Good morning and welcome to United Continental Holdings Earnings Conference Call for the Third Quarter 2016. My name is Brandon and I’ll 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 presentation over to your host for today’s call, Jonathan Ireland, Managing Director of Investor Relations. Please go ahead, sir.

Thank you, Brandon. Good morning, everyone, and welcome to United’s third quarter 2016 earnings conference call. Yesterday, we issued our earnings release and separate investor update. Additionally, this morning, we issued a presentation to accompany this call. All three of these documents are available on our website at ir.united.com. Information on yesterday’s 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-K, and other reports filed with 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 tables at the end of our earnings release and investor updates, copies of which are available on our website. Joining us here in Chicago to discuss our results are Chief Executive Officer, Oscar Munoz; President, Scott Kirby; Executive Vice President and Chief Commercial Officer, Julia Haywood; Executive Vice President and Chief Financial Officer, Andrew Levy. We also have Executive Vice President and Chief Operations Officer, Greg Hart in the room to assist with Q&A. And now, I’d like to turn the call over to Oscar.

Thank you, Jonathan. Good morning, everybody. This quarter marked another period in which United took meaningful steps forward in transforming the direction of this Company. Notably, we saw our 25,000 flight attendants ratify new contract, our over 9,000 technicians reached a tentative agreement for a joint contract, and we’re excited to have that ratified soon. Additionally, in the quarter, as most of you know, I solidified my leadership team. This team has deep industry experience, incredible talent in my opinion and a very focused dedication to bring United into its next chapter, realizing a full potential of our great people and the great network and our assets. On the business side, we also continued to run a solid operation in the quarter. In fact, we achieved the best third quarter on-time performance in our history. I am going to take this opportunity to thank dedicated and professional United employees that make all of this happen. Thanks to your commitment and determined efforts, we delivered a Company best performance for arrivals during the busy July 4th holiday travel period. We also earned a first or second place ranking in key arrivals and departure measures in the three months between Memorial Day and September 1st, and culminated our great summer month performance with delivering the best Labor Day weekend performance numbers on record. So, it’s great to have our operating program and people back in a good consistent application of their work. On the financial side, we continued to record strong financial results including a pre-tax profit of $1.6 billion and a pre-tax margin of 15.7%, both excluding special items. As many of know, we will host an Investor Day on November 15th. With that in mind, today, we will focus our discussion on our recent performance and near-term outlook and wait until November for a discussion of our plans for beyond 2017, including our outlook for both CASM and capacity. So, with that said, I’d like to turn the call over -- this is the maiden voyage of both Mr. Kirby, Ms. Haywood, and Mr. Levy. But before I do that, let me say to them all that we’re incredibly thrilled to have each of you join the United family and very much looking forward to sharing our future with you. With that, Scott?

Thank you, Oscar. Before turning to the slides, I just want to start by saying that I’m very excited to have joined the United team and there are just fantastic opportunities ahead of us. This really is an exciting time for United. It’s true that the last several years have been challenging with the integration that took longer. It was more complex than anticipated, which created cultural, operating and commercial challenges. But now with the integration largely in the past, we can all turn our focus to realizing the full potential of United for our employees, customers and investors. The foundation of a great airline is its people. And in the Oscar’s leadership, United has made tremendous progress on creating an integrated, united United. Achieving our full potential will require lots of hard work. But with great people, the best network potential, the right plan and the focus on solid execution, we can deliver a great network, operations, and customer service, which in turn will lead the financial results that reflect the full potential of this airline. Julia will touch on some of the high level opportunities in a moment but before she does, I’d like to take the time and run through the quarter’s performance. On slide six, you can see that we made meaningful strides in improving the operation over the past couple of years. On time departures, arrivals, completion factor and mishandled baggage performance have all seen meaningful improvement. Going forward, we expect we’ll continue to improve our operational results through better processes, smart investments and a commitment to efficiency. As we’ve talked about here in the past at United, running a reliable airline is a key to winning other customers and regaining customers that we’ve lost during some of the operational challenges that we had with…

