What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-18 compared with 2023-07-20 · 126 added, 107 removed, 293 unchanged (44% of the section changed)

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The Company serves virtually every major market around the world, either directly or through participation in Star Alliance ® , the world's largest airline alliance.

Our current expectations described below are forward-looking statements and our actual results and timing may vary materially based on various factors that include, but are not limited to, those discussed below under "Economic and Market Factors" and "Forward-Looking Information" and in Part I, Item 1A.

Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 Form 10-K").

The Company discusses certain non-GAAP forward-looking projections and is unable to predict certain items contained in the corresponding GAAP measures without unreasonable efforts;

Our current expectations described below are forward-looking statements and our actual results and timing may vary materially based on various factors that include, but are not limited to, those discussed below under "Economic and Market Factors", "Governmental Actions" and "Forward-Looking Information", in Part I, Item 1A.

Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 Form 10-K") and in Part II, Item 1A.

Risk Factors in this report.

The Company discusses certain financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP");

refer to "Supplemental Information" below for further details.

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We expect to continue to remain vulnerable to a number of industry-specific and global macroeconomic factors that may cause our actual results of operations to differ from our historical results of operations or current expectations.

The factors and trends that we currently believe are or will be most impactful to our results of operations and financial condition include the following:

The economic and market factors and trends that we currently believe are or will be most impactful to our results of operations and financial condition include the following:

the execution risks associated with our United Next plan;

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aircraft delivery delays;

the lasting effects of the COVID-19 global pandemic and related governmental regulations and restrictions, which we believe have changed how our customers fly in ways that we expect to be both positive and negative for the Company, including the lingering impact of the pandemic on the return of business and international travel demand—especially in our China market—to pre-COVID-19 levels;

the closure of our flying airspace and termination of other operations due to regional conflicts, including the continuation of the suspension of our overflying in Russian airspace as a result of the Russia-Ukraine military conflict and an escalation of the broader economic consequences of the conflict beyond their current scope;

and changes in general economic conditions in the markets in which the Company operates, including an economic downturn leading to a decrease in demand for air travel or fluctuations in foreign currency exchange rates that may impact international travel demand.

We continue to monitor the potential favorable or unfavorable impacts of these and other factors on our business, operations, financial condition and future results of operations, which are dependent on future developments, including as a result of those factors discussed in Item 1A.

Risk Factors, of the 2022 Form 10-K.

Our future results of operations may be subject to volatility and our growth plans may be delayed, particularly in the short term, due to the impact of

the above factors and trends.

Absent significant and prolonged COVID-19 relapses or global economic disruptions, we believe that the expected long-term increase in travel demand will offset increased costs and that the expected operational challenges can be managed in a manner that will allow us to support increased demand.

We continue to monitor the potential favorable or unfavorable impacts of these and other factors on our business, operations, financial condition, future results of operations, liquidity and financial flexibility, which are dependent on future developments, including as a result of those factors discussed in Part I, Item 1A.

Risk Factors, of the 2022 Form 10-K and in Part II, Item 1A.

Risk Factors in this report.

Our future results of operations may be subject to volatility and our growth plans may be delayed, particularly in the short term, due to the impact of the above factors and trends.

Governmental Actions

We operate in complex, highly regulated environments in the U.S., the European Union, the UK and other regions around the world.

Compliance with laws, regulations, administrative practices and other restrictions or legal requirements in the countries in which we do business is onerous and expensive.

In addition, changes to existing legal requirements, new legal requirements and any failure to comply with legal requirements could negatively impact our business, operations, financial condition, future results of operations, liquidity and financial flexibility by increasing the Company's costs, limiting the Company's ability to offer a product, service or feature to customers, impacting customer demand for the Company's products and services and requiring changes to the Company's supply chain and its business.

Legal requirements that we currently believe are or will be most impactful to our results of operations and financial condition include the following:

governmental regulations and restrictions relating to the COVID-19 global pandemic, the lasting effects of which we believe have changed how our customers fly in ways that we expect to be both positive and negative for the Company, including the lingering impact of the pandemic on the return of business and international travel demand—especially in our China market—to pre-COVID-19 levels;

the closure of our flying airspace and termination of other operations due to regional conflicts, including the continuation of the suspension of our overflying in Russian airspace as a result of the Russia-Ukraine military conflict and to Tel Aviv as a result of the Israeli-Palestinian military conflict and an escalation of the broader economic consequences of the conflicts beyond their current scope;

and any legal requirement that would result in a reshaping of the benefits that we provide to our consumers through the co-branded credit cards issued by our partner.

Changes in existing applicable legal requirements or new applicable legal requirements and the related interpretations and enforcement practices of them create uncertainty about how such laws and regulations will be interpreted and applied.

