US Airways 2004 Annual Report Download - page 8

Table of Contents
AWA's alliance agreement with Virgin Atlantic Airways or "Virgin," allows Virgin to code share on flights operated by AWA connecting to and from
Virgin's Las Vegas, San Francisco and Los Angeles services. The agreement also allows AWA FlightFund members to earn credit for travel on Virgin and for
frequent flyer benefits earned by AWA customers to be redeemed for travel on Virgin's system.
Relationships with ALIA/Royal Jordanian Airlines or "Royal Jordanian," and Hawaiian Airlines or "Hawaiian," allow each carrier to code share flights
operated by the other carrier. AWA's alliance with Royal Jordanian offers connecting service from Royal Jordanian's Chicago, Detroit and New York
services. The agreement also allows AWA FlightFund members to earn credit for travel on Royal Jordanian and for frequent flyer benefits earned by AWA
customers to be redeemed for travel on Royal Jordanian's system. In addition, AWA lounge members have access to Royal Jordanian's VIP Clubs in Amman
and Aqaba, Jordan. AWA's agreement with Hawaiian offers connecting service to and from Hawaiian's nonstop Phoenix to Honolulu service and beyond to
the other islands of Hawaii. AWA FlightFund members can earn and redeem credit for travel on Hawaiian.
AWA's alliance agreement with Big Sky Airlines or "Big Sky," allows AWA to code share on Big Sky's services from Spokane, Washington, Boise, Idaho,
and Billings, Montana to Big Sky's destinations in Montana, North Dakota and Washington State. AWA FlightFund members can earn and redeem credit for
travel on Big Sky.
Airline Marketing
In 2004, we launched the airline industry's first gift card program. Gift cards have proven highly successful in the traditional retailer environment where
they account for an increasing share of consumer purchases, particularly around the holiday season. We partnered with intermediary companies to launch gift
cards at several large retailers, including Staples, Rite Aid, 7-Eleven and others, and cards are due to be available at approximately 10,000 stores nationwide
by the first quarter of 2005. Gift cards also are available for purchase at americawest.com and currently may be redeemed by calling AWA reservations. It is
anticipated that online redemption will be available during 2005.
Airline Competition
The airline industry and most of the markets we serve are highly competitive. We compete on the basis of pricing, scheduling (frequency and flight times),
on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyer programs, the automation of travel agent
reservation systems, on-board products and other services. We compete with all of the major full service airlines on medium and long haul routes to, from and
through our hubs and in our transcontinental markets and with a number of carriers for short haul flights at our Phoenix and Las Vegas hubs.
In addition, we compete with a growing number of low cost carriers at our Phoenix and Las Vegas hubs and across our route system. The low cost carrier
sector is growing and for the 12 months ended December 31, 2004, low cost carrier capacity (as measured by available seat miles) represented 23.6% of all
domestic mainline service, an increase of 1.1 points from the 12 months ended December 31, 2003, when low cost carrier marketshare accounted for 22.5% of
all domestic mainline service. We compete with other low cost carriers primarily on the basis of pricing. However, we believe our full service amenities (for
example, first class seating, an award winning frequent flyer program and assigned seating) provide us with a competitive advantage against other low cost
carriers without such amenities.
Price competition occurs on a market-by-market basis through price discounts, changes in pricing structures, fare matching, target promotions and frequent
flyer initiatives. Most airlines will quickly match price reductions in a particular market and certain airlines have in the past engaged in retaliatory activities,
including steep pricing discounts in certain markets and termination of alliance agreements, in response to changes in our pricing structure. Our ability to
compete on the basis of price is limited by our fixed costs and depends on our ability to maintain low operating costs. Our principal competitor, Southwest
Airlines, and certain other low cost carriers have lower operating cost structures than we do. In addition, the consolidation of existing carriers, the entry of
additional carriers including new low cost carriers, the creation of low fare airline divisions by several major airlines and the revision of traditional pricing
structures by our competitors in many of our markets (as well as increased services by established carriers) has resulted in increased pressure on our pricing.
For additional discussion of industry competition and related government regulation, see "Risk Factors Relating to America West and Industry Related Risks –
The airline industry and the markets we serve are highly competitive and we may be unable to compete effectively against carriers with substantially greater
resources or lower cost structures" and, generally, "Government Regulations."
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