What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-15 compared with 2020-07-22 · 205 added, 199 removed, 227 unchanged (64% of the section changed)

12 unchanged sentences

Impact of COVID-19 and Outlook

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China, and the World Health Organization subsequently declared COVID-19 a "pandemic." As a result of COVID-19, the U.S.

government declared a national emergency, the U.S.

Department of State issued numerous travel advisories, including a global Level 4 "do not travel" advisory advising U.S.

citizens to avoid all international travel, and the U.S.

government has implemented a number of travel-related protocols, including enhanced screenings and mandatory 14-day quarantines.

Many foreign and U.S.

state and local governments have instituted similar measures and declared states of emergency.

In the United States and other locations around the world, throughout the first half of 2020, people were instructed to stay home or "shelter in place" and public events, such as conferences, sporting events and concerts, have been canceled, attractions, including theme parks and museums, have been closed, cruise lines have suspended operations and schools and businesses are operating with remote attendance, among other actions.

In addition, governments, non-governmental organizations and entities in the private sector have issued non-binding advisories or recommendations regarding air travel or other social distancing measures, including limitations on the number of persons that should be present at public gatherings.

While "shelter in place" restrictions and similar advisories and recommendations have been reduced or otherwise eased in certain circumstances, this varies by jurisdiction and organization.

In addition, numerous jurisdictions have imposed or reinstated more severe restrictions as a result of the continued spread of COVID-19 or resurgences in the severity of COVID-19 in certain locations, including travel restrictions, mandatory self-quarantine requirements and other enhanced COVID-19-related screening measures that may apply to our personnel and/or the traveling public.

The novel coronavirus (COVID-19) pandemic, together with the measures implemented by governmental authorities and private organizations in response to the pandemic, has had an adverse impact that has been material to the Company's business, operating results, financial condition and liquidity.

Measures such as "shelter in place" or quarantine requirements, international and domestic travel restrictions or advisories, limitations on public gatherings, social distancing recommendations, remote work arrangements and closures of tourist destinations and attractions, as well as consumer perceptions of the safety, ease and predictability of air travel, have contributed to a precipitous decline in passenger demand and bookings for both business and leisure travel.

The Company began experiencing a significant decline in international and domestic demand related to COVID-19 during the first quarter of 2020.

The decline in demand caused a material deterioration in our revenues in the first half of 2020 , resulting in a net loss of $3.3 billion for that period.

Although during the second quarter of 2020 the Company experienced modest, but steady improvement in demand, the Company has since experienced reduced demand and increased cancellations to destinations experiencing increases in COVID-19 cases and/or new quarantine requirements imposed in certain jurisdictions or other restrictions on travel.

As a result, the full extent of the ongoing impact of COVID-19 on the Company's longer-term operational and financial performance will depend on future developments, many of which are outside of our control, and all of which are highly uncertain and cannot be predicted;

however, the Company currently expects our results of operations for full-year 2020 to be materially impacted and that we will incur a net loss for the full-year 2020 .

In response to decreased demand, the Company cut, relative to 2019 capacity, approximately 88% of its scheduled capacity for the second quarter of 2020 .

The Company expects scheduled capacity to be down approximately 65% year-over-year in the third quarter of 2020 .

The Company also expects its scheduled capacity in the fourth quarter of 2020 to be generally consistent with the third quarter of 2020 .

The Company plans to continue to proactively evaluate and cancel flights on a rolling 60 -day basis until it sees signs of a recovery in demand.

The Company expects demand to remain suppressed until a widely accepted treatment and/or vaccine for COVID-19 is available.

The decline in demand caused a material deterioration in our revenues in the first nine months of 2020, resulting in a net loss of $5.2 billion for that period.

Although during the third quarter of 2020 the Company experienced modest improvement in demand, the full extent of the ongoing impact of COVID-19 on the Company's longer-term operational and financial performance will depend on future developments, including those outside our control related to possible increases in COVID-19 cases and/or new quarantine requirements being imposed in certain jurisdictions or other restrictions on travel, all of which are highly uncertain and cannot be predicted with certainty.

In response to decreased demand, the Company cut, relative to 2019 capacity, approximately 70% of its scheduled capacity for the third quarter of 2020.

The Company expects scheduled capacity to be down approximately 55% year-over-year in the fourth quarter of 2020.

The Company plans to continue to proactively evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand and expects demand to remain suppressed and plateau at levels around 50%, relative to 2019 levels, until an accepted treatment and/or vaccine for COVID-19 is widely available.

In addition, the Company does not currently expect the recovery from COVID-19 to follow a linear path.

As such, the Company's actual flown capacity may differ materially from its currently scheduled capacity.

The Company has taken a number of actions in response to the decreased demand for air travel.