As a result, the impact of changing and new legal requirements generally cannot be reasonably predicted and those requirements may ultimately require extensive system and operational changes, be difficult to implement, increase our operating costs and require significant capital expenditures.

RESULTS OF OPERATIONS

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and six months ended June 30, 2023, as compared to the corresponding periods in 2022.

Second Quarter 2023 Compared to Second Quarter 2022

The Company recorded net income of $1.1 billion for the second quarter of 2023 as compared to net income of $329 million for the second quarter of 2022.

The Company considers a key measure of its performance to be operating income, which was $1.5 billion for the second quarter of 2023, as compared to $878 million for the second quarter of 2022, an approximately $639 million increase year-over-year, primarily as a result of increased demand for air travel.

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

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and nine months ended September 30, 2023, as compared to the corresponding periods in 2022.

Third Quarter 2023 Compared to Third Quarter 2022

The Company recorded net income of $1.1 billion for the third quarter of 2023 as compared to $942 million for the third quarter of 2022.

The Company considers a key measure of its performance to be operating income, which was $1.7 billion for the third quarter of 2023, as compared to $1.5 billion for the third quarter of 2022, an approximately $281 million increase year-over-year, primarily as a result of increased demand for air travel and lower fuel costs.

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

2023 2022 Increase (Decrease) % Change

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Net income $ 1,137 $ 942 $ 195 20.7

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

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

2023 2022 Increase (Decrease) % Change

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Fuel gallons consumed (millions) 1,132 985 147 14.9

Employee headcount, as of June 30

Employee headcount, as of September 30

102,000 90,800 11,200 12.3

8 unchanged sentences

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):

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):

2023 2022 Increase (Decrease) % Change

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Total operating revenue $ 14,484 $ 12,877 $ 1,607 12.5

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 2022:

9 unchanged sentences

Passenger load factor (points) (0.3) (2.2) 0.7 (0.1) (0.9)

Passenger revenue increased $2.2 billion, or 20.1%, in the second quarter of 2023 as compared to the year-ago period, primarily due to an increase in capacity of 17.5% as well as strength in yield, partially offset by a slight decrease in passenger load factor.

Cargo revenue decreased $212 million, or 36.9%, in the second quarter of 2023 as compared to the year-ago period, primarily due to lower yields as a result of increased market capacity and rate pressures.

Other operating revenue increased $105 million, or 14.8%, in the second quarter of 2023 as compared to the year-ago period, primarily due to an increase in mileage revenue from non-airline partners, including credit card spending with the co-branded credit card partner, JPMorgan Chase Bank, N.A., as well as an increase in the purchases of United Club memberships and one-time lounge passes.

Passenger revenue increased $1.7 billion, or 14.6%, in the third quarter of 2023 as compared to the year-ago period, primarily due to a 15.7% increase in capacity, partially offset by a slight decrease in passenger load factor.

Cargo revenue decreased $165 million, or 33.1%, in the third quarter of 2023 as compared to the year-ago period, primarily due to lower yields as a result of increased market capacity and rate pressures.

Other operating revenue increased $76 million, or 10.5%, in the third quarter of 2023 as compared to the year-ago period, primarily due to an increase in mileage revenue from non-airline partners, including credit card spending with the co-branded credit card partner, JPMorgan Chase Bank, N.A., as well as an increase in the purchases of United Club memberships, visitor volume and purchases of one-time lounge passes.

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):

2023 2022 Increase (Decrease) % Change

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):

2023 2022 Increase (Decrease) % Change (a)

Salaries and related costs $ 3,914 $ 2,843 $ 1,071 37.7

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Total operating expenses $ 12,745 $ 11,419 $ 1,326 11.6

Salaries and related costs increased $874 million, or 30.8%, in the second quarter of 2023 as compared to the year-ago period, primarily due to a 9.4% increase in headcount from increased flight activity, annual wage rate increases, accruals for pay rate increases related to a potential new collective bargaining agreement with employees represented by the Air Line Pilots Association ("ALPA") and an increase of $220 million in profit sharing .

Aircraft fuel expense decreased by $991 million, or 26.0%, in the second quarter of 2023 as compared to the year-ago period, due to a lower average price per gallon of fuel, partially offset by increased consumption from higher flight activity.

The table below presents the significant changes in aircraft fuel cost per gallon in the three months ended June 30, 2023 as compared to the year-ago period (in millions, except percentage change and per gallon data):

(a) NM - Greater than 100% change or otherwise not meaningful.

Salaries and related costs increased $1.1 billion, or 37.7%, in the third quarter of 2023 as compared to the year-ago period, primarily due to approximately 12% increase in headcount from increased flight activity, accruals for pay rate increases related to a new collective bargaining agreement with employees represented by the Air Line Pilots Association ("ALPA"), annual wage rate increases across employee groups and an increase of $293 million in profit sharing expense due to both an increase in pre-tax income and a change in the profit sharing formula as a result of the new pilot agreement.

