US Airways 2007 Annual Report Download - page 38

Table of Contents
Fleet
In October 2007, US Airways entered into an agreement with Airbus S.A.S for the firm order of 60 A320 family aircraft, which will
be used to replace older Boeing 737 aircraft in our fleet. In addition, as part of that same order, we announced plans to add 32 widebody
aircraft to our fleet, which include ten Airbus A330-200 aircraft and 22 Airbus A350-XWB aircraft. We plan to use these aircraft for both
replacements of older widebody aircraft in the fleet and to facilitate international growth. We subsequently modified our agreement with
Airbus to add five additional A330-200 aircraft to our existing order, and also agreed to terms with an aircraft lessor to lease two more
A330-200 aircraft, bringing the total number of widebody aircraft we are set to take delivery of to 39.
During 2007, we also committed capital to invest in our product. We have a $50 million aircraft appearance initiative currently
underway to refurbish the interiors of nearly 300 mainline aircraft, including common interior branding and all leather seats through out
our coach cabins. To enhance the onboard experience we plan to upgrade domestic meals and beverage selections, as well as our
transatlantic Envoy product.
Revenue Pricing Environment
The revenue environment remained strong during 2007, as our mainline passenger revenue per available seat mile ("PRASM") was
10.73 cents, a 3.7% improvement as compared to PRASM in 2006 of 10.35 cents. This improvement in mainline PRASM was driven by:
(1) reductions in industry capacity and continued capacity discipline, which has better matched supply with passenger demand; (2) a
rational industry pricing environment; (3) industry-wide fare increases; and (4) continued rationalization of our route network that
eliminated capacity on our weakest routes.
Cost Control
During 2007, our mainline cost per available seat mile ("CASM") increased 3.1% to 11.30 cents from 10.96 cents in 2006. The
increase was largely due to higher costs associated with the implementation of our operational improvement plan to improve reliability
and the impact on costs of our continued reduction in capacity, which decreased 1.5% year over year. See "US Airways Group's Results
of Operations" below for analysis related to CASM. While up year over year, we believe our mainline CASM will remain competitive
with the low cost carriers and among the lowest of the traditional legacy carriers.
We remain committed to maintaining a low cost structure, which we believe is necessary to compete effectively with other airlines
and in an industry whose economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and
the price of fuel. We will continue to exercise tight cost controls and minimize unnecessary capital expenditures to drive down expenses.
First Quarter 2008 Outlook
As we begin 2008, the airline industry appears to be headed for another challenging period due to extremely high fuel prices and a
potential economic slowdown. Current fuel prices remain high by historical standards. Significant increases in fuel price can materially
and adversely affect our operating costs. We estimate that a one cent per gallon increase in fuel prices results in a $16 million increase in
annual expense. A softening economy makes realizing increases in yield difficult.
In this environment, we currently expect to post a loss for the first quarter of 2008. In the event this environment continues through
2008, we believe we are well positioned due to our current cash position and the debt restructurings completed over the past two years.
Customer Service
We are committed to building a successful combined airline by taking care of our customers. We believe that our focus on excellent
customer service in every aspect of our operations, including personnel, flight equipment, inflight and ancillary amenities, on-time
performance, flight completion ratios and baggage handling, will strengthen customer loyalty and attract new customers.
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