Great, thanks Scott. I’m also very proud to join the United team. Ever since I began working with United, I can see the potential of our Company and I’m excited to be part of the team to unlock that potential. We see a number of opportunities throughout our commercial landscape to improve earnings over the next several years with the largest opportunities being in revenue management, network optimization, product segmentation, and product improvement. I will provide some high level thoughts on each today and we look forward to our upcoming Investor Day where we will provide more details on these opportunities including actions that we are taking and the associated financial impacts. So, first, with respect to revenue management, we believe there are a variety of both near term and longer term opportunities to improve share of United. Solutions for these opportunities can range from small but meaningful tweaks to our revenue management system to making more wholesale changes to our strategies for managing both pricing and inventory. And while much of this work has been delayed during United’s integration, we are now moving quickly ahead. Second with respect to our network. Let me start by echoing Scott’s earlier comment. United has the best network potential of any U.S. carrier, but we are not utilizing it fully today. We have spent the summer working to refine the mission of each of our hubs, and we look forward to sharing some of our thoughts with you at Investor Day. But as an important note, the full details of our network playbook won’t be fully revealed in order to protect competitively sensitive information. The third area of opportunity we will discuss is product segmentation. As you know, the work being done in this area signals a meaningful step change for our customers,…

Thanks Julia. I too am excited to be part of the United team. We have a lot of work ahead of us, but I’m confident we’ll be successful in making United the best airline in the world. Yesterday afternoon, we released our third quarter earnings and fourth quarter investor update. While I will discuss both our results and outlook today at a high level, please refer to both of these documents for additional details. With that said, let’s review the Company’s third quarter financial performance and fourth quarter outlook. Slide 12 shows a summary of our GAAP financials and slide 13 has our non-GAAP results. Company generated pre-tax income excluding special items of $1.6 billion with a pre-tax margin of 15.7%. Net income was $1 billion, a decline from $1.7 billion in third quarter of 2015 due almost entirely to our higher booked tax rate in 2016. Adjusting for booked taxes, net income was down 9% but earnings per share increased 7% due to the 15% reduction in share count as compared with 3Q 2015. Moving to slide 14, non-fuel unit costs in the third quarter increased 3.4% excluding special items, profit sharing and third-party business expenses. Approximately 2 percentage points of this increase was due to the impact of labor agreements ratified in 2016 with our pilots, flight attendants, dispatchers and IAM represented employees. We expect fourth quarter non-fuel unit costs excluding special items, profit sharing and third-party business expense to increase between 4.75% and 5.75%. Approximately 4 percentage points of this increase is due to the impact of these new labor agreements. Our projections however do not include the effects of a recently ratified tenant agreement with our maintenance technicians since it has not yet been ratified. As you can see on slide 15, we expect full year…

Great, thanks Andrew. As you heard from the team, there is a lot of energy about the future, and we do have a great day planned for you on November 15th. In addition to what Scott and Julia, Andrew have suggested with regards to the outline of that agenda, we are also going to have Linda Jojo and Greg Hart discuss improvements in both our IT systems and operations broadly so that you can better understand I think the great work being done in those areas to make United more efficient and nimble. I also understand the importance of the establishing goals by which you as shareowners can hold us accountable in order to ensure the execution of our plans. We will use the Investor Day to provide financial metrics and targets by which we are managing our business so that you can also track our progress as we execute upon these plans. Let me close again by thanking our customers for flying United. We’re focused everyday on continuing to find opportunities to improve your travel experience and I want to thank you for your business and look forward to seeing you on a flight soon. With that let me turn over the conference to Jonathan.

Thanks you, Oscar. We will now take questions from the analyst community. Please limit yourself to one question and if needed one follow-up question. Brandon, please describe the procedure to ask a question.

Thank you, Jonathan. [Operator Instructions] And from Deutsche Bank, we have Michael Linenberg please go ahead.

I guess if I could do two quick ones here, just Andrew, you mentioned 2017 CASM ex-fuel up 1.5 to 2 as a result of the recent labor deals, presumably that doesn’t include any sort of a match on your pilot deal since the Delta deal is still out there, it’s tentative. But does that include the technician piece, the mechanic deal assuming that goes through or would that be in addition to that?

Couple of things, just to clarify, I want to make sure that my comments were communicated as I intended them to be, which is that we expect the effect of the existing labor agreements, the new ones that does not include the technicians, it does not include any snap up on the pilots, we expect the effect of that next year to be between 1.5% and 2%. So, that is not a CASM forecast, that is just the increase associated with the existing agreements. So, I think -- hope that answered all of your questions with that.

Yes. That’s a perfect clarification. And then just to Julia, you alluded to the rollout of call it your entry level fares or at least alluded to talking about it at the Investor Day. I think the plan was for it to be rolled out sometime this month. Why the delay and when do we think that that will actually come into effect?

