United's Tague: Card Move A 'Calculated Risk'

Here are some comments by UAL Corp. executives, from their second-quarter financial conference call this afternoon, about distribution and risk ...
COO John Tague: "We have led the industry in reducing distribution costs by having a willingness to take calculated risk. For the first half of 2009, our distribution costs were 4.6 percent of revenue, down from 6 percent of revenue in 2005. This amounts to a savings of almost $100 million just for the first half of this year.

"We have thousands of agency relationships, and I would say we have thousands of different terms amongst those agencies. In fact, we currently do have a number of agencies who have been the merchant of record for some time. This merely represented an expansion of the definition as to how we were going to apply that initially. We will reserve the right on a continuing basis to optimize the way we approach each of these distribution agreements based on the commercial relationships we have with those particular parties. I cannot speak to what we will do on a going-forward basis, but you can continue to expect us to take calculated risks such as these as we move to improve the economics and performance of our distribution relationships."

Chairman president and CEO Glenn Tilton: "When we say there are no sacred cows, given the economics of this industry, nobody on the other end of the line should be surprised by our aggressive pursuit of savings."

CFO Kathryn Mikells: "Our $2.6 billion unrestricted cash balance at quarter end ... our solid cash balance also means we have no incremental credit card reserve requirements with either of our two major credit card processors. Importantly, we have already posted non-cash collateral with our largest credit card processor that would cover any reserve requirements through early next year. In the case of our other major processor, we have the flexibility to use non-cash collateral in the event a reserve may be required in the future."