Aircraft fuel expense decreased by $413 million, or 11.0%, in the third quarter of 2023 as compared to the year-ago period, due to a lower average price per gallon of fuel, partially offset by increased consumption from higher flight activity.

The table below presents the significant changes in aircraft fuel cost per gallon in the three months ended September 30, 2023 as compared to the year-ago period (in millions, except percentage change and per gallon data):

2023 2022 Increase (Decrease) % Change

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Average price per gallon $ 2.95 $ 3.81 $ (0.86) (22.6) %

Landing fees and other rent increased $97 million, or 14.5%, in the second quarter of 2023 as compared to the year-ago period, primarily due to increased flying driving higher landed weight volume and a higher number of enplaned passengers.

Aircraft maintenance materials and outside repairs increased $159 million, or 30.2%, in the second quarter of 2023 as compared to the year-ago period, primarily due to increased flight activity and increased volumes of both engine overhauls and airframe heavy maintenance checks.

Depreciation expense increased $58 million, or 9.5%, in the second quarter of 2023 as compared to the year-ago period, primarily due to new aircraft inducted into service.

Regional capacity purchase increased $32 million, or 5.6%, in the second quarter of 2023 as compared to the year-ago period despite a 15% reduction in regional capacity, primarily due to rate increases under various capacity purchase agreements with regional carriers.

Distribution expenses increased $94 million, or 23.9%, in the second quarter of 2023 as compared to the year-ago period, primarily due to higher credit card fees, agency commissions and global distribution fees driven by the overall increase in passenger revenue.

Distribution expenses were also impacted by a higher proportion of business travel in the current year as compared to leisure travel, which can result in higher cost distribution channels and forms of payment.

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

Landing fees and other rent increased $162 million, or 25.4%, in the third quarter of 2023 as compared to the year-ago period, primarily due to increased flying driving higher landed weight volume and a higher number of enplaned passengers.

Aircraft maintenance materials and outside repairs increased $65 million, or 10.5%, in the third quarter of 2023 as compared to the year-ago period, primarily due to increased flight activity driving higher maintenance materials usage and increased volumes of both engine overhauls and airframe heavy maintenance checks.

Depreciation expense increased $53 million, or 8.7%, in the third quarter of 2023 as compared to the year-ago period, primarily due to new aircraft inducted into service.

Distribution expenses increased $34 million, or 7.1%, in the third quarter of 2023 as compared to the year-ago period, primarily due to higher credit card fees, agency commissions and global distribution fees driven by the overall increase in passenger revenue.

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

Labor contract ratification bonuses $ 1 $ —

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See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on the Company's special charges.

Other operating expenses increased $375 million, or 22.8%, in the second quarter of 2023 as compared to the year ago period, primarily due to increases in ground handling, passenger services, food and beverage offerings and consumption, navigation fees and personnel-related costs as a direct result of the increase in flight activity and inflationary pressures and higher expenditures on information technology projects and services.

Other operating expenses increased $368 million, or 20.6%, in the third quarter of 2023 as compared to the year ago period, primarily due to increases in ground handling, passenger services, food and beverage offerings and consumption, navigation fees and personnel-related costs as a direct result of the increase in flight activity and inflationary pressures and higher expenditures on information technology projects and services.

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):

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):

2023 2022 Increase (Decrease) % Change

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Total $ (254) $ (305) $ (51) (16.7)

Interest expense increased $73 million, or 17.4%, in the second quarter of 2023 as compared to the year-ago period, primarily due to higher interest rates on variable rate debt.

Interest income increased $183 million in the second quarter of 2023 as compared to the year-ago period, primarily due to higher short-term investments in U.S.

government and agency notes as well as higher interest rates.

Unrealized gains on investments, net, was $84 million in the second quarter of 2023 as compared to $40 million in unrealized losses in the year-ago period, primarily due to the change in the market value of the Company's investments in equity securities.

Interest expense increased $38 million, or 8.4%, in the third quarter of 2023 as compared to the year-ago period, primarily due to higher interest rates on variable rate debt and new debt issuances in the current period, partially offset by reduced interest expense on the prepayment of $1.0 billion of debt in the second quarter of 2023.

Interest income increased $130 million in the third quarter of 2023 as compared to the year-ago period, primarily due to higher short-term investments in U.S.

government and agency notes.

Unrealized losses on investments, net, was $54 million in the third quarter of 2023 as compared to $28 million in unrealized gains in the year-ago period, primarily due to the change in the market value of the Company's investments in equity securities.

