Seungwon Noh
(Apr. 09. 2012)

LCC’s Characteristics
Single Aircraft type or
Single family of aircraft
Point-to-point ticketing, no connecting hubs
No labor unions, Lower wage rates
Single cabin service, no premium class
No seat assignments
Reduced frills for on-board service
No frequent-flyer loyalty program
Avoid global distribution systems
US Airways
 • Changing fleets to Airbus
X
• Operate 3 hubs (Charlotte, Philadelphia,
Phoenix) and 1 focus city (Washington D.C.)

• Low wage rates
X • Provide different class seats
X • Assign seats

• No free meals
X • Have mileage program
X • Use GDS
 US Airways was a Network Legacy Carrier from the beginning.
 Try to be a LCC, but have other factors to incur cost a lot.
 US Airways has strong hub & spoke network.
 US Airways Express operates spoke network with contract.

 RPMs (Revenue Passenger Miles)
 Number of passenger-miles transported

 ASMs (Available Seat Miles)
 Number of seat-miles transported

 RASM (Revenue per ASM)
 Revenue received for each available seat mile
 Total Revenue / ASMs

 CASM (Cost per ASM)
 Cost to operate each available seat mile
 Total Operating Cost / ASMs
 Yield
 Average fare paid by passenger per mile flown
 Total Revenue / RPMs
 PRASM (Passenger RASM)
 Passenger revenue received for each available seat mile
 Passenger Revenue / ASMs

 Fuel consumed
 Number of gallons of fuel consumed
 Fuel Costs per ASM
 Fuel cost to operate each available seat mile
 Total Fuel Cost / ASMs
 Non-Fuel Costs per ASM
 Non-fuel cost to operate each available seat mile
 (Total Operating Cost – Fuel Cost) / ASMs

 Similar trend in ASM and RPM
 Decrease in 2001 (due to Sep. 11)
 Significant changes in 2005 (Bankruptcy and Merge with America West)
 L/F increased with seasonal fluctuation
(Millions)
35 000
30 000
25 000
20 000
15 000
10 000
5 000
-
Airline Traffic, Output and Performance
ASM RPM L/F
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001 2002 2003 2004 2005 2006 2007 2008 2009
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

 Changes by the merging in revenue and expense trend
 Increase after decrease
 Significant decrease of revenue in 2001 (Sep. 11)
 Remarkable increase of expense in 2008 (Fuel price)
 Loss followed by profit after the merging
(Millions)
$5 000
Total Operating Revenue & Expense
Total Operating Revnues Total Operating Expenses Income (Loss) Before Taxes
$4 000
$3 000
$2 000
$1 000
$-
$(1 000)
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001 2002 2003 2004 2005 2006 2007 2008 2009
$(2 000)

 Similar trends with total revenue and expense
 Increase after decrease
 Decrease of RASM, Yield, PRASM in 2001 (Sep. 11)
 Big increase of CASM in 2008 (Fuel price)
 Increase in profitability after merging
(Cents)
19,00
RASM
Operating Revenue & Cost per output
CASM Yield per RPM PRASM
17,00
15,00
13,00
11,00
9,00
7,00
5,00
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001 2002 2003 2004 2005 2006 2007 2008 2009

 Expenditure on fuel increase
 Significant increase in 2005 (merging) and 2008 (increase of fuel price)
 Big difference by the merging in fuel consumption
 Consume fuel 3 times more than before merging
(Millions)
$4 000
$3 000
Fuel & Non-fuel Operating Expense
Aircraft Fuel Operating Expense Non-Fuel Operating Expense Fuel Consumed
(Gallons in Million)
400
300
$2 000
$1 000
$-
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001 2002 2003 2004 2005 2006 2007 2008 2009
0
200
100

 Significant increase of jet fuel price
 Reached at $3.50 per gallon in 2008
 Gradual increase in fuel expense per ASM
 Decrease of non-fuel expense
(Cents)
20,00
16,00
12,00
8,00
4,00
0,00
Unit Fuel & Non-fuel Operating Expense
Aircraft Fuel Expense per ASM Non-Fuel Operating Expense per ASM Average Jet Fuel Price
(Per Gallon)
$4,00
$3,50
$3,00
$2,50
$2,00
$1,50
$1,00
$0,50
$-
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001 2002 2003 2004 2005 2006 2007 2008 2009

 Airline Expenses
 Proportion of fuel expense to total expense highly depends on fuel price.
Constant
Fuel Price
Coefficient
.048
.114
t-statics Significant Level Adjusted R 2
4.207
.000
0.898
17.058
.000
 As fuel price increases, total operating expenses increases.
 Airline Finance
 The higher fuel price, the worse airline finance.
 Airline Network Structure
 No direct effects of fuel price

 US Airways is considered a NLC.
 Strong Hub & Spoke Network, High Operating Cost
 US Airways experienced three big changes of Operating
Cost and Productivity between 2001 and 2009.
 Traffic, Output and Revenue decreased in 2001 due to Sep. 11.
 Most significant decrease and increase of all data in 2005
(Bankrupt and Merge with America West)
 Big jump of Fuel prices in 2008
 Fuel Prices affect the airline’s operating expenses and finance significantly.