We’re looking forward to bringing it in later this year. We’re going to talk more about that at Investor Day. With Scott and I coming in, we wanted to take another look at everything that we’re offering within that product segment and make sure that is exactly the way we wanted to be and that we also roll it out really well to the front line. So, we’re just taking an extra beat on that and we’ll talk more about it at Investor Day.

From Credit Suisse, we have Julie Yates on line. Please go ahead.

A question on domestic RASM, so your peer noted that on a combined basis, domestic RASM for the November to January time period should be flattish trying to normalize for some of that holiday shift. Do you agree with this assessment? And if not, what are you seeing that would suggest otherwise?

I’m not sure I would get all the way to flattish. We do see continuous improvement in the domestic environment. I think it’s also right to kind of look at it November through January to count for all the calendar shifts. I’m not sure we get to flattish, but it’s certainly trending that direction. I think we started actually, because where we were in the third quarter compared to our competitor, we start from a better position. So, I suspect we will get to positive domestic PRASM before they do. I think we also have more opportunity and more levers that are probably United specific. But we are certainly trending in that direction. And whether it’s going to get there in November to January or shortly thereafter, it’s hard to say certain at this point. But we’re trending in that direction and we feel pretty good about the domestic environment, certainly feels better than it has been a couple of years. Now acknowledge that’s an easy comparison, because hasn’t felt very good past couple of years but it feels better than it has in quite some time.

And then Andrew just one quick one for you. Is there any color -- and I understand you haven’t given ASM and you might want to reserve this for Investor Day, but is there any color you can offer on how we should think about the core CASM ex-growth for 2017?

We’ll get into that in a little more detail in a month Julie. But we expect at this point in time that it’s going to be consistent with the performance that United has delivered in the past few years. I think United has done a very good job controlling that, its cost structure, the core CASM and I would expect that to be similar as we look forward. But we’ll give you more specific number at Investor Day in about a month from now.

Okay.

Julie, this is Oscar. I just want to jump in to Andrew’s comment. Core CASM is an area that will continue. Despite the history, we’ll continue to focus in that strong. We have several initiatives that we’re thinking through, but we’ve got a lot of moving parts and we’ll provide a little bit more color again at this infamous now Investor Day. So, thanks Julie.

Okay, great. And Andrew, one last one, are there any offsets from the recent contracts that have been ratified in terms of profit sharing changes or greater productivity?

There are some offsets, certainly on the profit sharing. And I think that each agreement kind of stands on its own. And I don’t think we’re ready to go in individual detail with each one. But as one example with the flight attendant deal today, it’s 15% profit sharing and it’s going to drop down to -- I think it’s a tiered approach, which would be from 10 to 20 depending on the level of profitability. That’s one example. But we have to kind of look at each one on its own merits to go through the puts and takes. But look, I mean for the most part, we’re going to see an increase in labor expense. It is not completely offset by the profit sharing or productivity. So, we’re going to have to find ways to drive revenue and reduce expense to continue to grow margins.

From UBS, we have Darryl Genovesi. Please go ahead.

Hey, Scott, you called out some one-time PRASM drivers in your prepared remarks but one thing that I didn’t see in there was the impact of the service disruptions away from you during Q3. Could you all characterize that or was it just not meaningful enough to include in there?

I don’t think it was meaningful at all. If you go look at our data on a day-to-day basis, you certainly can’t find where it happened. So, I don’t think it was meaningful.

And then with regard to China, you guys called out some -- I guess the outlook for the capacity situation to improve as we approach the caps on a bilateral. Can you just help us understand how you are thinking about the timing of the potential RASM improvement across the Pacific? It looks like -- the fourth quarter doesn’t look great but as you look out into early next year, how do you think the change in the bilateral sort of impact the capacity growth rate over time? And then I guess looking a little further out with the new airport being constructed in Beijing, if there is a strong possibility that that bilateral gets amended to include more capacity on both sides? Thank you.

