State of the Airline Webcast

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May 22, 2004
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2Q07 State of the Airline Webcast FAQs
· Customer Service
· Earnings, Fuel Hedging & Profit Sharing
· Fleet
· Industry & Competition
· Labor

Customer Service

Are we going to eliminate the outsourcing for res? We get a lot of complaints from pax.
We're working on bringing reservations work back in-house and, while we are making progress, it's not a quick or inexpensive process. Rather, it's a matter of securing facilities, equipment, people, training…no small task. Nevertheless, it's an important initiative and is one that we continue to work on. And, in the meantime, we continue to monitor calls from all locations, doing our best to ensure consistent customer service.
I understand the reasons for overselling flights but we, as gate agents, are the ones who are taking the hits and insults from customers for overselling. Any plans to stop this insanity?
We don't plan to quit overselling entirely (and neither would any other airline). The alternative is to sell every seat, then charge passengers whether they show up or not - something that wouldn't bode well for passengers either. Nevertheless, we're careful with overselling, using historical data to know how many seats to authorize on a particular flight. Then we continue to monitor overselling to make sure we cause the least amount of pain to our customers and employees. It's a hard science to master and we do a pretty good job of it when compared to the rest of the industry.
With our transatlantic flights being delayed on a nightly basis (always delayed due to some sort of mechanicals, or so it’s said) and with the amount of money spent on overnights and compensation, why won't the company reconsider its "no proactive reaccommodation" for passengers by res employees who work queues? This would perhaps save unnecessary hotel accommodations and passengers perhaps having to wait a day or so to get to their destination.
Actually, we do use proactive reaccommodation. VP of Reservations and Distribution Brad Beakley explained that it occurs with all cancelled or delayed flights. We utilize automation from software provider Kinetics to automatically rebook passengers within minutes of OCC/SOC's decision to cancel or delay a flight. We then use a secondary software from Varolii Corporation to automatically phone (and soon email) customers of their delay/cancellation. One reason there could be the misconception that we don't do this is because loads are so heavy that we often can't reaccommodate easily. Even when this occurs, we still notify and provide a phone contact for customers to call res and be rebooked.
I have been flying for 20 years and I have not heard as many complaints in those 20 years that I have heard in the last 2 months. I hate to say it, but it is so embarrassing. What are you doing to solve this problem with PHL? I am so tired of being put in this position with angry customers.
Between US Airways' customer service challenges (think the SHARES transition, for example) and the problems facing the entire industry (weather, ATC delays, fuller planes due to reduced capacity, etc.) all airlines are giving customers more to complain about. Now, that's not to say we can't make improvements - we can and we are. As most employees know, we've enlisted the help of two firms who've helped a number of airlines turn their operations around. We're also hiring people, fixing the schedule and working 24/7 to improve the information technology that supports our employees. No bones about it, though, these have been some tough, tough months that we can’t wait to put behind us.
Earnings, Fuel Hedging & Profit Sharing

