Orf 401 Discussion

April 2, 2003

CLT

PIT PHLLGA

BOS

DCA

2%4%5%5%7%

31% 29%

9%

US DL WN CO AA FL B6 NK

US Airways Is The Largest Carrier On The East Coast

Source: Databank 1A/Superset Year Ended 2Q02

Share Of Intra-East Coast Revenue

We Are #1 or #2 In 72% of The 148 Airports Served By US In This Region

US Airways Passenger ShareTo All Destinations

#1 in 71 Cities (48%)#2 in 36 Cities (24%)

#1 or #2 in 72% of Cities Served

Note: Airports Served by US to Domestic US, Canada, and SJU/STT/STXSource: Databank 1A/Superset Year Ended 2Q’02

TTN

ABE

ACK

ABE

ACK

ACY

AGS

AHN

ALB

AOO

APF

ART

ATL

AUG

AVL

AVPAZO

BDL

BFDBGM

BGRBHB

BHM

BKWBLF

BNA

BOS

BTV

BUF

BWI

CAE

CAK

CHA

CHO

CHS

CKB

CLE

CLT

CMH

CRW

CSG

CVG

DAY DCA

DTW

DUJ

ELMERI

EVV

EWN

EWR

EYW

FAY

FKL

FLL

FLO

FWA

GNV

GONGRR

GSO

GSP

HGR

HHH

HPN

HSV

HTS

HVN

HYA

IAD

ILM

IPT ISP

ITH

JAN

JAX

JHW

JST

LAN

LBE

LEB

LEX

LGA

LNS

LWBLYH

MBS

MCO

MDT

MEM

MGM

MGW

MHT

MIA

MKE

MOB

MSN

MSS

MVY

MYR

OAJ

OGS

ORD

ORF

ORH

PBI

PFN

PGV

PHF

PHLPIT

PKB

PNS

PQI

PVD

PWM

RDG

RDU

RIC

RKD

ROA

ROC

RSW

RUT

SAV

SBN

SBY

SCE

SDF

SHD

SRQ

SWF

SYR

TLH

TOL

TPA

TRITYS

VPS

…With Over 4.5M Active Frequent Fliers

45%

2%14%

24%

14%

DL CO

US

OA

AA

The Company Serves 10 European Destinations And Is The 2nd Largest Carrier To The

Caribbean

Source: OAG, Spring 2002

PIT

CLT

PHL

Madrid

Rome

Paris

Frankfurt

Munich

AmsterdamManchester

London

Caribbean Capacity Share Transatlantic Route Network

Dublin

Shannon

The Airline Planning andRevenue Model

The Airline Planning Process

Capital Investment Strategy

The Airline Planning Process

Capital Investment Strategy

Build Network

The Airline Planning Process

Capital Investment Strategy

Build Network

Find and Exploit

Demand

The Airline Planning Process

Capital Investment Strategy

Build Network

Find and Exploit

Demand

Filter Demand

The Airline Planning Process

Capital Investment Strategy

Build Network

Find and Exploit

Demand

Filter Demand

Refine Demand Forecast

Short-Term

The Airline Planning Process

Capital Investment Strategy

Build Network

Find and Exploit

Demand

Filter Demand

Refine Demand Forecast

Long-Term Short-Term

The Airline Planning Process

Capital Investment Strategy

Build Network

Find and Exploit

Demand

Filter Demand

Refine Demand Forecast

Long-Term Short-Term

Two Goals: Optimize RASM, Optimize ROA

Airline Pricing and Distribution

Airline Pricing Actually Makes Sense!

(Well, Mostly….Sorta)

A Fundamental Law Of The Universe

TIME = $

How Airline Pricing Uses That Law

Avoid this square!Lots of Demand, No Profit!

Some People willPay a Lot ForFlexibility(Time = $ Crowd)

Some People will Suffer Inconvenienceto Save a Buck(Time $ Crowd)

No Market ForThis - Folks Are Too Rational!

LOW HIGH

Price Level

LOOSE

RESTRICTIVEPric

ing

Rul

es

Airline Pricing Rules Segment the Market Based on“Elasticity of Demand”

Why Is This Important?

High Price Traffic = 20% of Bodies

60% of Revenue

Low Price Traffic = 80% of Bodies

40% of Revenue

The Airline Quandary

There Aren’t Enough High Fare Payers to Fill Airplanes If You Sell Every Seat at Low Fares, You’ll Lose Your

ASSets

A Mix of High and Low Fare Traffic is Required to Succeed

LOW HIGH

Price Level

LOOSE

RESTRICTIVEPric

ing

Rul

es

LOW HIGH

Price Level

LOOSE

RESTRICTIVEPric

ing

Rul

esPrice Levels•Stimulate Demand(low)

or•Extract an Economic Premium (high)

LOW HIGH

Price Level

LOOSE

RESTRICTIVEPric

ing

Rul

esPrice Levels•Stimulate Demand(low)

or•Extract an Economic Premium (high)

Pricing RulesDesigned to Segregatethe Market Based on “Time Elasticity of Demand”

Example: The Infamous Saturday Night Stay

The Prices are Then Offered Through Various Distribution Outlets

Traditional Airline Distribution Flow

Travel Agencies Airlines

GDS (Sabre, Galileo,

Worldspan)

Customers

$$

$$ $$

Evolving Airline Distribution Flow

Travel Agencies Airlines

GDS (Sabre, Galileo,

Worldspan)

Customers Websites

$$

$$ $$

Commissions 34%GDS Fees 29%Credit Card Fees 25%Incentive Payments 9%Web Site Fulfillment 3%

Total 100%

%

Traditional Airline Distribution Cost Components

Airline Distribution is Shifting Due to E-Commerce

70.9%

5.4% 7.0%10.3%

8.0%

12.2%

2.8%

64.5%

11.8%10.2%

2.8% 4.0%

TravelAgencies

Reservations Online TravelAgencies

usairways.com Airport TicketOffices

City TicketOffices

2001 2002

Airline Distribution is Shifting Due to E-Commerce

70.9%

5.4% 7.0%10.3%

8.0%

12.2%

2.8%

64.5%

11.8%10.2%

2.8% 4.0%

TravelAgencies

Reservations Online TravelAgencies

usairways.com Airport TicketOffices

City TicketOffices

2001 2002

22%

Costs per Channel Vary Greatly

usairways.com

US AirwaysTraditional Direct

(ATO, CTO, Reservations)Travel Agencies

Internet Agencies

$18.75

$ 21.15

$ 11.19

$ 26 *

Note: Projected 2003 marginal cost of a $300 ticket* Estimated traditional direct costs for 2003

E-Commerce Benefits For Airlines Today

Distribution Cost Savings Targeted Distribution Vehicles “Stealth” Pricing Options New Market Segmentations (Opaque, for example) Servicing Improvements and Cost Savings

E-Commerce Challenges for Airlines Today

Price Transparency Causes “Reference Price” Problem

- The Web is Too Big…

- The Web is Too Small… “Commoditization” of the Industry

Major E-Commerce Airline Opportunites

“Direct to Corporation” Sales Major Servicing Vehicle, Independent of Purchase

Channel Personalized or “One to One” Marketing Development of Value-Added Chargeable Services Single-view of the Customer