we have Andrew Didora on line. Please go ahead.

Hey, good morning, everyone and thank you for taking the question. I guess my first question for Jim certainly appreciates all the color around what you're seeing in China right now. It seems like from booking standpoint you aren't seeing much of a change. But with the capacity increases you noted I guess will unit revenues in the region get worse before they get better or do you see -- can you continue sequential improvement on the Pacific like you're seeing from a system wide perspective?

Hey, Andrew, Jim. Obviously that capacity if you think about China, by itself that capacity does put pressure on unit revenue and we see that 35% growth in the fourth quarter. But on the other hand demand is growing strong but as I mentioned on the couple sources of that demand whether it is traffic that's making, it is also the US over other connecting points or the economies stimulating it. So we are filling much of that capacity and as you think about going forward the Chinese carriers continue to use the rights and as we move beyond 2016 given the current allocation of right we should begin to see that capacity growth debate.

Great, thank you for that. And my follow-up question. I guess at this time, are you willing to say when you think you could get back to a flat system wide PRASM?

Andrew, this is Jim. I am not. I talked a little bit about kind of the pieces that are moving, foreign exchange that giving current levels of foreign exchange, the negative impact of PRASM will begin to fully lap in the second quarter. The lower surcharges will lap fully in the second quarter given where they are at today. The energy business is the one that we are watching really, really closely. We've seen it soften a little bit more from the second quarter and we talked about being 35% down in the third quarter. Compare to -- based on the pricing structure today that would lap itself in the third quarter of next year. So it is difficult to pinpoint when that PRASM would be flat year-over-year. But we think those pressures, those negative pressures begin to update as we move towards that. And the last piece is that, as I mentioned on earlier comments that we are going to keep our eye on demand. Demand at the beginning of this year expectations were to be greater than what we've seen. And so it makes it difficult to pinpoint that. But as I mentioned in my comments we do see that quarter-over-quarter sequential improvement as we head towards growing PRASM.

Thank you, ladies and gentlemen. This concludes the analysts and investor portion of our call today. We will now take questions from the media. [Operator Instructions] From Reuters we have Geoffrey Dunstan. Please go ahead.

Thank you very much. Brett how does your vision or the initiatives you will introduce to realize that vision differ at all from Mr. Munoz's vision or initiatives?

Hi, Geoffrey. They don't differ at all. We have plan in place and we are going to work execute that plan over the course of the next couple of months to finish out this fiscal year. Oscar's focus and what he brought to us during the time that he was here, and was a renewed focus on our customers, on getting our employees the tools they need to succeed in provide excellent customer service. Making sure that our systems and processes are geared towards those objectives and he had a very strong focus first and foremost on safety. We are using what he provided in terms of his vision as a lens for executing on our plan for the rest of this fiscal year. So those perspectives are in entirely aligned and there would be no dramatic changes.

Great, thank you very much. In line with that, what is on the table beside a new tone that will United to conclude contracts with its flight attendants and its maintenance technicians and then if you may, is there anything that's going to be a game changer to the in-flight experience and plans that you are guys taking now.

So on the first part of that question; we remain very focused on achieving joint collective bargaining agreements. And we think that Oscar's focus again was on connecting immediately with our front line employees and with our labor leaders. And we will continue that process. So and obviously towards achieving agreements that are fair to or employees and fair to the company over the long run. So we remain focused on that. In terms of the in-flight experience I'll allow Greg to -- Greg or Jim to provide perspective on that.

Hey, Geoffrey, Jim. On the products, let me jump on the products side and I think what you are going to see is when I think call it cadence and we have been doing a deep review of our product and quite frankly listening to our customers and our employees being involved in that conversation about different things we can do. So it is cadence and I would say that we are down to three choices of premium coffee. And that was something we heard loud and clear. And I think we are really, really closet. We kind of go through that process bringing our employees quite frankly into that process and our customers are going to enjoy that so forth. It is small example of cadence that you are going to see across the company. Relatively quickly I want to say this is going to come slowly. And recognizing our best customers, our flight attendants today are doing a terrific job of offering a free drink to some of our best customers in the economy cabin when they don't get their upgrade. So that's another example of cadence of things from a product point of view. I put all that we have a number of product things happening. Whether as to continuation of rolling out Wi-Fi, whether it's the reconfiguration of our aircraft and growing flatbed seats, newer San Fran and newer LA will be100 flatbed seat beginning on October 25 with our PS service in New York. So a number of product things are going to be happening as well as the things that we are hearing from our customers and employees.

And our last question from the Associate Press, we have David Koenig. Please go ahead.

I was going to ask pretty much the same thing about the in-flight experience. How quickly are you going to have more details on that? There were some reference to some other initiatives coming out and maybe some guidance in January. When do you expect to have more details on anything additional on in-flight experience?

More details. Over the next week and we will be starting -- we will announce more of those details. So again it is a cadence that a cadence as we can implement them. Some items take longer to implement and planning. But as we move through the next several weeks and through the end of the year. You will hear many of those details.

And anything you can say more on the boarding process? I mean that's something that carriers constantly ticker with, is it just part of that fleet that's giving you problem or you are looking at everything and what might you change?

It is interesting after all who is looking at the boarding process because that's one of the things quite frankly that we hear a lot about and how we can improve it. And we are actually doing some testing of that boarding process here in O'Hare beginning this week, changes to it. So nothing to announce yet but again an example of that. There is a lot of activity happening based on what we are hearing from our employees and what from customers. So you will hear more on that where we describe how that testing went. But we are going to try -- you will hear will be experimenting with some different boarding process, give some better details and how we can improve that.

Can you say what you are testing?

I am sorry.

Can you say what you are testing?

I won't because the testing is literally starting this week. I will encourage people to walk by BA in O'Hare and you can see that testing live if you are hitting one of the time periods we are doing it.

Brandon, this will conclude our call. Thanks to all of you on the call for joining us today. Please call me at relations if you have any further questions. And we look forward to talking to you next quarter. Good bye.