So, if you look at our third quarter and fourth quarter PRASM forecast for the Pacific, all things considered, I think that’s actually quite strong performance, particularly for us where in the fourth quarter we’re starting the second San Francisco to Shanghai. So, we’ll have for United at least fair amount of capacity growth. So, for that environment, I think we’re actually doing pretty well. There is a lot of capacity growth out of China in particular but as you point out, the bilaterals were almost capped. And so that’s going to slow down dramatically in 2017 and beyond. The opposite is happening in Japan where capacity is starting to be reduced and we see strong performance in Japan. And so, across the board, we feel pretty good about the trans-Pacific environment. Looking further out, once the new airport opens, it takes a long time to chase bilaterals and there is more than just chasing route authorities. The complication with flying to China is you have the route authorities being able to get slots at commercially viable times; it’s been really difficult. And so, I expect that would be part of the next set of negotiations. And so that’s difficult; again, it’s difficult. I suspect it will take quite a bit of time to get results.

From Cowen and Company, we have Helane Becker. Please go ahead.

Just two questions; one, can you say if there was any improvement, if any of your domestic markets showed a positive RASM during the third quarter? I think Delta commented that they saw about 33% in their markets. And I’m just wondering what that number was for you.

Yes. It’s actually 43% of our markets have positive year-over-year PRASM domestically. Look, that’s an interesting statistic; I only know it because someone asked on the Delta call or they said it and so checked. But what’s I think more important is the momentum that that has for the domestic environment and there is -- this can turn out to be wrong but there is lots of little things that are going on with pricing and with a lot of carriers going through and cleaning up pricing in the domestic environment and make us feel pretty constructive about that entity in particular.

So, I can take away from that that you think it’s relatively sustainable, even with calendar shifts aside?

Yes. I mean, you have to adjust for the calendar shifts. But adjusting for that, I think that the momentum and -- the domestic -- overall system and the domestic is going to continue to improve on year-over-year basis and the results are going to get better.

Great. And then just a question for you, Oscar. In June, there was an investor call and there were a whole bunch of revenue and cost initiatives that were presented to us. Should we ignore those or maybe not ignore is the right word but maybe set aside those in favor of upcoming initiatives that will be discussed in Investor Day or how should we think about that June call?

So, my view and I’ll have Julia and Scott share theirs as well since they are deeply involved in the past work. I think it’s safe to say that the existing work will be not only continued but built upon and gain some incremental value. But I’ll let the folks in the middle of it talk. Julia?

I think as we look, we are going to talk a little bit more on Investor Day but I think we see upside from what we’ve seen from the numbers that we’re reconciling against versus some of the new ideas and initiatives that we started talking about. There may be some re-bucketing that exists, Helane but besides that I think we see only that will subside. [Ph] So, it’s great news.

From Wolfe Research, we have Hunter Keay on line. Please go ahead.

Scott, one of the things I think you did at American well was you reduced forecast error in the revenue management tool, so -- over the last year or two particularly. So, how is forecast error within UAL’s RM tool suite; where do you want to get it; and do you think you have the IT in place to improve it?

I think that there is a lot of opportunity there. We’re going to actually spend a fair bit of time at investor day talking about this. So, I’ll give you a little bit of preview. I like using one example from the summer. In July as United was seeing stronger demand and bookings were coming in strong at the domestic entity, tried to boost the demand and increase the amount of demand. And so, we took a set of markets and didn’t do anything, and we took another set of markets and increased the local demand by a 100% in the forecast, another set of market and increased both the local and the flow demand by 20%. Those were massive, massive changes in demand, and you would expect that to lead to massive changes in output. And at the end of the experiment, those three sets of entities, those three different experimental groups were 0.2% different in outcomes. What that tells you is -- and what that really is, we have a big complicated system. We don’t even have a process to measure forecast versus actuals because it’s so big and complicated. And the team does a fantastic job of managing on the backend but we’re hand managing a lot of markets on the backend and as great as people are, you can’t do that as well as a robust system with thousands and millions of data points can do. Even things like this year coming into Christmas, the demand patterns dramatically differ with Christmas on a Sunday instead of Christmas on a Friday and we don’t have any history that goes back to a time when Christmas was last on a Sunday. So we’re trying to hand this. All of that -- the team has done a great job managing that in that environment but it is a significant opportunity. It’s going to require a lot of work; it’s not going to happen overnight. It is going to require some changes in the system. Our fundamental architecture of the system that we’re built on can handle it; there are no issues there. We’re just going to have to build, do the work to build on top of that and do a management. But it’ll take time and we’ll talk more about this at Investor Day, but I think it is a significant opportunity that’s unique to United Airlines.