See Note 6 to the financial statements included in Part I, Item 1 of this report for information related to these equity investments.

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See Note 4 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.

First Six Months 2023 Compared to First Six Months 2022

The Company recorded net income of $0.9 billion in the first six months of 2023 as compared to a net loss of $1.0 billion in the first six months of 2022.

The Company's operating income was $1.5 billion for the first six months of 2023, as compared to an operating loss of $498 million for the first six months of 2022, an approximately $2.0 billion increase year-over-year, primarily as a result of increased demand for air travel.

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

First Nine Months 2023 Compared to First Nine Months 2022

The Company recorded net income of $2.0 billion in the first nine months of 2023 as compared to a net loss of $106 million in the first nine months of 2022.

The Company's operating income was $3.2 billion for the first nine months of 2023, as compared to $960 million for the first nine months of 2022, an approximately $2.3 billion increase year-over-year, primarily as a result of increased demand for air travel and lower fuel costs.

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

2023 2022 Increase (Decrease) % Change

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Operating expense 36,878 31,595 5,283 16.7

Operating income (loss) 1,474 (498) 1,972 NM

Operating income 3,213 960 2,253 NM

Nonoperating expense, net (597) (1,100) (503) (45.7)

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Net income (loss) $ 2,018 $ (106) $ 2,124 NM

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

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

2023 2022 Increase (Decrease) % Change

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Fuel gallons consumed (millions) 3,146 2,672 474 17.7

Employee headcount, as of June 30

Employee headcount, as of September 30

102,000 90,800 11,200 12.3

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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):

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):

2023 2022 Increase (Decrease) % Change

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Total operating revenue $ 40,091 $ 32,555 $ 7,536 23.1

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, 2023 compared to the six months ended June 30, 2022:

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, 2023 compared to the nine months ended September 30, 2022:

Increase (decrease) from 2022:

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Passenger revenue (in millions) $ 3,143 $ 2,085 $ 2,021 $ 546 $ 7,795

Passenger revenue 21.7 % 54.9 % 217.1 % 27.1 % 35.5 %

Passenger revenue 16.8 % 35.5 % NM 18.6 % 27.0 %

Average fare per passenger 1.7 % 10.5 % 10.1 % 12.8 % 9.4 %

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PRASM 4.0 % 11.4 % 27.7 % 18.1 % 7.1 %

Passengers 15.2 % 35.6 % 180.2 % 3.8 % 17.1 %

RPMs 13.1 % 34.7 % 234.2 % 4.3 % 24.9 %

ASMs 13.0 % 29.8 % 109.1 % (3.6) % 20.2 %

Passengers 14.9 % 22.6 % NM 5.2 % 16.1 %

RPMs 12.2 % 22.3 % NM 6.1 % 20.9 %

ASMs 12.3 % 21.6 % NM 0.5 % 18.5 %

Passenger load factor (points) (0.1) 0.5 18.9 4.6 1.6

Passenger revenue increased $6.1 billion, or 35.5%, in the first six months of 2023 as compared to the year-ago period, primarily due to an increase in capacity of 20.2% as well as strength in both yield and passenger load factor.

Cargo revenue decreased $441 million, or 36.7%, in the first six months of 2023 as compared to the year-ago period, primarily due to lower yields and tonnage as a result of increased market capacity and rate pressures.

Other operating revenue increased $271 million, or 20.8%, in the first six months of 2023 as compared to the year-ago period, primarily due to an increase in mileage revenue from non-airline partners, including credit card spending and new credit card member acquisitions with the co-branded credit card partner, JPMorgan Chase Bank, N.A., as well as United Club re-openings and related increases in the purchases of United Club memberships and one-time lounge passes as compared to the year-ago period.

Passenger revenue increased $7.8 billion, or 27.0%, in the first nine months of 2023 as compared to the year-ago period, primarily due to an 18.5% increase in capacity as well as strength in both yield and passenger load factor.

Cargo revenue decreased $606 million, or 35.7%, in the first nine months of 2023 as compared to the year-ago period, primarily due to lower yields as a result of increased market capacity and rate pressures.

Other operating revenue increased $347 million, or 17.1%, in the first nine months of 2023 as compared to the year-ago period, primarily due to an increase in mileage revenue from non-airline partners, including credit card spending and new credit card member acquisitions with the co-branded credit card partner, JPMorgan Chase Bank, N.A., as well as United Club re-openings and related increases in the purchases of United Club memberships and one-time lounge passes as compared to the year-ago period.

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):

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):

2023 2022 Increase (Decrease) % Change

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Total operating expenses $ 36,878 $ 31,595 $ 5,283 16.7

Salaries and related costs increased $1.4 billion, or 25.1%, in the first six months of 2023 as compared to the year-ago period, primarily due to a 9.4% increase in headcount from increased flight activity, annual wage rate increases, accruals for pay rate increases related to a potential new collective bargaining agreement with employees represented by ALPA and an increase of $220 million in profit sharing.