If $30 million is added to the profit sharing pot and this is a factor of 10 percent of our profit before taxes and bonuses, and taxes were $8 million, profits were $271 million before taxes. Does that mean $29 million is being paid in bonuses?
Profit sharing is calculated by taking 10 percent of the pre-tax earnings, excluding special items. The pretax income reported already includes that amount. To get our pre-tax profit excluding special items, you would add back the $30 mil.
One past CEO stated that our CASM is so high due to the nature of our route structure and that we needed a Midwest hub to address that issue. He must have been an excellent manager because he walked off with $35M. Would having a Midwest hub help lower our CASM and in effect increase RASM? If so, why are we not headed in this direction?
President Scott Kirby says, “A Midwest hub would have no appreciable impact on CASM and would be extremely low RASM, meaning we'd lose a lot of money, so we don't have plans for that. Look at other former Midwest hubs – MKC, CMH, STL – and the track record isn't good.â€
East operating income was $320 mil, West lost $25 mil, why is the West so far behind?
The revenue environment is much stronger on the East Coast vs the West Coast. This is a result of massive capacity reductions from Delta, US Airways, and the liquidation of Independence Air. For more information on the breakdown per airline, you may want to look at our 2nd quarter 10Q – on our web site – usairways.com, click on About US (upper right hand corner), then on Investor Relations and you can find it from there. West is also “charged†with a lot of administrative costs from the merger. Either way, this isn’t an “East†or “West†thing and shouldn’t be: we’re one airline. How much did we pay the outside consultant companies for the quarter?
That’s a proprietary number (that is, we’re not releasing it), but if you think it’s in the millions, you’d be wrong. It’s really a very cost-effective price. We’ll be communicating the results of their audit soon. Do you believe the extra costs are because of the way you are running this airline? Most believe it is being run pretty poorly. It's certainly more expensive to run a bad airline than it is to run a good one, and yes, that had an impact on
our costs in the second quarter, as did fuel. We suppose the only comfort is that the rest of the industry is having as many challenges as we are, and that we are slowly but surely improving the numbers. Last time I checked, an airline that has over $300 million profit in the first two quarters seems like it is being run pretty efficiently - don't you think?
Clearly our financial performance is good, but our operations continue to trail our peer group. Just think what our financial performance would be if we were firing on all cylinders operationally.
Does the fuel expense line item (in the second quarter earnings release) include fuel consumed only by mainline or is Express fuel included in that item?
On the release, there are 2 fuel expense line items--one for mainline and one for Express.
I believe I have heard in the past from Derek or Doug that as a rule we only hedge about 50% of our fuel. With the price of fuel heading up again to possibly $100/barrel, will we change our hedge policy? How will we control these costs? What is our fuel hedge positions looking forward?
Our fuel hedge policy is to be hedged at approximately 50%, 8 to 10 months into the future. We treat this as disaster insurance rather than trying to speculate on fuel prices. With the price of oil forecasted to be up, we will continue to hedge fuel, but our philosophy has not changed. As far as fuel hedging for the future, we're 54 percent for the current quarter in the $62-$71 a barrel range. Go on out to the Investor Relations page at usairways.com (click on About Us in the upper right hand corner)...you can see the whole range.
Fleet
New Aircraft

Will the A340 for China be a -300 or -400 a/c? Where will we get the planes? Are the 10 A-330s that US just ordered in addition to the 10 A-330s that the original US had on order?
We’ll either get them on the open market, which is what we want to do (the Air Canada birds are no longer available), or convert some of the 10 A330s (we’re looking at 300s) orders which start in 2009.
The pilots have refused to allow the A340 on the property. So, who is going to fly them to China?
That’s under discussion with ALPA. We don't mean to be coy, but that's about all we can say about it while the talks are ongoing.
What is the purchase price of the Boeing 787s ordered by US...please specify (if possible) whether the figure quoted is in 2007 dollars or value on delivery?
We didn't order 787s – we ordered Airbuses. The market value of the airplanes we ordered was in the $10 billion range (of course, given the volume, that order will be fairly well discounted, but we haven't released the purchase price).
Any chance Piedmont or any Express carrier will get the Q400 anytime soon?
We're started the process of evaluating the Piedmont fleet and possible replacements. The Q400 is indeed a great plane. We’ll see.
Any truth to the rumor that we are attempting to obtain 767s from Delta? That's just a rumor, so thanks for giving us the opportunity to quell it. We are looking at getting some
widebodies for international service. You may recall that we're ordering Airbus 330s to replace our aging 767s, but those airplanes aren't coming into the fleet until 2009.
When do we plan on receiving the A321? And the A330-200 that can fly further? Is there a planned timeline for the elimination of the B737s from the fleet?
We’ll receive the first A321 during the first quarter of 2008 and the A330s that we recently ordered will start coming in 2009. The phase-out of the B737s will begin when we start receiving the A320s. What are the plans for the West 757s to Hawaii? Don't the leases expire on the old 757s soon? The leases do not expire until 2010, and beyond. The non-ETOPS West 757s leases expire in late 2008, early 2009. The Airbus planes that we ordered will reduce our fleet to approximately 20 757s all of which are capable of long range ETOPS operations to both Hawaii and Europe. The oldest 757s in the fleet (both east and west) will be retired and replaced when we do this by A320 series planes on short haul missions and certain East 757s will be used to backfill Hawaii operations for older West airplanes that must be
retired due to age and economics. Right now we can't market any cargo on the flight to ATH due to the plane size and length of the flight. Will the A340 be able to carry cargo to Beijing if we are awarded that segment? Yes, the A340s should be able to carry cargo to/from Beijing – particularly from. Athens is profitable without cargo and we recognized the limitation going into this market. The A330-200s will fix the issue in a few years.
What's being done about the reliability issues with the E-190s? Is there any truth to the rumor Airways is trying to buy back the EMB170s from Republic?
We're working with Embraer on improving reliability and are in contact with the other 190 operators as well. While we don’t like to repeat the past, the 170 also entered service with issues that, over time, we overcame. And there’s no truth to the rumor that we’re buying back the 170s from Republic. They do a great job flying them for us. We'll just stick to one Embraer aircraft, the E190.
Cleanliness/Refurbishments