And I’ll also add; I can just add real quickly, over the years people have characterized the United network in very broad and positive terms but yet we’ve never been able to realize the full potential of that. I think you just heard another example of what are the things that have been sort of missing, really take it to [indiscernible]. Again level of energy and excitement in our company is based upon -- predicated on the fact that we have some very-very good people on this now and you can see great output over time as Scott says.

Yes, that’s -- I will look forward to hearing more about this at the Analyst Day. And that’s actually a good segue into my next question. When -- you guys actually -- you split the VP of network role into two roles recently; you are going to have one person overseeing the domestic network and one person overseeing the international network. So, to me that says that you feel like one of those two is particularly underperforming. So, is that a fair characterization and if so, which do you think is underperforming more relative to where it should be, domestic or international?

I think we have a very strong international network, I think we have for many years. There’s more that we can be doing on that side for sure. On the domestic side, outside coming in, I think we thought there was a lot of opportunity there and I think that’s only been confirmed from the inside now. So Scott and I are working together with the team to understand the full potential of the domestic network and I think we see significant upside there.

You’re reading a little much into it about the org structure as people are -- anything like that but we do, we have the best international network certainly of any U.S. carrier that goes -- that’s no one argues that. But we do not have the same kind of margins domestically or have the same kind of success domestically as American and Delta do. And we can get there. It’s another area that I think we have more upside than the others because there’s a whole bunch of stuff; it’s in your management, it can be sales, it’s in the latest schedule, so all kinds of stuff at the Company that’s been very focused on international. But without losing any of that I think we can improve the results in the domestic network.

From Buckingham Research we have Dan McKenzie. Please go ahead.

I know you’re saving a lot for the Investor Day, but I’m wondering if you can share just more broadly the growth plans for 2017 and how that would break out domestically versus internationally.

Dan, we’d love to share but we don’t actually, just don’t have it done yet. As Julia alluded to earlier, we got new people here taking a new look at some of the things. And we will be ready to give you more detail at Investor Day but I apologize, we just don’t -- aren’t ready to do it today.

Okay, understood. And then, secondly here, a number of experts are ratcheting down their economic outlook for the UK next year, so just a couple of questions here. I am just wondering if you can remind us what percent of United’s revenue is tied to the UK. And then secondly, how the capacity reductions across the Atlantic are being targeted specifically?

I don’t actually know what our percentage across Atlantic. I am glad to have now at airline that doesn’t have essentially a hub there where I was before. But it’s obviously much smaller. And on the specifics of the capacity reductions, again that’s work that’s ongoing right now for 2017, so left away; 4.7% of revenue.

From JP Morgan we have Jamie Baker. Please go ahead.

This first one I’ll just throw out there to whomever would like to take it. When standalone United incurred significant labor cost escalation back in 1999, it isn’t clear that any return on that investment was ever achieved. So, here we are whatever, 17 years later, labor costs are once again rising at a material rate. Is there anything different about the industry today that gives you the confidence that your owners actually witness a return on these recent investments?

Jamie, it’s Oscar. Let me start and then I think I’ll let Scott finish, given that he’s had deeper, broader, long-term experience here. I understand the history of this. It’s been told to me repeatedly as we finished our labor contracts and I completely reject the notion that you can’t have efficiency and productivity while also having customer service. I said that constantly. And to that end, in order to get that customer service and that productivity, we have to invest in these folks. And so our employees are very core to our product and customer experience. These costs, -- labor costs are market based costly to your point. Where the difference we are counting on is that over time this collaborative relationship we are building with our labor workforce, we can drive productivity. In fact, we’re in this together. And some will call that naïve, some will call that history doesn’t prove that but I think we are already seeing those green shoots as we say around that. But that’s been my focus. Now I have experts that are going to help us to do that. So, Scott would you have something to add?

Sure, I agree with everything Oscar said. And we are a service business and our people make the airline run successfully every day, how they interact with our customers is most important thing that we do. One of the things that I am proud of as having been a part of in the industry is getting to the point where we can start getting back to our people, we can do great things for our people in contracts after the 15 years that they have been through and the post 9/11 era furloughs and concessions and losing system [ph]. And so, it’s rewarding to be able to actually give the kinds of raises and economic benefits back to people after all that they can do. I do think the industry is different today and I think it’s important to not only do great things for our people but for our customers and our shareholders, all those things happen to go together. I think 1999 is probably not the first example of time to use, because we all know what happened in 2001 and that really triggered all of the negative things that happened to airline employees over the next 15 years. We’re past that and we are moving forward. I think we can do the kinds of things we have done with these contracts for our people which is fantastic and still get to a role where we have a margins that are higher than they are today and do great things for our shareholders as well. We will talk some more about some of those targets at Investor Day but we’re looking forward to that but we are all genuinely happy for our people that we can offer them these kinds of various contracts.