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• terminated its share repurchase program;

as of July 2, 2020 , issued or entered into approximately $10.0 billion ( $3.0 billion through June 30, 2020 ) in secured notes, secured term loan facilities and new aircraft financings, including $6.8 billion of senior secured notes and a secured term loan facility (the "MileagePlus Financing") secured by substantially all of the assets of Mileage Plus Holdings, LLC, a direct wholly-owned subsidiary of United ("MPH"), and Mileage Plus Intellectual Property Assets, Ltd., an indirect wholly-owned subsidiary of MPH ("MIPA");

• issued approximately $10.2 billion in secured notes, secured term loan facilities and new aircraft financings;

• borrowed $1.0 billion under the $2.0 billion revolving credit facility of the Amended and Restated Credit and Guaranty Agreement (the "Revolving Credit Agreement");

• raised approximately $1.1 billion in cash proceeds in an underwritten public offering of UAL common stock;

• entered into an equity distribution agreement relating to the issuance and sale, from time to time, of up to 28 million shares of UAL common stock;

borrowed, on July 2, 2020 , $1.0 billion under the $2.0 billion revolving credit facility of the Amended and Restated Credit and Guaranty Agreement (the "Revolving Credit Agreement");

entered into an agreement to finance certain aircraft currently subject to purchase agreements through a sale and leaseback transaction;

elected to defer the payment of $78 million in payroll taxes incurred through June 30, 2020 , as provided by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), until 2021 and 2022 ;

• entered into agreements to finance certain aircraft currently subject to purchase agreements through sale and leaseback transactions;

• elected to defer the payment of $140 million in payroll taxes incurred through September 30, 2020, as provided by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), until 2021 and 2022;

• temporarily grounded certain of its mainline fleet;

taken a number of actions to reduce employee-related costs, including, among other items, the Company's Chief Executive Officer and President waived 100% of their respective base salaries through 2020 , other officers temporarily waived a portion of their base salaries, the Company's non-employee directors waived 100% of their cash compensation for the second and third quarters of 2020 , the Company suspended merit salary increases and implemented a temporary four-day work week for management and administrative employees and the Company offered voluntary unpaid leaves of absence.

On July 8, 2020 , in order to comply with various labor regulations in certain jurisdictions, including pursuant to the Worker Adjustment and Retraining Notification Act, United informed approximately 36,000 U.S.-based employees, either directly or through a union representative, of plans to implement a workforce reduction at their work locations.

These notices are part of the Company's strategic realignment of its business and new organizational structure as a result of the impacts of the COVID-19 pandemic on the Company's operations and cost structure.

The Company expects that these actions will take effect on or after October 1, 2020 and may continue through the end of 2020 .

• taken a number of actions to reduce employee-related costs, including, among other items, the Company's Chief Executive Officer and President waived 100% of their respective base salaries through 2020, other officers temporarily waived a portion of their base salaries, the Company's non-employee directors waived 100% of their cash compensation for the second and third quarters of 2020, the Company suspended merit salary increases for 2020 and implemented a temporary four-day work week for management and administrative employees and the Company offered voluntary unpaid leaves of absence.

In addition, and as announced in July 2020, the Company started the involuntary furlough process earlier this summer when issuing Worker Adjustment and Retraining Notification ("WARN") Act notices to 36,000 of its employees.

Since then, the Company worked to reduce the total number of furloughs to approximately 13,000 employees by working closely with its union partners, introducing new voluntary options selected by approximately 9,000 employees and proposing creative solutions that would save jobs.

This workforce reduction is part of the Company's strategic realignment of its business and new organizational structure as a result of the impacts of the COVID-19 pandemic on the Company's operations and cost structure.

The COVID-19 pandemic is an act of nature and is a circumstance beyond the Company's control, which is further compounded by governmental restrictions on travel and stay-at-home orders that have substantially reduced bookings and the demand for airline travel, resulting in the temporary grounding of a substantial number of the Company's aircraft.

The Company continues to focus on reducing expenses and managing its liquidity.

We expect to continue to modify our cost management structure, liquidity-raising efforts and capacity as the timing of demand recovery becomes more certain.

The Company currently expects daily cash burn during the third quarter of 2020 to average approximately $25 million per day.

For this purpose, "cash burn" is defined as net cash from operations, less investing and financing activities.

Proceeds from the issuance of new debt (excluding expected aircraft financing), government grants associated with the Payroll Support Program of the CARES Act, issuance of new UAL common stock, net proceeds from sale of short-term and other investments and changes in restricted cash balances are not included in this figure.

The Company's management views daily "cash burn" as an important measure in monitoring liquidity in order to assess the Company's cash needs without the impact of certain extraordinary actions or events, and the Company believes this provides useful information to investors about the Company's liquidity position.

We expect to continue to modify our cost management structure and capacity as the timing of demand recovery becomes more certain.

On March 27, 2020, the President of the United States signed the CARES Act into law.

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On April 20, 2020, United entered into a Payroll Support Program Agreement (the "PSP Agreement") with the U.S.

Treasury Department providing the Company with total funding of approximately $5.0 billion pursuant to the Payroll Support Program under the CARES Act.

Treasury Department ("Treasury") providing the Company with total funding of approximately $5.1 billion pursuant to the Payroll Support Program under the CARES Act.

These funds will be used to pay for the salaries and benefits of United employees.

Approximately $3.5

billion of the $5.0 billion will be a direct grant and approximately $1.5 billion will be in the form of a 10 -year senior unsecured promissory note (the "PSP Note").

As of June 30, 2020 , the Company has received approximately $4.5 billion of the expected $5.0 billion through the Payroll Support Program under the CARES Act.

The approximately $500 million remaining balance is expected to be received by the end of July 2020 .

As of June 30, 2020, the Company recorded $1.6 billion in grant income as Special Charges (credit) and recorded $1.5 billion as Payroll Support Program deferred credit.

The Company also recorded $57 million in warrants issued to the U.S.

Treasury Department, within stockholder's equity, in connection with the PSP Note.

See Note 3 to the financial statements included in Part I, Item 1 for additional information related to these warrants.

In connection with entering into the PSP Agreement, during the second quarter, UAL issued the PSP Note to the U.S.

Treasury Department evidencing senior unsecured indebtedness of UAL of approximately $1.3 billion .

