US Airways 2003 Annual Report Download - page 13

Table of Contents
implications of a sharp increase in the price of aviation fuel for a prolonged period of time would be significant. To manage some of this risk, the Company
utilizes certain financial instruments designed to reduce its exposure related to fuel price increases. See "Selected Operating and Financial Statistics" in
MD&A for additional information related to aviation fuel.
Distribution Channels
Growing usage of electronic distribution systems, including electronic tickets and internet booking channels, has helped the Company reduce its cost of
distribution while changing the dynamics of ticket purchasing. The Company began selling electronic tickets in 1996. During 2003, electronic ticket sales
represented 92% of all ticket sales. The Company currently charges a $50 fee to customers, except for certain elite status frequent fliers, who choose a paper
ticket when an electronic ticket is available.
Distribution trends continue to evolve in the industry. Consumer reliance on traditional travel agencies is shrinking, while usage of online travel
agencies is increasing. Both traditional and online travel agencies typically use Global Distribution Systems (GDS), such as Sabre, to obtain their fare and
inventory data from airlines. Bookings made through these agencies result in a fee, the "GDS fee", that is charged to the airline. Bookings made directly with
the airline, through its reservation call centers or website, do not incur a GDS fee. As a result, it is less expensive for the Company to sell through direct
channels when possible and the Company continues to invest in this channel shift. Among the three largest online agencies, Orbitz distinguishes itself from
Travelocity and Expedia by using a direct connection to the Company's inventory systems, thus avoiding the GDS fee. Orbitz is a lower cost distribution
channel as a result, though it is still more expensive than sales through the Company's website, usairways.com. By July 2004, the DOT will eliminate most
regulations governing GDS. The impact of this change is unknown but could impact the cost of distributing tickets. Consistent with the direct sale strategy,
the Company continues to develop usairways.com. During the fourth quarter of 2003, sales from all internet bookings comprised 24% of total sales. Bookings
through usairways.com comprised approximately 9% of total sales.
During 2002, US Airways ceased paying base commissions to travel agencies in the U.S. US Airways continues to participate in contractual
relationships with certain travel agencies that pay a bonus commission, often called an override, based on sales on the airline.
Frequent Traveler Program
Under US Airways' Dividend Miles frequent traveler program (FTP), participants generally receive mileage credits for each paid flight segment on US
Airways, US Airways Shuttle and US Airways Express. Participants can also receive mileage for each paid flight segment on one of US Airways' FTP airline
partners. Participants flying on first class or Envoy class tickets receive additional mileage credits. Participants can also receive additional mileage credits
through special promotions periodically offered by US Airways and may also earn mileage credits by utilizing certain credit cards and purchasing services
from various FTP partners. Mileage credits earned by FTP participants can be redeemed for various travel awards, including upgrades to first class or Envoy
class, and tickets on US Airways or on one of US Airways' FTP airline partners.
US Airways and its FTP airline partners limit the number of seats allocated per flight for award recipients by using various inventory management
techniques. Award travel for all but the highest-level Dividend Miles participants is generally not permitted on blackout dates, which correspond to certain
holiday periods or peak travel dates. US Airways reserves the right to terminate Dividend Miles or portions of the program at any time. Program rules,
partners, special offers, blackout dates, awards and requisite mileage levels for awards are subject to change.
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