And Scott a follow-up, and this touches on I guess Helane’s question before. If you were to rank order the catalysts that are driving domestic RASM improvement, how would that look; is it tighter aggregate supply followed by better fare fencing, followed by increases to base fares or is it cessation of advantage fares, revisions to AP requirements that sort of thing? We all know what the various levers are and I am not asking you to name names. I am just wondering at the industry level what’s really driving the improvement.

So, I’m going to break it down exactly the way you described it, but I’ll take a step back and say what’s happened really starting with deregulation and came to a head a few years ago that the way we fence the product, sell the product, differentiate the product, changed. And it used to be that we get use fare fences, Saturday night stays to segment the product between business travelers and leisure travelers, and we can’t anymore. And the growth of low cost carriers has forever changed that part of the business. We are getting better even in that world at figuring out segmentation and we’re doing more on segmentation here certainly at United but I think across the industry we’re getting better at that. Capacity is still growing faster than demand, but we’re making real improvements in our pricing and yield management strategies that are helping counteract some of that. And then, as Julia mentioned, and we’ll talk more about on Investor Day, product segmentation is the huge leap forward; I think it is a new structural change that we’re going to go through here at United. It will be good for our customers; it will allow us to offer low fares to people that care only about getting the lowest price and then allow us to offer a better product to customers who care about other aspects of the product. And so, we’re excited about that. But really this has been with an industry as a journey of how do we -- changes and how we segment our product for our various customers and we’re just, I think mostly getting better at that. Right now, it’s pricing and yield management stuff that we’re doing is better and product segmentation is getting kick-off in earnest next year.

But those are long tailed observations. The sense that I get is that kind of mid-August something really started to take place, something incremental occurred. Is that understanding of mine simply flawed, which is fine? You’ve never hesitated in telling me in the past when I’ve been wrong.

Look, they’re not all long tailed. When I talk about changes to yield management and pricing, those are pretty short tailed. And those are things that we’ve gotten better at in the last two years. Sort of mid-August, there was a timeframe that there were some changes going on in the pricing environment, which I am not going to talk about in detail. That did happen and I think are contributing to near -- well, it feels like an inflection point in domestic revenues. There probably was an inflection point in mid-August as some of the pricing environment started to change at a number of airlines across the country.

From Morgan Stanley, we have Rajeev Lalwani. Please go ahead.

Scott, I know you talked a little bit about the various international markets but maybe just taking a step back, can you just talk about international broadly and whether or not you think overall, as we look into maybe next year, there is a path to just yields being stable or do you think international would maybe offset some of the opportunity that you’ve talked about on the domestic side?

We’d kind of have to go through it region-by-region. So, I’ll start with the best, the Latin America. Latin America is going to be positive of both yield and RASM in the fourth quarter. So, we feel really good about that market. Again the Pacific, I think the capacity story is going to get better as we go through 2017. So, while I don’t have the best forecast, if I just had to make my best guess today, we will get the positive yield across the Pacific at some point in 2017. And across the Atlantic, it’s still going to be a struggle; it depends on what happens with capacity; in that entity, lots of uncertainty is still around Brexit and what’s going to happen there. So, I think that will get positive and two of the three entities and the third one is really a question mark based on what happens in the capacity.

Andrew, just a quick question for you. Towards the end of your prepared remarks, you made a statement about I think reviewing CapEx across commitments, et cetera. Can you just talk about what some of the range of opportunities ahead are and maybe some of the things we can look for?

Sorry. I was -- I thought you were headed to the guidance. You’re talking about more broadly, right?

Right.