Aircraft fuel expense decreased $47 million, or 0.8%, in the first six months of 2023 as compared to the year-ago period, primarily due to a lower average price per gallon of fuel, partially offset by increased consumption from higher flight activity.

The table below presents the significant changes in aircraft fuel cost per gallon in the six months ended June 30, 2023, as compared to the year-ago period (in millions, except percentage change and per gallon data):

Salaries and related costs increased $2.5 billion, or 29.3%, in the first nine months of 2023 as compared to the year-ago period, primarily due to approximately 12% increase in headcount from increased flight activity, accruals for pay rate increases related to a new collective bargaining agreement with employees represented by ALPA, annual wage rate increases across employee groups and an increase of $513 million in profit sharing expense due to both an increase in pre-tax income and a change in the profit sharing formula as a result of the new pilot agreement .

Aircraft fuel expense decreased $460 million, or 4.7%, in the first nine months of 2023 as compared to the year-ago period, primarily due to a lower average price per gallon of fuel, partially offset by increased consumption from higher flight activity.

The table below presents the significant changes in aircraft fuel cost per gallon in the nine months ended September 30, 2023, as compared to the year-ago period (in millions, except percentage change and per gallon data):

2023 2022 Increase (Decrease) % Change

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Average price per gallon $ 2.97 $ 3.67 $ (0.70) (19.1) %

Landing fees and other rent increased $202 million, or 15.8%, in the first six months of 2023 as compared to the year-ago period, primarily due to increased flying driving higher landed weight volume and a higher number of enplaned passengers.

Aircraft maintenance materials and outside repairs increased $454 million, or 48.6%, in the first six months of 2023 as compared to the year-ago period, primarily due to increased flight activity and increased volumes of both engine overhauls and airframe heavy maintenance checks.

Depreciation expense increased $102 million, or 8.3%, in the first six months of 2023 as compared to the year-ago period, primarily due to new aircraft inducted into service.

Regional capacity purchase increased $82 million, or 7.2%, in the first six months of 2023 as compared to the year-ago period despite a 17% reduction in regional capacity, primarily due to rate increases under various capacity purchase agreements with regional carriers.

Distribution expenses increased $271 million, or 43.8%, in the first six months of 2023 as compared to the year-ago period, primarily due to higher credit card fees, higher travel agency commissions and higher volumes of global distribution fees as a result of the overall increase in passenger revenue.

Distribution expenses were also impacted by the mix of leisure travel and business travel in the current year, which requires the use of different distribution channels and forms of payment.

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

Landing fees and other rent increased $364 million, or 19.0%, in the first nine months of 2023 as compared to the year-ago period, primarily due to increased flying driving higher landed weight volume and a higher number of enplaned passengers.

Aircraft maintenance materials and outside repairs increased $519 million, or 33.4%, in the first nine months of 2023 as compared to the year-ago period, primarily due to increased flight activity and increased volumes of both engine overhauls and airframe heavy maintenance checks.

Depreciation expense increased $155 million, or 8.5%, in the first nine months of 2023 as compared to the year-ago period, primarily due to new aircraft inducted into service.

Regional capacity purchase increased $78 million, or 4.5%, in the first nine months of 2023 as compared to the year-ago period despite an approximately 16% reduction in regional capacity, primarily due to rate increases under various capacity purchase agreements with regional carriers.

Distribution expenses increased $305 million, or 27.7%, in the first nine months of 2023 as compared to the year-ago period, primarily due to higher credit card fees, travel agency commissions and global distribution fees driven by the overall increase in passenger revenue.

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

Labor contract ratification bonuses $ 814 $ —

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See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on the Company's special charges.

Other operating expenses increased $738 million, or 23.9%, in the first six months of 2023 as compared to the year-ago period, primarily due to increases in ground handling, passenger services, food and beverage offerings and consumption, navigation fees and personnel-related costs as a direct result of the increase in flight activity and inflationary pressures and higher expenditures on information technology projects and services.

Other operating expenses increased $1.1 billion, or 22.7%, in the first nine months of 2023 as compared to the year-ago period, primarily due to increases in ground handling, passenger services, food and beverage offerings and consumption, navigation fees and personnel-related costs as a direct result of the increase in flight activity and inflationary pressures and higher expenditures on information technology projects and services.

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):

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):

2023 2022 Increase (Decrease) % Change

5 unchanged sentences

Total $ (597) $ (1,100) $ (503) (45.7)

Interest expense increased $135 million, or 16.0%, in the first six months of 2023 as compared to the year-ago period, primarily due to higher interest rates on variable rate debt.