The principal amount of the PSP Note will increase in an amount equal to 30% of any disbursement made by the U.S.

Treasury Department to United under the PSP Agreement after June 30, 2020 .

The PSP Note is guaranteed by United and will mature ten years after the initial issuance on April 20, 2030 .

If any subsidiary of UAL (other than United) guarantees other unsecured indebtedness of UAL with a principal balance in excess of a specified amount, or if certain subsidiaries are formed or acquired , then such subsidiary shall be required to guarantee the obligations of UAL under the PSP Note.

UAL may, at its option, prepay the PSP Note, at any time, and from time to time, at par.

UAL is required to prepay the PSP Note upon the occurrence of certain change of control triggering events.

The PSP Note does not require any amortization and is to be repaid in full on the maturity date.

Under the PSP Agreement, the Company and its business are subject to certain restrictions, including, but not limited to, restrictions on the payment of dividends and the ability to repurchase UAL's equity securities, requirements to maintain certain levels of scheduled service, requirements to maintain U.S.

Approximately $3.6 billion of the $5.1 billion was a direct grant and approximately $1.5 billion is in the form of a 10-year senior unsecured promissory note (the "PSP Note").

As of September 30, 2020, the Company has received the full amount of the $5.1 billion through the Payroll Support Program under the CARES Act.

As of September 30, 2020, the Company recorded $3.1 billion in grant income as Special charges (credit) on the Company's statement of consolidated operations and recorded $453 million as Payroll Support Program deferred credit on the Company's consolidated balance sheet.

The Company also recorded $66 million in warrants issued to Treasury, within stockholders' equity, in connection with the PSP Note.

See Note 3 and Note 10 to the financial statements included in Part I, Item 1 for additional information related to these warrants and the PSP Note, respectively.

On September 28, 2020, UAL and United entered into a loan agreement with Treasury.

The agreement provides for a term loan facility of up to approximately $5.2 billion (the "Term Loan Facility") pursuant to the loan program established under Section 4003(b) of the CARES Act (the "Loan Program").

The loans (the "Term Loans") may be disbursed in up to three disbursements on or before March 26, 2021.

Treasury has advised United that it intends to allocate additional loan commitments under the CARES Act in October 2020, and that it expects that such additional allocations will increase the amount available under the Term Loan Facility to up to $7.5 billion in the aggregate.

Such increase, and the amount thereof, are subject to final approval by Treasury and both the availability of, and agreement on, collateral.

On September 28, 2020, United borrowed, and recorded as Long-term debt on the Company's consolidated balance sheet, $520 million, the proceeds of which were used to pay certain transaction fees and expenses, and for working capital and other general corporate purposes of the Company.

See Note 3 to the financial statements included in Part I, Item 1 for a discussion on the warrants issued in connection with the Term Loans and Note 10 to the financial statements included in Part I, Item 1 for a discussion on the Term Loans.

Under the PSP Agreement and Loan Program, the Company and its business are subject to certain restrictions, including, but not limited to, restrictions on the payment of dividends and the ability to repurchase UAL's equity securities, requirements to maintain certain levels of scheduled service, requirements to maintain U.S.

employment levels through September 30, 2020 and certain limitations on executive compensation.

On April 17, 2020 , the Company submitted an application to the Loan Program under the CARES Act.

Under the Loan Program, the Company expects to have the ability, through March 26, 2021 , to borrow up to approximately $4.5 billion from the U.S.

Treasury Department for a term of up to five years .

The Company continues to work with the U.S.

Treasury Department on the CARES Act Loan Program loan, and it is the Company's expectation that, if the Company takes the loan, it will use available slots, gates and routes collateral.

The Company believes it has sufficient slots, gates and routes collateral available to meet the collateral coverage that may be required for the full $4.5 billion available to the Company under the Loan Program.

In connection with any borrowings under the Loan Program, the Company and its business will be subject to certain restrictions, including, but not limited to, certain of the restrictions described above with respect to the PSP Agreement.

RESULTS OF OPERATIONS

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three months ended June 30, 2020 as compared to the corresponding period in 2019 .

Second Quarter 2020 Compared to Second Quarter 2019

The Company recorded a net loss of $1.6 billion in the second quarter of 2020 as compared to net income of $1.1 billion in the second quarter of 2019 .

The Company considers a key measure of its performance to be operating income (loss), which was a $1.6 billion loss for the second quarter of 2020 , as compared to income of $1.5 billion for the second quarter of 2019 , a $3.1 billion decrease year-over-year, primarily as a result of the global COVID-19 pandemic.

Significant components of the Company's operating results for the three months ended June 30 are as follows (in millions, except percentage changes):

Increase (Decrease)

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three months ended September 30, 2020 as compared to the corresponding period in 2019.

Third Quarter 2020 Compared to Third Quarter 2019

The Company recorded a net loss of $1.8 billion in the third quarter of 2020 as compared to net income of $1.0 billion in the third quarter of 2019.

The Company considers a key measure of its performance to be operating income (loss), which was a $1.6 billion loss for the third quarter of 2020, as compared to income of $1.5 billion for the third quarter of 2019, a $3.1 billion decrease year-over-year, primarily as a result of the global COVID-19 pandemic.

