US Airways 2005 Annual Report Download - page 20

Table of Contents
companies to capitalize on the continued growth in online travel sales. USV sells vacation packages and hotel rooms through its call center, via the Internet
and its websites, www.usairwaysvacations.com, www.usvtravelagents.com and www.awvcruises.com (to become www.usvcruises.com later in 2006), through
global distribution systems Sabre TourGuide, Sabre Vacations, WorldSpan Tour Source and VAX, and through third-party websites on a co-branded or
private-label basis. In 2005, approximately 61% of USV's total bookings were made electronically compared to 55% in 2004.
USV competes in a fragmented travel industry, which is highly competitive, price-sensitive and has relatively low barriers to entry. USV 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 2005, USV operated co-branded websites for 15 partner companies, including Costco Travel, Vegas.com, BestFares.com, MandalayBay.com, and
Aladdin.com. These co-branded sites allow USV to gain a retail presence via distribution channels such as Costco wholesale warehouses and other company
websites where the Company and USV may not otherwise be a part of the consumer's consideration set. USV intends to continue to add new co-branded
websites as opportunities present themselves.
Ticket Distribution
The now common usage of electronic tickets within North America, and the rapid expansion of electronic ticketing in Europe and elsewhere, has allowed
for the streamlining of processes and the increased efficiency of customer servicing and support. During 2005, electronic tickets represented 98% and 96% of
all tickets issued to customers flying AWA and US Airways, respectively. The addition of a $50 surcharge to most customers requiring paper tickets has
allowed AWA and US Airways to continue to support the exceptional requests, while offsetting any cost variance associated with the issuance and postal
fulfillment of paper tickets. Airlines based in North America have recently proposed a mandate that airlines move to 100% electronic ticketing over the next
couple of years, which we believe would, if enacted, serve to enhance customer service and control costs for ticketing services supported by the airline and
distribution partners.
The shift of consumer bookings that began several years ago from traditional travel agents, airline ticket offices and reservation centers to online travel
agent sites (e.g., Orbitz, Travelocity, Expedia and others) as well as airline direct websites (e.g., www.usairways.com) has continued to occur within the
industry. Historically, traditional and online travel agencies used Global Distribution Systems ("GDSs"), such as Sabre, to obtain their fare and inventory data
from airlines. Bookings made through these agencies result in a fee, referred to as a "GDS fee," that is charged to the airline. Bookings made directly with an
airline, through its reservation call centers or website, do not generate a GDS fee. The growth of the airline direct websites and travel agent sites that connect
directly to airline host systems, effectively by-passing the traditional connection via GDSs, helps AWA and US Airways reduce distribution costs. In 2005,
AWA and US Airways received over 57% and 33%, respectively, of their sales from internet sites. AWA's direct website www.americawest.com accounted
for 31% of AWA's sales, while other internet sites accounted for 26% of AWA's sales. US Airways' direct website, www.usairways.com, accounted for over
13% of US Airways sales, while other internet sites accounted for 20% of US Airways' sales.
Due to the continued pressure on legacy airlines to lower distribution fees more aggressively than anytime in the past in order to compete with low-cost
airlines, many new low-cost GDSs have entered the distribution industry, such as ITA Software, G2 Switchworks, Navitaire and others. These new entrants
are providing airlines with alternative economic models to do business with traditional travel agents by charging substantially lower GDS fees.
In an effort to further reduce distribution costs through internal channels, AWA and US Airways have joined other airlines in instituting service fees for
customer interaction in the following internal distribution channels: reservation call centers ($5.00 per ticket), airline ticket offices ($10.00 per ticket) and city
ticket offices ($10.00). Other services provided through these channels remain available with no extra fees. The goals of these service fees are to reduce the
cost to the Company to provide customer 14