Interest income increased $348 million in the first six months of 2023 as compared to the year-ago period, primarily due to higher short-term investments in U.S.

Interest expense increased $173 million, or 13.3%, in the first nine months of 2023 as compared to the year-ago period, primarily due to higher interest rates on variable rate debt and new debt issuances in the current period, partially offset by reduced interest expense on the prepayment of $1.0 billion of debt in the second quarter of 2023.

Interest income increased $478 million in the first nine months of 2023 as compared to the year-ago period, primarily due to higher short-term investments in U.S.

government and agency notes.

See Note 6 to the financial statements included in Part I, Item 1 of this report for additional information.

Unrealized gains on investments, net, was $108 million in the first six months of 2023 as compared to $40 million in unrealized losses in the year-ago period, primarily due to the change in the market value of the Company's investments in equity securities.

Unrealized gains on investments, net, was $54 million in the first nine months of 2023 as compared to $12 million in unrealized losses in the year-ago period, primarily due to the change in the market value of the Company's investments in equity securities.

See Note 6 to the financial statements included in Part I, Item 1 of this report for information related to these equity investments.

Miscellaneous, net changed by $77 million in the first nine months of 2023 as compared to the year-ago period, primarily due to lower foreign exchange losses and higher benefit from the pensions and postretirement benefit plans.

Income Taxes.

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Current Liquidity

As of June 30, 2023, the Company had $19.1 billion in unrestricted cash, cash equivalents and short-term investments, as compared to $16.4 billion at December 31, 2022.

As of September 30, 2023, the Company had $17.1 billion in unrestricted cash, cash equivalents and short-term investments, as compared to $16.4 billion at December 31, 2022.

We believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations, will be sufficient to satisfy our anticipated liquidity needs for the next twelve months, and we expect to meet our long-term liquidity needs with our anticipated access to the capital markets and projected cash from operations.

We regularly assess our anticipated working capital needs, debt and leverage levels, debt maturities, capital expenditure requirements (including in connection with our capital commitments for our firm order aircraft) and future investments or acquisitions in order to maximize shareholder return, efficiently finance our ongoing operations and maintain flexibility for future strategic transactions.

We regularly assess our anticipated working capital needs, debt and leverage levels, debt maturities, capital expenditure requirements (including in connection with our capital commitments for our firm order aircraft) and future investments or acquisitions in order to maximize stockholder return, efficiently finance our ongoing operations and maintain flexibility for future strategic transactions.

We also regularly evaluate our liquidity and capital structure to ensure financial risks, liquidity access and cost of capital are each managed efficiently.

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The Revolving Credit Facility is secured by certain route authorities and airport slots and gates.

No borrowings were outstanding under the Revolving Credit Facility at June 30, 2023.

No borrowings were outstanding under the Revolving Credit Facility at September 30, 2023.

We have a significant amount of fixed obligations, including debt, leases of aircraft, airport and other facilities, and pension funding obligations.

As of June 30, 2023, the Company had approximately $37.3 billion of debt, finance lease, operating lease and other financial liabilities, including $4.4 billion that will become due in the next 12 months.

In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of certain new aircraft and related spare engines.

As of September 30, 2023, the Company had approximately $36.7 billion of debt, finance lease, operating lease and other financial liabilities, including $4.6 billion that will become due in the next 12 months.

In addition, we have

substantial noncancelable commitments for capital expenditures, including the acquisition of certain new aircraft and related spare engines.

Our debt agreements contain customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional indebtedness and pay dividends or repurchase stock.

As of June 30, 2023, UAL and United were in compliance with their respective debt covenants.

As of June 30, 2023, a substantial portion of the Company's assets, principally aircraft and certain related assets, its loyalty program, certain route authorities and airport slots and gates, was pledged under various loan and other agreements.

As of September 30, 2023, UAL and United were in compliance with their respective debt covenants.

As of September 30, 2023, a substantial portion of the Company's assets, principally aircraft and certain related assets, its loyalty program, certain route authorities and airport slots and gates, was pledged under various loan and other agreements.

See Note 8 to the financial statements included in Part I, Item 1 of this report for additional information on aircraft financing and other debt instruments.

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See Note 7 to the financial statements included in Part I, Item I of this report for additional information on commitments.

As of June 30, 2023, United had firm commitments to purchase aircraft from The Boeing Company ("Boeing") and Airbus S.A.S.

As of September 30, 2023, United had firm commitments to purchase aircraft from The Boeing Company ("Boeing") and Airbus S.A.S.