Significant components of the Company's operating results for the three months ended September 30 are as follows (in millions, except percentage changes):

2020 2019 Increase

(Decrease) % Change

Operating revenue $ 2,489 $ 11,380 $ (8,891) (78.1)

Operating expense 4,104 9,907 (5,803) (58.6)

Operating income (loss)

Nonoperating income (expense)

Income tax expense (benefit)

Net income (loss)

Certain consolidated statistical information for the Company's operations for the three months ended June 30 is as follows:

Increase (Decrease)

Operating income (loss) (1,615) 1,473 (3,088) NM

Nonoperating income (expense) (717) (124) 593 NM

Income tax expense (benefit) (491) 325 (816) NM

Net income (loss) $ (1,841) $ 1,024 $ (2,865) NM

Certain consolidated statistical information for the Company's operations for the three months ended September 30 is as follows:

2020 2019 Increase

(Decrease) % Change

Passengers (thousands) (a) 9,739 43,091 (33,352) (77.4)

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Available seat miles ("ASMs" or "capacity") (millions) (c) 22,212 75,076 (52,864) (70.4)

Passenger load factor (d)

Passenger load factor (d) 47.8 % 86.1 % (38.3) pts.

Passenger revenue per available seat mile ("PRASM") (cents) 7.42 13.96 (6.54) (46.8)

Average yield per revenue passenger mile ("Yield") (cents) (e) 15.54 16.22 (0.68) (4.2)

Cargo ton miles ("CTM") (millions) (f)

Cargo revenue ton miles ("CTM") (millions) (f) 685 804 (119) (14.8)

Cost per available seat mile ("CASM") (cents) 18.48 13.20 5.28 40.0

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Fuel gallons consumed (millions) 387 1,134 (747) (65.9)

Employee headcount, as of June 30

Employee headcount, as of September 30 87,900 95,000 (7,100) (7.5)

(a) The number of revenue passengers measured by each flight segment flown.

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Operating Revenue.

The table below shows year-over-year comparisons by type of operating revenue for the three months ended June 30 (in millions, except for percentage changes):

Increase (Decrease)

The table below shows year-over-year comparisons by type of operating revenue for the three months ended September 30 (in millions, except for percentage changes):

2020 2019 Increase

(Decrease) % Change

Passenger revenue $ 1,649 $ 10,481 $ (8,832) (84.3)

Cargo 422 282 140 49.6

Other operating revenue 418 617 (199) (32.3)

Total operating revenue $ 2,489 $ 11,380 $ (8,891) (78.1)

The table below presents selected second quarter passenger revenue and operating data, broken out by geographic region, expressed as year-over-year changes:

The table below presents selected third quarter passenger revenue and operating data, broken out by geographic region, expressed as year-over-year changes:

Increase (decrease) from 2019:

Domestic Atlantic Pacific Latin Total

Average fare per passenger (23.6) % 10.5 % 50.1 % (24.2) % (30.4) %

Passengers (75.1) % (91.6) % (94.2) % (80.6) % (77.4) %

RPMs (traffic) (78.2) % (90.1) % (95.5) % (84.3) % (83.6) %

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Passenger load factor (points) (32.2) (55.1) (58.6) (33.4) (38.3)

Passenger revenue decreased $9.8 billion , or 93.5% , in the second quarter of 2020 as compared to the year-ago period primarily due to the decrease in demand for air travel as a result of the worldwide spread of COVID-19 and the associated shelter-in-place directives and travel restrictions.

Cargo revenue increased $107 million , or 36.3% , in the second quarter of 2020 as compared to the year-ago period primarily due to an increase in cargo-only charter flights as a result of increased demand for critical goods during the COVID-19 pandemic.

Other operating revenue decreased $229 million , or 36.9% , in the second quarter of 2020 as compared to the year-ago period primarily due to a decline in mileage revenue from non-airline partners, including the co-branded credit card partner, JPMorgan Chase Bank, N.A.

Passenger revenue decreased $8.8 billion, or 84.3%, in the third quarter of 2020 as compared to the year-ago period primarily due to the decrease in demand for air travel as a result of the worldwide spread of COVID-19 and the associated shelter-in-place directives and travel restrictions.

Effective August 30, 2020, the Company eliminated change fees on all standard Economy and Premium cabin tickets for travel within the U.S.

50 states, Puerto Rico and the U.S.

Virgin Islands.

Cargo revenue increased $140 million, or 49.6%, in the third quarter of 2020 as compared to the year-ago period primarily due to an increase in cargo-only charter flights with higher yields as a result of an increased demand for critical goods during the COVID-19 pandemic.

Other operating revenue decreased $199 million, or 32.3%, in the third quarter of 2020 as compared to the year-ago period primarily due to a decline in mileage revenue from non-airline partners, including the co-branded credit card partner, JPMorgan Chase Bank, N.A., and lower revenue from airport lounges due to United Club closures and fewer overall customers utilizing these lounges.

Operating Expenses.

The table below includes data related to the Company's operating expenses for the three months ended June 30 (in millions, except for percentage changes):

Increase (Decrease)

The table below includes data related to the Company's operating expenses for the three months ended September 30 (in millions, except for percentage changes):

2020 2019 Increase

(Decrease) % Change

Salaries and related costs $ 2,229 $ 3,063 $ (834) (27.2)

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Aircraft rent 50 67 (17) (25.4)

Special charges (credit)

Special charges (credit) (1,081) 27 (1,108) NM

Other operating expenses 679 1,591 (912) (57.3)

Total operating expenses $ 4,104 $ 9,907 $ (5,803) (58.6)

Salaries and related costs decreased $887 million , or 29.0% , in the second quarter of 2020 as compared to the year-ago period primarily due to schedule reductions for management and administrative employees, Company-offered leaves of absence and other voluntary separation programs, $215 million lower profit sharing and other employee incentives due to the impact of COVID-19 on the second quarter of 2020 results and $142 million in tax credits provided by the Employee Retention Credit under the CARES Act related to the second quarter of 2020 .

