US Airways 2004 Annual Report Download - page 9

Table of Contents
Frequent Flyer Program
All major United States airlines offer frequent flyer programs to encourage travel on their respective airlines and customer loyalty. AWA offers the
FlightFund program, which allows members to earn mileage credit by flying AWA and America West Express, by flying on certain partner airlines and by
using the services of a wide variety of other program participants such as hotels, rental car agencies and other specialty services. AWA also sells mileage
credits to credit card companies, telephone companies, hotels, car rental agencies and others that participate in the FlightFund program.
Through the FlightFund program accumulated mileage credits can be redeemed for free travel on AWA, America West Express and certain partner airlines
and for first class upgrades on AWA. Use of mileage credits is subject to industry standard restrictions including availability and blackout dates. AWA must
purchase space on other airlines to accommodate FlightFund redemption travel on those airlines.
In 2004, the FlightFund program added new partnerships with Ameritrade, NetBank, Awards for Mortgage and Real Estate and Royal Jordanian Airlines.
We account for the FlightFund program under the incremental cost method whereby travel awards are valued at the incremental cost of carrying one
passenger based on expected redemptions. Those incremental costs are based on expectations of expenses to be incurred on a per passenger basis and include
fuel, liability insurance, food, beverages, supplies and ticketing costs that are accrued as FlightFund members accumulate mileage credits. No profit or
overhead margin is included in the accrual for those incremental costs. Transportation-related revenue from the sale of mileage credits is deferred and
recognized when transportation is provided. Non-revenue FlightFund travel accounted for 1.5%, 2.1% and 2.7% of total revenue passenger miles for the years
ended December 31, 2004, 2003 and 2002, respectively. We do not believe that non-revenue FlightFund travel results in any significant displacement of
revenue passengers.
America West Vacations
As of January 1, 2004, The Leisure Company merged into AWA and continued to operate as the America West Vacations or "AWV," division of AWA.
AWV sells individual and group travel packages including air transportation on AWA, America West Express and Hawaiian Airlines, hotel accommodations,
car rentals and other travel products directly to consumers and through retail travel agencies in the United States, Canada, Mexico and Costa Rica. AWV is
one of the largest tour packagers to Las Vegas in the United States, contracting for volume blocks of rooms with 31 Las Vegas hotels and resorts in 2004.
AWV is focused on high-volume leisure travel products that have traditionally provided high profit margins. AWV negotiated several strategic
partnerships with hotels, Internet travel sites and media companies to capitalize on the continued growth in online travel sales. AWV sells vacation packages
and hotel rooms through its call center, via the Internet and its websites, AmericaWestVacations.com, AWVTravelAgents.com and AWVCruise.com, through
global distribution systems Sabre TourGuide and WorldSpan Tour Source and through third-party websites on a co-branded or private-label basis. In 2004,
approximately 55% of AWV's total bookings were made electronically compared to 43% in 2003.
AWV competes in a fragmented travel industry, which is highly competitive, price sensitive and has relatively low barriers to entry. AWV competes for
customers with other wholesale travel companies, consolidators and E-travel companies through national mass media, preferred supplier agreements and
Internet distribution agreements.
During 2004, AWV operated co-branded websites for 15 partner companies, including Costco Travel, BestFares.com, Vegas.com, MandalayBay.com, and
Aladdin.com. These co-branded sites allow AWV to gain a retail presence via distribution channels such as Costco wholesale warehouses and other company
websites where AWA and AWV may not otherwise be a part of the consumers' consideration set. AWV intends to continue to add new co-branded websites
as opportunities present themselves.
The Airline's Fleet
AWA began the year 2004 with 139 aircraft. In 2004, AWA retired seven 737-200 aircraft (returned five leased aircraft; parked one leased aircraft; sold
one owned aircraft) and took delivery of one new A319 aircraft and five new A320 aircraft for a net total of 138 aircraft by the end of 2004 with an average
age of 10.7 years. AWA's fleet at the end of 2004 and as currently planned for the end of 2005 is described in the table below:
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