("Airbus") as presented in the table below:

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Aircraft Type Number of Firm

Commitments (a) Last Six Months

of 2023 2024 After 2024 Last Six Months

Commitments (a) Last Three Months

of 2023 2024 After 2024 Last Three Months

of 2023 2024 After 2024

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(i) the Company and the aircraft manufacturers, with whom the Company has existing orders for new aircraft, agree to modify the contracts governing those orders;

(ii) rights are exercised pursuant to

the relevant agreements to modify the timing of deliveries;

(ii) rights are exercised pursuant to the relevant agreements to cancel deliveries or modify the timing of deliveries;

or (iii) the aircraft manufacturers are unable to deliver in accordance with the terms of those orders.

The table below summarizes United's commitments as of June 30, 2023, which include aircraft and related spare engines, aircraft improvements and non-aircraft capital commitments.

On September 28, 2023, United entered into a supplemental agreement with Boeing, pursuant to which United exercised options to purchase 50 Boeing 787-9 aircraft scheduled for delivery between 2028 and 2031 and was granted options to purchase up to an additional 50 Boeing 787 aircraft.

In addition, on September 29, 2023, United entered into an amendment to the A320 Family Purchase Agreement, dated December 19, 2019, as amended, with Airbus, pursuant to which United exercised purchase rights to purchase 60 A321neo aircraft scheduled for delivery between 2028 and 2030 and was granted purchase rights to purchase up to an additional 40 A321neo aircraft.

The table above reflects the number of firm commitments related to these agreements as well as the contractual and expected aircraft deliveries.

The table below summarizes United's firm commitments as of September 30, 2023, which include aircraft and related spare engines, aircraft improvements and non-aircraft capital commitments.

Aircraft commitments are based on contractual scheduled aircraft deliveries without any adjustments communicated by Boeing and Airbus or estimated by United.

(in billions)

Last six months of 2023 $ 6.8

Last three months of 2023 $ 4.6

After 2027 29.6

Sources and Uses of Cash

The following table summarizes our cash flows for the six months ended June 30 (in millions):

The following table summarizes our cash flows for the nine months ended September 30 (in millions):

2023 2022 Increase (Decrease)

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Operating Activities.

Cash flows provided by operations increased $2.8 billion in the first six months of 2023 as compared to the year-ago period, primarily due to an increase in operating income as improvements in the demand for air travel continued.

Cash flows provided by operations increased $2.9 billion in the first nine months of 2023 as compared to the year-ago period, primarily due to an increase in operating income as improvements in the demand for air travel continued.

Investing Activities.

Cash flows used in investing activities decreased $487 million in the first six months of 2023 as compared to the year-ago period, primarily due to an increase in proceeds from the sale of short-term and other investments, partially offset by an increase in capital expenditures, which were approximately $3.3 billion and $1.0 billion for the six months ended June 30, 2023 and 2022, respectively.

Capital expenditures for the six months ended June 30, 2023 were primarily attributable to the purchase of aircraft, aircraft improvements and advance deposits for future aircraft purchases.

Cash flows used in investing activities decreased $4.1 billion in the first nine months of 2023 as compared to the year-ago period, primarily due to a $7.6 billion increase in proceeds from the sale of short-term and other investments, partially offset by a $2.8 billion increase in capital expenditures.

Capital expenditures were primarily attributable to the purchase of aircraft, aircraft improvements and advance deposits for future aircraft purchases.

Financing Activities.

Significant financing events in the six months ended June 30, 2023 were as follows:

Significant financing events in the nine months ended September 30, 2023 were as follows:

Debt, Finance Lease and Other Financing Liability Principal Payments .

During the six months ended June 30, 2023 and 2022, the Company made payments for debt, finance leases, and other financing liabilities of $2.6 billion and $1.8 billion, respectively.

The payments in the first six months of 2023 included a prepayment of $1.0 billion for a 2021 term loan facility.

During the nine months ended September 30, 2023 and 2022, the Company made payments for debt, finance leases, and other financing liabilities of $3.4 billion and $2.6 billion, respectively.

The payments in the first nine months of 2023 included a prepayment of $1.0 billion for a 2021 term loan facility.

Debt and Other Financing Liabilities Issuances.

During the six months ended June 30, 2023, United received and recorded, net of fees, $2.2 billion from aircraft financings.

On June 20, 2023, the Company and Wilmington Trust, National Association, as subordination agent and pass through trustee (the "Trustee") under a certain pass through trust newly formed by the Company, entered into the Note Purchase Agreement, dated as of June 20, 2023 (the "Note Purchase Agreement").

The Note Purchase Agreement provides for the issuance by the Company of equipment notes (the "Equipment Notes") in the aggregate principal amount of $1.3 billion to finance 39 Boeing aircraft delivered new to the Company from August 2022 to May 2023.