Aircraft fuel expense decreased by $2.1 billion , or 89.9% , in the second quarter of 2020 as compared to the year-ago period.

The table below presents the significant changes in aircraft fuel cost per gallon in the three months ended June 30, 2020 as compared to the year-ago period:

(In millions)

Average price per gallon

Salaries and related costs decreased $834 million, or 27.2%, in the third quarter of 2020 as compared to the year-ago period primarily due to schedule reductions for management and administrative employees, Company-offered leaves of absence and other voluntary separation programs, $203 million lower profit sharing and other employee incentives due to the impact of COVID-19 on the third quarter of 2020 results and $29 million in tax credits provided by the Employee Retention Credit under the CARES Act related to the third quarter of 2020.

Aircraft fuel expense decreased by $1.8 billion, or 77.9%, in the third quarter of 2020 as compared to the year-ago period.

The table below presents the significant changes in aircraft fuel cost per gallon in the three months ended September 30, 2020 as compared to the year-ago period:

(In millions) Average price per gallon

2020 2019 % Change 2020 2019 % Change

Fuel expense $ 508 $ 2,296 (77.9) $ 1.31 $ 2.02 (35.1)

Total fuel consumption (gallons) 387 1,134 (65.9)

Regional capacity purchase decreased $327 million , or 45.7% , in the second quarter of 2020 as compared to the year-ago period primarily due to significantly reduced regional flying as a result of COVID-19.

Landing fees and other rent decreased $231 million , or 35.0% , in the second quarter of 2020 as compared to the year-ago period primarily due to a decrease in capacity-based rent and landing fees.

Depreciation and amortization increased $58 million , or 10.4% , in the second quarter of 2020 as compared to the year-ago period primarily due to additions of aircraft and upgrades to aircraft interiors.

Aircraft maintenance materials and outside repairs decreased $311 million , or 73.9% , in the second quarter of 2020 as compared to the year-ago period primarily due to a reduction in airframe checks, engine overhauls, expenses associated with power-by-the-hour engine maintenance contracts and line maintenance due to reduced flying.

Distribution expenses decreased $411 million , or 93.0% , in the second quarter of 2020 as compared to the year-ago period primarily due to lower commission and credit card fees as a result of the overall decrease in passenger revenue due to the COVID-19 pandemic.

Aircraft rent decreased $26 million , or 35.6 %, in the second quarter of 2020 as compared to the year-ago period primarily due to the purchase of leased aircraft.

Details of the Company's special charges (credit) include the following for the three months ended June 30 (in millions):

Regional capacity purchase decreased $296 million, or 41.1%, in the third quarter of 2020 as compared to the year-ago period primarily due to significantly reduced regional flying as a result of COVID-19 and reduced rates under certain capacity purchase agreements.

Landing fees and other rent decreased $145 million, or 22.5%, in the third quarter of 2020 as compared to the year-ago period primarily due to reduced flying.

Depreciation and amortization increased $51 million, or 8.9%, in the third quarter of 2020 as compared to the year-ago period primarily due to additions of aircraft, upgrades to aircraft interiors and completion of technology projects.

Aircraft maintenance materials and outside repairs decreased $375 million, or 76.5%, in the third quarter of 2020 as compared to the year-ago period primarily due to a reduction in airframe checks, engine overhauls, expenses associated with power-by-the-hour engine maintenance contracts and line maintenance due to reduced flying.

Distribution expenses decreased $379 million, or 87.7%, in the third quarter of 2020 as compared to the year-ago period as a result of the overall decrease in passenger revenue due to the COVID-19 pandemic.

Details of the Company's special charges (credit) include the following for the three months ended September 30 (in millions):

CARES Act grant $ (1,494) $ —

Impairment of assets

Severance and benefit costs 350 2

Impairment of assets 38 —

(Gains) losses on sale of assets and other special charges 25 25

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See Note 11 to the financial statements included in Part I, Item 1 of this report for additional information.

Other operating expenses decreased $1.0 billion , or 65.8% , in the second quarter of 2020 as compared to the year-ago period primarily due to the impacts of COVID-19 on our airport operations (including United Club closures and capacity-driven expenses like food catering, cargo trucking and handling, interrupted trip charges and navigation fees, among others), technology needs (including Wi-Fi expenses), crew-related expenses and $88 million received in settlement of credit card interchange fees.

Other operating expenses decreased $912 million, or 57.3%, in the third quarter of 2020 as compared to the year-ago period primarily due to the impacts of COVID-19 on our airport operations (including United Club closures, catering, cargo trucking and handling, interrupted trip charges, ground handling and navigation fees), technology projects and crew-related expenses.

Nonoperating Income (Expense ).

The table below shows year-over-year comparisons of the Company's nonoperating income (expense) for the three months ended June 30 (in millions, except for percentage changes):

Increase (Decrease)

The table below shows year-over-year comparisons of the Company's nonoperating income (expense) for the three months ended September 30 (in millions, except for percentage changes):

2020 2019 Increase

(Decrease) % Change

Interest expense $ (345) $ (191) $ 154 80.6

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Unrealized gains on investments, net 15 21 (6) (28.6)

Miscellaneous, net

Unrealized gains on investments, net, decreased $25 million in the second quarter of 2020 as compared to the year-ago period primarily due to a decrease in the market value of the Company's equity investment in Azul.