Yes, I think everything is an opportunity if -- and we’re going to look at everything, everything that hasn’t been let’s call it committed. Clearly, we have plans; we made commitments. But as an example on the fleet side, there is a window of opportunity to be able to make changes once you get within let’s call it a year of delivery, then you’re stuck. But we’re certainly looking at fleet plan, we’re looking at a lot of our CapEx projects that we’re making whether we plan to make, think about making and not just reviewing it from top to bottom to see if we like what we’ve got coming down the pipe and will make changes wherever we think it’s appropriate. I think one example would be mix of new and used aircraft. We’ve already started bringing in some used A319s and we acquired at attractive rates. We’re going to continue to keep eye out for high quality used aircraft to blend into the mix of the fleet here. So, wherever we can find those types of opportunities to reduce capital intensity, we’re going to try and take advantage of that. So nothing specific to talk about at the moment. We’ll talk to you again on November 15th and if there is changes to be made, we will discuss at that time.

From Evercore ISI, we have Duane Pfennigwerth. Please go ahead.

Scott, a few years ago, you said 87% of your customers at American flew less than one time a year and represented about half of your revenue, or about -- the flip side of that, making up half of your revenue. So, can you say, did those statistics look materially different at United? Have you had a chance to study that customer base?

So, somebody has showed me the number and I’ve looked at it little different but it’s 85% here. And it is close to half the revenue.

And then just to stay with you, Scott; sorry to the others and look forward to spending more time with you in November. With respect to your regional aircraft strategy, you had a captive regional at American. Just with respect to your early impressions, is it fair to say that United has not been as proactive as it could have been from a regional aircraft strategy? If we look back over the last few quarters, regional capacity is down materially and you are growing on the mainline. And I am just wondering is this optimal/ideal or has this been a function of supply constraints on the regional side?

Our constraints on regional side at United are about the pilot contract and the scope. And we are growing it but we will be getting to the scope maximum. I think it’s fair to also say that one of the things we will likely do over time is use our regional supply and more of what you would think of a traditional regional markets and less in big markets. So, today we fly a lot of hub-to-hub between Dallas and Chicago or between Denver and Dallas; we fly regional jets. And that’s something that is unique about United that will likely change. In hub-to-hub markets, we’ll fly bigger airplanes and we’ll use our originals to go fly into places that are smaller cities but that generate higher yielding connecting revenues for the network. I do think it’s an opportunity.

Can I add? This is Andrew. Let me add, we -- Duane, there has been a plan in place for a while to reduce the number of 50-seaters for economic reasons. And so, I think part of what you are seeing is just that plan continuing to play itself out as 50-seaters are reduced. So, I don’t know if it’s fair to say that we’ve been less proactive. I think there is a plan. We’re in the middle of reshaping regional fleet and that will continue as we move forward in the next several quarters.

And then, just wanted to touch on Brazil. One of your competitors noted a 30% RASM increase in the third quarter. The shape of their capacity is a little bit different than the shape of yours, but wonder if you could comment what your RASM was up in Brazil and specifically how much of that was in August Olympic spike, versus a steady trend over the course of the quarter?

Well, not that I focus on trying to beat the guys in Atlanta, I did by the way but that was about 31%. And a big chunk of that was the -- would have been the Olympic -- I don’t know the exact number here at United. But as we look out to the fourth quarter, at least we expect yields to be somewhere between 20% and 30%. So, I think that’s a real recovery. The Olympics gave us that kick start but it also led -- maybe because of the Olympics that led us to real pricing changes. The pricing environment to Brazil is far, far better than it was just a few months ago. And that happened sort of around the time that you’re going to Olympics and maybe that’s what caused it but it stuck. So, Brazil is much improved.

Thanks and just to clarify, that 20% to 30% is off of the trough or that’s year-over-year.

That’s year-over-year.

From Bank of America we have Andrew Didora. Please go ahead.

A lot of my questions have been answered, but Andrew, I just wanted to touch upon capital allocation a little bit. Obviously the buybacks slowed dramatically in 3Q but you did reiterate your focus on capital returns in your prepared remarks. I guess when we look at 2017, you have higher labor costs, a new fuel curve, increasing your expenses, free cash flow takes a hit as CapEx steps up. So, how do you balance this capital return strategy with much lower free cash flow next year? And do you feel comfortable with higher leverage from here or what is the leverage to keep this strategy going?