The A330/B767 international airplanes are dirty. Any plans for quality audits on cleaning crews in
PHL? Yes -- there's a whole customer initiative underway to ensure that we're going to do a better job with what the customer experiences on board -- that goes to everything: meals, equipment, etc. We'll be shooting for consistency and, of course, clean airplanes.
I just flew West 737 #306. It had six seats on MEL since July 19. That's seven days without these seats. Why are we letting this happen? The aircraft had many overnight checks between the 19th and today. 306 is fixed. It was on MEL for 10 days, which is the limit. The issue was getting the parts to fix the seats. The seats needed a spreader bar, which are getting hard to find. We ended up having to replace the seats all together rather than just replacing the parts.
Can you give some definitive details on the new envoy class for the 767?
Until we start getting the new A330s, we're refurbishing the entire 767 fleet with leather seats in economy, new sidewalls and bulkheads, overhauling the lavatories and installing new digital IFE servers and LCD monitors. In Envoy we will have near-lie-flat seats, and video/audio on-demand handhelds. These will be in place by Feb 08. We are also upgrading our food and beverage in Envoy and Economy in the first quarter. Do we have a timeline/date for when we want to have our interiors improved? We are working on a proposed refresh of the interiors for both east and west planes to make sure the branding is consistent. Expect more information on this subject early next year. The lead time to make changes is significant due to lots of certification issues.
Rick Oehme raised the issue of aircraft appearance. He points out that several interiors are in poor condition. Although we're pulling the AC out of service for an interior refresh, many of the items could be cleaned up by the field if the resources were available. The field stations have a real shortage of common supplies and hardware. What can be done to raise the level of the field stations' stock to support the mechanics who really want to clean up the interiors?
Rick said during the webcast, “The right approach is certainly log book entry and we go out and we address it. The other form is feel free to send me an e-mail. I have a lot of flight attendants that – and pilots that live with these airplanes every single day, and you know, from a maintenance standpoint, we’re not in them
as often as the flight attendants and pilots are, so feel free if you’ve got, you know, any concerns or issues, you can e-mail me and I’ll be more than happy to address them.â€

Industry & Competition
M&A Possibilities

When are we buying out AA? *grin*
Tomorrow. *bigger grin*
United announced they were looking to merge with another carrier who had a strong presence in the East Coast. I understand Doug is talking with United regarding a merger. Are we still looking to merge?
Just rumors. We are two carriers that still preach industry consolidation and tried to merge once before. It's an easy rumor to start for those reasons. Doug is a big believer in the need for consolidation to keep the industry healthy, but after Delta, he's said many times that we'll probably have to wait until the next industry downturn to see any attempts at consolidation again.
Is there any truth to the talk that US will sell its West schedule to CO & its East schedule to UA which would basically eliminate US Airways?
There's no truth to that…it's very creative, though!
Rumor has it Doug may be looking to go to UAL as CEO? Now why would he want to do that? Doug's here for the long haul. (Another rumor is that Doug has been
spotted in Chicago – not true. Have we ever looked at NW as a merger partner? They have a lot of Asia, which we need, and great Midwest coverage.
The benefit of merging with NWA would not be as good as say, Delta was, due to the amount of route overlap. The value we saw in Delta was the ability to fly the same routes with fewer airplanes (reduced capacity). This would have led to higher loads, and more pricing power. NWA doesn't share that characteristic.
Competition

Any thoughts from Doug on how this Virgin America airline is going to affect US?
We won't have a direct overlap with Virgin so we're not too worried about it, except that we've said for a long time that there is still too much capacity in the US. Virgin is just adding to that.
Labor
Pilot Negotiations

The west was not offered a 3% raise. A 3% increase was offered in hourly rates but it was offset by at least an 8% concession in benefits that deduct from total earnings and the cost of the contract. Can Doug comment on this?
We've said publicly that we're raising our pilot costs by $122 million a year so I'm not sure where you're getting the number.
Why allow pilots from East side to keep hostage rest of the airline employees by not negotiating for joint contract with the West pilots? Obviously because they don't like merged seniority list, they don't want to negotiate. We've had negotiating sessions with ALPA this past month and are scheduled to keep meeting with them.
It's true that the Nicolau arbitration award has had a big impact on the progress and quality of our negotiations. We'd like to keep moving toward one contract, though, because we think single contracts are the best way to go for our work groups.
To date, how many East pilots have chosen not to return to US? – i.e., opting off of the furlough list? We're running at about a 10 percent acceptance rate. Some pilots have accepted jobs at other carriers since they were furloughed several years ago; others have begun new careers in private aviation or elsewhere. Regarding permanently separate contracts for the pilots, which the East is currently proposing: would individual pilot compensation be substantially less under that scenario due to lower efficiency for the
company?
You're getting a little ahead of the game at this point. We haven't had any discussions about this and still
believe that the best long-term path is to negotiate a unified agreement.
How is going from 59% seniority on the old list to 59% on the new list fair for either pilot group?
We're not really in a place to discuss the pilot seniority integration list because it is an ALPA issue. The company is empathetic about the seriousness of this issue to our pilots, but we're not in a position to speculate about its fairness or unfairness at the moment.
I would like Mr. Kirby to elaborate on his comment that the west pilots "won the lottery" with the
Nicolau award. Can you pass this question on to him for a response? Scott's been pretty careful to say that "people have described it as West pilots winning the lottery," but he
hasn't used that term himself.
Is the company going to support separate contracts for the pilots because of the seniority issues?
Hard to say what we're going to support at the moment -- talks continue. The company's view is that the best long-term outcome of the talks is one contract, with one pay scale and one set of benefits, work rules, etc., so that we're all working on the same team.
What is the pilot union asking for?
ALPA hasn't submitted a comprehensive economic proposal to the company yet, but generally, East ALPA is asking for immediate pay parity with the West pilots. (We’ve proposed pay parity in our May economic proposal to the union).
It looks like the pilots will never agree to a combined contract under the current seniority award. What do you think that will cost us in the long run?
That's just very difficult to say and we wouldn't want to go there with speculation about what might have happened when and at what rates. We're still working hard for negotiated agreements with all of our remaining work groups.
How does senior management plan to handle to the problems in joining the East and West pilot groups together in regards to the seniority award and the insistence of the East pilot group to keep the operations separate?
This is a tough area. First, we think that separate ops/separate contracts is not optimal. The best approach is a unified contract where everyone's getting paid on the same scale, has access to all the fleet types, has the same work rules and benefits, etc. That said, we're talking with the East and West ALPA and aren't ruling anything out. Truth is, pilots on the East and West are all professional aviators who are proud of what they do and whose careers are tied to the success of the company, so we expect that we'll figure out a way to work together.
Why don't the East pilots deserve pay parity with the West pilots?
Nobody said they didn't. In fact, the company proposed pay parity (and then some) in a comprehensive proposal May 8. Understandably, ALPA's been focused on the seniority integration award, but we resumed talks this month and are meeting again. In fact, our comprehensive proposal raises East pay from 3 to 17
percent to bring to West scales and then raises the West scales another 3 percent. With benefits, work rules, etc., the proposal would raise pilot costs by about $122 million a year.
Doug has stated that the company is willing to bring old East network pilots up to old West pilots pay scale and increase the scale by 3%. Why are the pilots not accepting this and what are they countering?
Negotiations are continuing -- we wouldn't want to put words in ALPA's mouth, so we wouldn't speculate. We've had no comprehensive economic proposal from ALPA, either.
Other labor issues Is there any truth in the America West flight attendants getting a raise?
We're in negotiations for a single contract with the AFA as we speak.
Are you planning to recall additional flight attendants for Philadelphia by the end of 2007?
No, we have no more FA recalls planned for this year for any East base. We are however hiring new Flight Attendants for the West network.
Can you address the company's position on the "snap back" clause in the MX union contract?
This is the subject of an arbitration better known as "Change in Control," which called for concessions to be "snapped back" if the company changed hands. Our position is that the terms laid out in all the bankruptcy agreements were pretty specific, and the merger of America West and US Airways didn't meet the Change in Control provisions in those bankruptcy papers. This is set for arbitration this fall.
When are you going to pay your fleet service workers a fair wage?
Negotiations with IAM continue and are being held with a facilitator (essentially, a private mediator) this month. Has US Airways or America West management ever refused to accept an arbitration award it was an involved party with?
Arbitration’s a binding process and we abide by all valid arbitration awards.
On one of the last webcasts, Doug mentioned that single contracts would be top priority. He keeps saying this and nothing is being done!! How long does he expect us to wait?
It is frustrating, but we're meeting with the unions regularly and attempting to get to agreements. The company wants single agreements as much as anyone.



only stating opinions