See Notes 8 and 11 to the financial statements included in Part I, Item 1 of this report for additional information.

Miscellaneous, net increased $187 million in the second quarter of 2020 as compared to the year-ago period primarily due to settlement losses and special termination benefits related to voluntary separation programs under the Company's non-pilot U.S.

Miscellaneous, net (411) (12) 399 NM

Total $ (717) $ (124) $ 593 NM

Interest expense increased $154 million, or 80.6%, in the third quarter of 2020 as compared to the year-ago period primarily due to the issuance of new debt financings in 2020 to provide additional liquidity to the Company during the COVID-19 pandemic.

Miscellaneous, net increased $399 million in the third quarter of 2020 as compared to the year-ago period primarily due to settlement losses and special termination benefits related to furloughs and voluntary separation programs under the Company's non-pilot U.S.

defined benefit pension plan and postretirement medical programs.

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See Note 5 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.

First Six Months 2020 Compared to First Six Months 2019

The Company recorded a net loss of $3.3 billion in the first six months of 2020 as compared to net income of $1.3 billion in the first six months of 2019 .

The Company considers a key measure of its performance to be operating income (loss), which was a $2.6 billion loss for the first six months of 2020 , as compared to income of $2.0 billion for the first six months of 2019 , a $4.6 billion decrease year-over-year.

Significant components of the Company's operating results for the six months ended June 30 are as follows (in millions, except percentage changes):

Increase (Decrease)

First Nine Months 2020 Compared to First Nine Months 2019

The Company recorded a net loss of $5.2 billion in the first nine months of 2020 as compared to net income of $2.4 billion in the first nine months of 2019.

The Company considers a key measure of its performance to be operating income (loss), which was a $4.2 billion loss for the first nine months of 2020, as compared to income of $3.4 billion for the first nine months of 2019, a $7.7 billion decrease year-over-year.

Significant components of the Company's operating results for the nine months ended September 30 are as follows (in millions, except percentage changes):

2020 2019 Increase

(Decrease) % Change

Operating revenue $ 11,943 $ 32,371 $ (20,428) (63.1)

Operating expense 16,167 28,931 (12,764) (44.1)

Operating income (loss)

Nonoperating income (expense)

Income tax expense (benefit)

Net income (loss)

Certain consolidated statistical information for the Company's operations for the six months ended June 30 is as follows:

Increase (Decrease)

Operating income (loss) (4,224) 3,440 (7,664) NM

Nonoperating income (expense) (2,225) (370) 1,855 NM

Income tax expense (benefit) (1,277) 702 (1,979) NM

Net income (loss) $ (5,172) $ 2,368 $ (7,540) NM

Certain consolidated statistical information for the Company's operations for the nine months ended September 30 is as follows:

2020 2019 Increase

(Decrease) % Change

Passengers (thousands) 42,911 122,137 (79,226) (64.9)

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ASMs (millions) 92,113 213,961 (121,848) (56.9)

Passenger load factor

Passenger load factor 61.7 % 84.5 % (22.8) pts.

PRASM (cents) 10.20 13.88 (3.68) (26.5)

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CTM (millions) 1,876 2,440 (564) (23.1)

CASM (cents) 17.55 13.52 4.03 29.8

Average price per gallon of fuel, including fuel taxes $ 1.65 $ 2.08 $ (0.43) (20.7)

Fuel gallons consumed (millions) 1,501 3,221 (1,720) (53.4)

Employee headcount, as of June 30

Employee headcount, as of September 30 87,900 95,000 (7,100) (7.5)

Operating Revenue.

The table below shows year-over-year comparisons by type of operating revenue for the six months ended June 30 (in millions, except for percentage changes):

Increase (Decrease)

The table below shows year-over-year comparisons by type of operating revenue for the nine months ended September 30 (in millions, except for percentage changes):

2020 2019 Increase

(Decrease) % Change

Passenger revenue $ 9,395 $ 29,692 $ (20,297) (68.4)

Cargo 1,088 863 225 26.1

Other operating revenue 1,460 1,816 (356) (19.6)

Total operating revenue $ 11,943 $ 32,371 $ (20,428) (63.1)

The table below presents selected passenger revenue and operating data, broken out by geographic region, expressed as year-over-year changes for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 :

The table below presents selected passenger revenue and operating data, broken out by geographic region, expressed as year-over-year changes for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:

Increase (decrease) from 2019:

Domestic Atlantic Pacific Latin Total

Average fare per passenger (6.1) % 3.6 % (0.1) % (0.7) % (9.9) %

Passengers (63.7) % (75.8) % (75.7) % (62.7) % (64.9) %

RPMs (traffic) (65.4) % (73.8) % (77.2) % (64.2) % (68.6) %

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Passenger load factor (points) (23.0) (27.2) (23.2) (15.5) (22.8)

Passenger revenue decreased $11.5 billion , or 59.7% , in the first six months of 2020 as compared to the year-ago period primarily due to the decrease in demand for air travel as a result of the worldwide spread of COVID-19 and the associated shelter-in-place directives and travel restrictions.

Cargo revenue increased $85 million , or 14.6% , in the first six months of 2020 as compared to the year-ago period primarily due to the implementation and continued expansion of cargo-only charter flights as a result of increased demand for critical goods during the COVID-19 pandemic.

Other operating revenue decreased $157 million , or 13.1% , in the first six months of 2020 as compared to the year-ago period primarily due to a decline in mileage revenue from non-airline partners, including the co-branded credit card partner, JPMorgan Chase Bank, N.A.