At the moment we’re not considering adding leverage to the balance sheet. That being said, we are going to be reviewing it in more detail in the coming quarters with our Board and look at that where we think it makes sense. But at the moment, we think having a very strong balance sheet is critical. We’re very comfortable with our debt levels at the moment and our liquidity. As you noted, we do have some issues that we need to get comfortable with as we look into 2017. Higher labor expenses, higher fuel curve are certainly the two important things. And as such, I think that it’s likely that the pace of any buyback is going to be probably a little more similar to what we’ve seen in the last quarter, certainly than what we saw in the first quarter where we repurchased 1.5 billion of shares. So, stay tuned. I think we look at that as excess cash and we have excess cash how do we return it to our shareholders. And we’ll take into account all the drivers and the business as we look forward and first and foremost make sure that we maintain a very-very strong balance sheet, which we think is a huge competitive advantage that we care deeply about.

So, I guess with the earnings inflection next year, would we expect additional debt pay down to keep occurring at United?

Well, we have -- I don’t believe we have any opportunities to reduce our debt next year other than just by simply making our payments. We have some unsecured that’s due in I think ‘18 and ‘19, we have number of EETC transactions that pay down according to the initial schedules. So, I think that at the moment, we don’t see any big opportunities to just reduce the debt levels but we’re very comfortable with where they are. We certainly are going to be mindful to keep it conservative. That doesn’t mean that we won’t look at more leverage. But as we sit here right now getting our arms around the business and trying to come up with a game plan as we go forward which we’ll share a lot of that in a month from now, I don’t expect any significant changes in at least in the next quarter.

From Raymond James we have Savi Syth. Please go ahead.

Just a quick question on the business or the corporate side, just wondering if you could provide color on just what volumes, how they’ve been trending. And also in the oil and gas sector, I know the drag in 3Q, it was a bit lower than you had anticipated heading into the quarter but I was wondering if that was just seeing the demand recover or that was just better capacity rationalization in Houston and other markets?

In terms of domestic, actually the closing corporate bookings have really been strengthening and even as we look back to the third quarter, as we talked before, the strength of our domestic routes going positive. We actually saw really steady upward trajectory on sequential year-over-year PRASM for business, specifically actually in the corporate. So hopefully that answers your first question. Energy on the second part.

Energy was down 14% in the quarter.

And I think it came in better than expected, right? I am just wondering if that was -- you saw a recovery in demand and just more spending or if that was just a capacity rationalization?

Yes, it’s pretty much in line with expectations; so, not too much of under over on that one, Savi.

And if I may ask, just on the non-fuel costs, just curious, in 2015 versus 2016, the poor CASM; was there anything in particular that drove the better performance in 2015 versus the performance in 2016? The capacity growth wasn’t significantly different. So, I was just curious as to the variance there.

To be clear, Savi, are you asking about the fourth quarter projection?

No, full year in 2015 versus 2016 that slide that you had there.

2015, certainly we had a lot of the results from project quality which drove the material decline in our cost structure we have been able to maintain in the business. But no, I don’t think there’s anything unique to 2015, if that’s your question.

From Stephens we have Jack Atkins. Please go ahead.

Just going back to the June investor presentation with the $1.1 billion value creation that you guys outlined for the second half of 2016, could you give us a progress report on how much of that has been captured and are you may be expecting some of that to push out into 2017 now that it seems like the team is maybe taking a second look at some of those buckets?

We’ll probably be able to give you a better update on Investor Day but as I look through the items we are running better operations that we know. That was $100 million or so in 2016. It’s one of those; it’s hard to go back and identify that you actually got it or not but we are definitely running better operation. And whether we get it all in 2016 or something that’s going to come later, we are winning back customers; we are winning back share of high value customers. And that’s something we feel confident that we will -- that we are going to get. Another big chunk is the slimline and upgauge program which I think we are on track with because efficiency stuff we are on track with. I think most -- and MileagePlus was another big one as well. And so those are ones that we know that we -- will be achieved. So I think we are largely on track with the 1.1 billion.

And then I guess going back to your earlier comments on the international market and then comparing that with what you were seeing domestically. As you look out to 2017, would you expect your consolidated PRASM to turn positive in the first half of next year; is that the message that you guys are trying to send?

I am not trying to send a specific timing on that message mostly because I don’t know it well enough. I didn’t live the history here at United of last year and kind of -- at least I need to have lived that history to feel confident about the timing. I feel confident that we are headed in that direction and we are going to continue to make improvement in every quarter but I just can’t today give you what the high level of confidence when I think we are going to cross the zero thresholds.

Thank you. I will now turn it back to our speakers for closing remarks.

Thank you, Brandon and thank you all for joining the call today. Please contact Investor Relations if you have any further questions and we look forward to talking to you next quarter.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you. You may now disconnect.