Pursuant to the Note Purchase Agreement, the Trustee purchased Equipment Notes issued under a trust indenture and mortgage (each, an "Indenture" and, collectively, the "Indentures") with respect to each aircraft entered into by the Company and Wilmington Trust, National Association, as mortgagee.

Each Indenture provides for the issuance of Equipment Notes in a single series, Series A, bearing interest at the rate of 5.80% per annum.

The Equipment Notes were purchased by the Trustee, using the proceeds from the sale of Pass Through Certificates, Series 2023-1A, issued by a pass through trust newly-formed by the Company to facilitate the financing of the aircraft.

The interest on the Equipment Notes is payable semi-annually on each January 15 and July 15, beginning on January 15, 2024.

The principal payments on the Equipment Notes are scheduled on January 15 and July 15 of each year, beginning on July 15, 2024.

The final payments on the Equipment Notes will be due on January 15, 2036.

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

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These credit ratings are below investment grade levels;

however, the Company has been able to secure financing with investment grade credit ratings for certain enhanced equipment trust certificates (EETCs), term loans and secured bond

however, the Company has been able to secure financing with investment grade credit ratings for certain enhanced equipment trust certificates, term loans and secured bond financings.

Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company as well as affect the fair market value of existing debt.

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The Company has provided CASM-ex, a non-GAAP financial measure, which is not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measure that is calculated and presented in accordance with GAAP.

Management believes that adjusting for special charges (credits) is useful to investors because special charges (credits) are not indicative of UAL's ongoing performance.

Management believes that adjusting for special charges is useful to investors because special charges are not indicative of UAL's ongoing performance.

Management also believes that excluding third-party business expenses, such as expenses associated with maintenance and ground handling for third parties, from CASM provides more meaningful disclosure because these expenses are not directly related to the Company's core business.

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Below is a reconciliation of the non-GAAP financial measure provided in this report (CASM-ex) to the most directly comparable GAAP financial measure (CASM) (in cents):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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This report contains certain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including in Part I, Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, relating to, among other things, goals, plans and projections regarding the Company's financial position, results of operations, market position, capacity, fleet, product development, ESG targets and business strategy.

Such forward-looking statements are based on historical performance and current expectations, estimates, forecasts and projections about the Company's future financial results, goals, plans and objectives and involve inherent risks, assumptions and uncertainties, known or unknown, including internal or external factors that could delay, divert or change any of them, that are difficult to predict, may be beyond the Company's control and could

cause the Company's future financial results, goals, plans and objectives to differ materially from those expressed in, or implied by, the statements.

Words such as "should," "could," "would," "will," "may," "expects," "plans," "intends," "anticipates," "indicates," "remains," "believes," "estimates," "projects," "forecast," "guidance," "outlook," "goals," "targets," "pledge," "confident," "optimistic," "dedicated," "positioned," and other words and terms of similar meaning and expression are intended to identify forward-looking statements, although not all forward-looking statements contain such terms.

All statements, other than those that relate solely to historical facts, are forward-looking statements.

Additionally, forward-looking statements include conditional statements and statements that identify uncertainties or trends, discuss the possible future effects of known trends or uncertainties, or that indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured.

uncertainties cannot be predicted, guaranteed or assured.

All forward-looking statements in this report are based upon information available to us on the date of this report.

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extended interruptions or disruptions in service at major airports where we operate and space, facility and infrastructure constraints at our hubs or other airports;

geopolitical conflict, terrorist attacks or security events;

geopolitical conflict, terrorist attacks or security events (including the continuation of the suspension of our overflying in Russian airspace as a result of the Russia-Ukraine military conflict and to Tel Aviv as a result of the Israeli-Palestinian military conflict and an escalation of the broader economic consequences of the conflicts beyond their current scope);

any damage to our reputation or brand image;

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failure to comply with financial and other covenants governing our debt, including our MileagePlus® financing agreements;

the impacts of the proposed phase out of the London interbank offer rate;

the impacts of the phase out of the London interbank offer rate;

limitations on our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income for U.S.

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increases in insurance costs or inadequate insurance coverage and other risks and uncertainties set forth under Part I, Item 1A.

Risk Factors, of the 2022 Form 10-K, and under "Economic and Market Factors" in Part I, Item 2.

Risk Factors, of the 2022 Form 10-K and Part II, Item 1A.

Risk Factors of this report, and under "Economic and Market Factors" and "Governmental Actions" in Part I, Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations, of this report, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.

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It is routine for our internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections, beliefs and assumptions upon which we base our expectations may change.

For instance, we regularly

monitor future demand and booking trends and adjust capacity, as needed.

For instance, we regularly monitor future demand and booking trends and adjust capacity, as needed.

As such, our actual flown capacity may differ materially from currently published flight schedules or current estimations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis