1. Airline Operating Costs & Airline Productivity - US Airways - Seungwon Noh (Apr. 09. 2012)

2. US Airways is a NLC. LCC’s CharacteristicsUS Airways Single Aircraft type or Single family of aircraft Changing fleets to Airbus Point-to-point ticketing, no connecting hubs X Operate 3 hubs (Charlotte, Philadelphia, Phoenix) and 1 focus city (Washington D.C.) No labor unions, Lower wage rates Low wage rates Single cabin service, no premium class X Provide different class seats No seat assignments X Assign seats Reduced frills for on-board service No free meals No frequent-flyer loyalty program X Have mileage program Avoid global distribution systems X Use GDS  US Airways was a Network Legacy Carrier from the beginning. Try to be a LCC, but have other factors to incur cost a lot.  US Airways has strong hub & spoke network. US Airways Express operates spoke network with contract.

3. Terminology and Definition  RPMs (Revenue Passenger Miles) Number of passenger-miles transported  ASMs (Available Seat Miles) Number of seat-miles transported  RASM (Revenue per ASM) Revenue received for each available seat mile Total Revenue / ASMs

4. Terminology and Definition  CASM (Cost per ASM) Cost to operate each available seat mile Total Operating Cost / ASMs  Yield Average fare paid by passenger per mile flown Total Revenue / RPMs  PRASM (Passenger RASM) Passenger revenue received for each available seat mile Passenger Revenue / ASMs

5. Terminology and Definition  Fuel consumed Number of gallons of fuel consumed  Fuel Costs per ASM Fuel cost to operate each available seat mile Total Fuel Cost / ASMs  Non-Fuel Costs per ASM Non-fuel cost to operate each available seat mile (Total Operating Cost – Fuel Cost) / ASMs

6. (Millions) Airline Analysis  Similar trend in ASM and RPM Decrease in 2001 (due to Sep. 11) Significant changes in 2005 (Bankruptcy and Merge with America West)  L/F increased with seasonal fluctuation

7. (Millions) Airline Analysis  Changes by the merging in revenue and expense trend Increase after decrease Significant decrease of revenue in 2001 (Sep. 11) Remarkable increase of expense in 2008 (Fuel price)  Loss followed by profit after the merging

8. (Cents) Airline Analysis  Similar trends with total revenue and expense Increase after decrease Decrease of RASM, Yield, PRASM in 2001 (Sep. 11) Big increase of CASM in 2008 (Fuel price)  Increase in profitability after merging

9. (Millions) (Gallons in Million) Airline Analysis  Expenditure on fuel increase Significant increase in 2005 (merging) and 2008 (increase of fuel price)  Big difference by the merging in fuel consumption Consume fuel 3 times more than before merging

10. Airline Analysis (Cents)(Per Gallon)  Significant increase of jet fuel price Reached at $3.50 per gallon in 2008  Gradual increase in fuel expense per ASM  Decrease of non-fuel expense

11. Effects of Fuel Prices  Airline Expenses Proportion of fuel expense to total expense highly depends on fuel price. As fuel price increases, total operating expenses increases.  Airline Finance The higher fuel price, the worse airline finance.  Airline Network Structure No direct effects of fuel price Coefficientt-staticsSignificant LevelAdjusted R 2 Constant.0484.207.000 0.898 Fuel Price.11417.058.000

12. Summary  US Airways is considered a NLC. Strong Hub & Spoke Network, High Operating Cost  US Airways experienced three big changes of Operating Cost and Productivity between 2001 and 2009. Traffic, Output and Revenue decreased in 2001 due to Sep. 11. Most significant decrease and increase of all data in 2005 (Bankrupt and Merge with America West) Big jump of Fuel prices in 2008  Fuel Prices affect the airline’s operating expenses and finance significantly.