Passenger revenue decreased $20.3 billion, or 68.4%, in the first nine months of 2020 as compared to the year-ago period primarily due to the decrease in demand for air travel as a result of the worldwide spread of COVID-19 and the associated shelter-in-place directives and travel restrictions.

Effective August 30, 2020, the Company eliminated change fees on all standard Economy and Premium cabin tickets for travel within the U.S.

50 states, Puerto Rico and the U.S.

Virgin Islands.

Cargo revenue increased $225 million, or 26.1%, in the first nine months of 2020 as compared to the year-ago period primarily due to the implementation and continued expansion of cargo-only charter flights with higher yields as a result of an increased demand for critical goods during the COVID-19 pandemic.

Other operating revenue decreased $356 million, or 19.6%, in the first nine months of 2020 as compared to the year-ago period primarily due to a decline in mileage revenue from non-airline partners, including the co-branded credit card partner, JPMorgan Chase Bank, N.A., and lower revenue from airport lounges due to United Club closures and fewer overall customers utilizing these lounges.

Operating Expenses.

The table below includes data related to the Company's operating expenses for the six months ended June 30 (in millions, except for percentage changes):

Increase (Decrease)

The table below includes data related to the Company's operating expenses for the nine months ended September 30 (in millions, except for percentage changes):

2020 2019 Increase

(Decrease) % Change

Salaries and related costs $ 7,354 $ 8,993 $ (1,639) (18.2)

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Aircraft rent 147 221 (74) (33.5)

Special charges (credit)

Special charges (credit) (2,467) 116 (2,583) NM

Other operating expenses 2,660 4,645 (1,985) (42.7)

Total operating expenses $ 16,167 $ 28,931 $ (12,764) (44.1)

Salaries and related costs decreased $805 million , or 13.6% , in the first six months of 2020 as compared to the year-ago period primarily due to schedule reductions of management and administrative employees, Company-offered leaves of absence, other voluntary separation programs, $237 million lower profit sharing and employee incentives due to the impact of COVID-19 on 2020 results and $142 million in tax credits provided by the Employee Retention Credit under the CARES Act related to the second quarter of 2020 .

Aircraft fuel expense decreased $2.4 billion , or 55.4% , in the first six months of 2020 as compared to the year-ago period.

The table below presents the significant changes in aircraft fuel cost per gallon in the six months ended June 30, 2020 as compared to the year-ago period:

(In millions)

Average price per gallon

Salaries and related costs decreased $1.6 billion, or 18.2%, in the first nine months of 2020 as compared to the year-ago period primarily due to schedule reductions of management and administrative employees, Company-offered leaves of absence, other voluntary separation programs, $440 million lower profit sharing and employee incentives due to the impact of COVID-19 on 2020 results and $171 million in tax credits provided by the Employee Retention Credit under the CARES Act related to the second and third quarters of 2020.

Aircraft fuel expense decreased $4.2 billion, or 63.1%, in the first nine months of 2020 as compared to the year-ago period.

The table below presents the significant changes in aircraft fuel cost per gallon in the nine months ended September 30, 2020 as compared to the year-ago period:

(In millions) Average price per gallon

2020 2019 % Change 2020 2019 % Change

Fuel expense $ 2,474 $ 6,704 (63.1) $ 1.65 $ 2.08 (20.7)

Total fuel consumption (gallons) 1,501 3,221 (53.4)

Regional capacity purchase decreased $278 million , or 19.8% , in the first six months of 2020 as compared to the year-ago period primarily due to reduced regional flying as a result of COVID-19.

Landing fees and other rent decreased $196 million , or 15.7% , in the first six months of 2020 as compared to the year-ago period primarily due to a decrease in capacity-based rent and landing fees.

Depreciation and amortization increased $126 million , or 11.4% , in the first six months of 2020 as compared to the year-ago period primarily due to additions of aircraft and upgrades to aircraft interiors.

Aircraft maintenance materials and outside repairs decreased $285 million , or 34.4% , in the first six months of 2020 as compared to the year-ago period primarily due to a reduction in airframe checks, engine overhauls, expenses associated with power-by-the-hour engine maintenance contracts and line maintenance due to reduced flying.

Distribution expenses decreased $476 million , or 59.4% , in the first six months of 2020 as compared to the year-ago period primarily due to lower commission and credit card fees as a result of the overall decrease in passenger revenue due to the COVID-19 pandemic.

Aircraft rent decreased $57 million , or 37.0% , in the first six months of 2020 as compared to the year-ago period primarily due to the purchase of leased aircraft.

Details of the Company's special charges (credit) include the following for the six months ended June 30 (in millions):

Regional capacity purchase decreased $574 million, or 27.0%, in the first nine months of 2020 as compared to the year-ago period primarily due to reduced regional flying as a result of COVID-19 and reduced rates under certain capacity purchase agreements.

Landing fees and other rent decreased $341 million, or 18.0%, in the first nine months of 2020 as compared to the year-ago period primarily due to reduced flying.

Depreciation and amortization increased $177 million, or 10.5%, in the first nine months of 2020 as compared to the year-ago period primarily due to additions of aircraft, upgrades to aircraft interiors and completion of technology projects.

Aircraft maintenance materials and outside repairs decreased $660 million, or 50.0%, in the first nine months of 2020 as compared to the year-ago period primarily due to a reduction in airframe checks, engine overhauls, expenses associated with power-by-the-hour engine maintenance contracts and line maintenance due to reduced flying.

