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U.S. AIR CARRIER INDUSTRY REVIEW AND OUTLOOK
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  1. U.S. AIR CARRIER INDUSTRY REVIEW AND OUTLOOK MAC ARMSTRONG SENIOR VICE PRESIDENT, OPERATIONS AND SAFETY AIR TRANSPORT ASSOCIATION

  2. THE HISTORY OF U.S. AIR TRANSPORT GROWTH Revenue Passenger Miles Billions 800 700 600 500 400 300 200 100 0 1925 1935 1945 1955 1965 1975 1985 1995 1930 1940 1950 1960 1970 1980 1990 2000

  3. THE DEMAND AIR TRAVEL HAS OUTPACEDTHE ECONOMY AT LARGE Real GDP

  4. SAFETY RECORD OF U.S. AIRLINES Fatal accidents per Million Aircraft Miles 0.030 0.025 0.020 0.015 0.010 0.005 0.000 1945 1955 1965 1975 1985 1995 1950 1960 1970 1980 1990 2000

  5. Ticket Prices vs. Consumer Prices

  6. NET INCOMEU.S. Scheduled Airlines

  7. NET PROFIT MARGIN U.S. INDUSTRY VS. AIRLINES Percent U.S. INDUSTRY 5 AIRLINES 0 -5 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02e

  8. Airlines Have Taken on Massive Debt to Survive(Debt Payments Will Be Paramount in the Years Ahead)

  9. FOUR FACTORS OF PROFITABILITY 2001 TRAFFIC - 5.9 % LOAD FACTOR 70.0 % - 2.4 pts CAPACITY - 2.8 % OP. PROFIT MARGIN -8.7% - 14.1 pts YIELD (Prices) Less: Interest Taxes Other Non-Op. - 8.1 % BREAKEVEN - OP. 77.4 % + 7.0 pts UNIT COST NET PROFIT MARGIN + 8.6 % -6.7% - 8.6 pts

  10. Operating Expenses—2001

  11. ANNOUNCED FURLOUGHS/LAYOFFS Furloughs/ Layoffs Workforce Percent Alaska 11,000 - American 138,400 20,000 14 America West 13,900 2,000 14 American Trans Air 7,700 1,500 19 Atlas 1,400 200 15 Continental 56,000 8,500 15 Delta 83,500 2,000 2 Hawaiian 3,500 400 12 Midwest Express 3,000 450 15 Northwest 53,800 9,000 17 Southwest 31,100 - United 101,500 20,000 20 US Airways 46,700 11,000 24 Others 16,400 5,200 32 TOTAL 567,800 80,300 14

  12. Upwards of 500 Aircraft Parked/Retired WorldwideDue to Terrorist Attacks (Source: Avsoft estimates)

  13. Jet Fuel Price and ConsumptionMajors, Nationals & Large Regionals—All Services

  14. FUEL PRODUCTIVITY Passenger Miles per Gallon 45 40 35 30 25 20 15 10 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01

  15. PASSENGER COMMISSION COSTS Percent of Passenger Revenue Percent 15 $7.6 B 10 $4.7 B 5 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001e

  16. PRICES TRACK COSTS Average Price Compared to Unit Cost Percent Change 30 Unit Costs (Operating Expense per ASM) 25 Average Price (Passenger Revenue per Passenger Mile) 20 15 10 5 0 -5 -10 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00

  17. PRICE TRENDS DOMESTICRevenue per Passenger Mile Cents 1,5.5 1,5.0 2000 1,4.5 1,4.0 1999 1,3.5 $5 Bill. 1,3.0 2001 DOWN 15% 1,2.5 1,2.0 2001 2000 1999 1,1.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

  18. CURRENT TRAFFIC TRENDS COMPARED TO GULF WAR Percent Change 20 Gulf War Intl 10 FEB 91 0 Gulf War System -10 -20 -30 SEP 01 -40 2001 1990/91 System 1990/91 International

  19. CONCLUSIONS • Resources are scarce • Every airline is struggling just to survive • Every action must immediately increase revenue or decrease cost • New initiatives will displace existing items • Expenditures must be on most urgent only • Value of actions must be compared • CAST provides the analytic rigor to make such comparisons of complex issues

  20. U.S. AIR CARRIER INDUSTRY REVIEW AND OUTLOOK MAC ARMSTRONG SENIOR VICE PRESIDENT, OPERATIONS AND SAFETY AIR TRANSPORT ASSOCIATION