Distribution expenses decreased $855 million, or 69.3%, in the first nine months of 2020 as compared to the year-ago period as a result of the overall decrease in passenger revenue due to the COVID-19 pandemic.

Aircraft rent decreased $74 million, or 33.5%, in the first nine months of 2020 as compared to the year-ago period primarily due to the purchase of leased aircraft.

Details of the Company's special charges (credit) include the following for the nine months ended September 30 (in millions):

CARES Act grant $ (3,083) $ —

Impairment of assets

Severance and benefit costs 413 14

Impairment of assets 168 69

(Gains) losses on sale of assets and other special charges 35 33

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See Note 11 to the financial statements included in Part I, Item 1 of this report for additional information.

Other operating expenses decreased $1.1 billion , or 35.1% , in the first six months of 2020 as compared to the year-ago period primarily due to the impacts of COVID-19 on our airport operations (including United Club closures and capacity-driven expenses like food catering, cargo trucking and handling, interrupted trip charges and navigation fees, among others), technology needs (including Wi-Fi expenses), crew-related expenses and $88 million received in settlement of credit card interchange fees.

Other operating expenses decreased $2 billion, or 42.7%, in the first nine months of 2020 as compared to the year-ago period primarily due to the impacts of COVID-19 on our airport operations (including United Club closures, catering, cargo trucking and handling, interrupted trip charges, ground handling and navigation fees), technology projects, crew-related expenses and $88 million received in settlement of credit card interchange fees.

Nonoperating Income (Expense).

The following table illustrates the year-over-year dollar and percentage changes in the Company's nonoperating income (expense) for the six months ended June 30 (in millions, except for percentage changes):

Increase (Decrease)

The following table illustrates the year-over-year dollar and percentage changes in the Company's nonoperating income (expense) for the nine months ended September 30 (in millions, except for percentage changes):

2020 2019 Increase

(Decrease) % Change

Interest expense $ (712) $ (570) $ 142 24.9

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Interest income 45 103 (58) (56.3)

Unrealized gains (losses) on investments, net

Miscellaneous, net

Unrealized gains (losses) on investments, net, decreased by $361 million , due to a $310 million loss in the first six months of 2020 as compared to a $51 million gain in the year-ago period, as a result of a decrease in the market value of the Company's equity investment in Azul and a decrease in the fair value of the Avianca Holdings S.A.

Unrealized gains (losses) on investments, net (295) 72 (367) NM

Miscellaneous, net (1,317) (40) 1,277 NM

Total $ (2,225) $ (370) $ 1,855 NM

Interest expense increased $142 million, or 24.9%, in the first nine months of 2020 as compared to the year-ago period primarily due to the issuance of new debt financings in 2020 to provide additional liquidity to the Company during the COVID-19 pandemic.

Interest income decreased $58 million, or 56.3%, in the first nine months of 2020 as compared to the year-ago period primarily due to a decrease in interest rates.

Unrealized gains (losses) on investments, net, decreased by $367 million, due to a $295 million loss in the first nine months of 2020 as compared to a $72 million gain in the year-ago period, as a result of a decrease in the market value of the Company's equity investment in Azul and a decrease in the fair value of the Avianca Holdings S.A.

("AVH") share call options, AVH share appreciation rights and AVH share-based upside sharing agreement.

See Notes 8 and 11 to the financial statements included in Part I, Item 1 of this report for additional information.

Miscellaneous, net increased $878 million in the first six months of 2020 as compared to the year-ago period, primarily due to credit loss allowances associated with the Company's Term Loan Agreement, with, among others, BRW Aviation Holding LLC and BRW Aviation LLC, and related guarantee and settlement losses and special termination benefits related to voluntary separation programs under the Company's non-pilot U.S.

Miscellaneous, net increased $1.3 billion in the first nine months of 2020 as compared to the year-ago period, primarily due to credit loss allowances associated with the Company's Term Loan Agreement, with, among others, BRW Aviation Holding LLC and BRW Aviation LLC, and related guarantee and settlement losses and special termination benefits related to furloughs and voluntary separation programs under the Company's non-pilot U.S.

defined benefit pension plan and postretirement medical programs.

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Current Liquidity

As of June 30, 2020 , the Company had $7.5 billion in unrestricted cash, cash equivalents and short-term investments, as compared to $4.9 billion at December 31, 2019 .

As of June 30, 2020 , the Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the Revolving Credit Agreement available for borrowings.

To maximize United's flexibility under a debt incurrence covenant contained in two of United's financings, on July 2, 2020 , United took the proactive

step of borrowing $1.0 billion under the Revolving Credit Agreement, which leaves $1.0 billion available for borrowing under such agreement by United at any time until April 1, 2022 .

At June 30, 2020 , the Company also had $107 million of restricted cash and cash equivalents, which primarily consisted of collateral for letters of credit and collateral associated with facility leases and other insurance-related obligations.

As of September 30, 2020, the Company had $13.7 billion in unrestricted cash, cash equivalents and short-term investments, $4.7 billion available for borrowing by United under the Loan Program at any time until March 26, 2021 and $1.0 billion available for borrowing by United under the Revolving Credit Agreement at any time until April 1, 2022.

At September 30, 2020, the Company also had $248 million of restricted cash and cash equivalents, which primarily consisted of collateral for letters of credit, collateral associated with facility leases and other insurance-related obligations and amounts to be used for the payment of fees, principal and interest on the MileagePlus Financing.