# SELECTED COMMENTS BY SPEAKERS AT THE

# MERRILL LYNCH GLOBAL TRANSPORTATION CONFERENCE

# JUNE 11-13, 2002

# 

\[NB: Wherever possible, the exact words of the speaker are used in
these selected comments.\]

# 

# 

# AMERICAN AIRLINES \-- Donald J. Carty, Chairman, President, & CEO

-   There is a danger that we will fail to recognize the uniqueness of
    the current situation the airline industry finds itself in and
    acknowledge the fact that past experience does not provide
    instruction for dealing with the present situation.

-   The industry needs to think in new ways. The analogy of the Vikings
    who burned their ships once arriving at their destination (so that
    returning was not an option) is appropriate.

-   AA is re-examining every premise of where its business is headed. It
    is looking at more fundamental, long-term options and changes as
    well as developing quick- turn projects that could provide
    short-term returns.

-   Arpy is leading AA's team focused on analyzing where the industry is
    going and is charged with making recommendations for changing AA's
    scheduling, pricing, and product design processes. The focus is
    reducing the complexity in the business model that has become so
    costly.

-   The central problem is one of costs. AA must re-examine its customer
    proposition. It must bring its costs back in line with what the
    customer is willing to pay. This is not, however, the end of the hub
    and spoke system, as some claim.

-   Labor costs have outpaced productivity gains for a decade. In the
    period 1990 to 2000, average airline employee compensation increased
    46% while revenue per employee increased only 36%. AA vows to leave
    no stone unturned in its effort to increase productivity.

-   Now is the ideal time to focus collectively to secure the future of
    a business so many depend on. Common sense demands improving on the
    Railway Labor Act system and would help improve labor relations in
    the industry. In particular, mandatory arbitration requiring the
    last best offer to arbitrators who would choose one or the other
    proposal would improve the protracted nature of collective
    bargaining negotiations. This is not the only approach, but the
    stakes are too high to pretend that everything will go back to
    industry conditions in 1999.

-   Carty does not believe that a move from the Railway Labor Act to the
    National Labor Relations Act is a favorable option because the
    traveling public will still want a place at the table. The public
    will find a way to intervene. Compulsory arbitration would provide
    the necessary fix.

-   With respect to labor costs, the bulk of the differences between AA
    and other traditional carriers and Southwest is not imbedded in
    labor contracts, though some differences are there. They are in
    process and efficiency issues: A telephone call to Southwest's
    reservations center takes one-half as long as a telephone call to AA
    because of AA's fare structure complexity. And AA is less unionized
    than Southwest. AA doesn't know how much this complexity costs. One
    ticket counter transaction takes twice as long at a United ticket
    counter than at a Southwest ticket counter.

-   AA seeks to determine the realistic tradeoff between revenue
    efficiencies and costs. AA's cost level is above the level customers
    are willing to pay. A new capacity planning paradigm is necessary.

-   AA is currently undertaking an automation and process redesign
    effort for everything it does. It seeks to design much simpler
    processes to increase productivity. For example, AA has purchased
    450 more self-service kiosks which have improved the productivity of
    airport personnel and has addressed the fundamental issue that the
    airline industry is labor intensive.

-   AA has been implementing some of its experimental changes --
    particularly in restructuring network connections -- at ORD which
    has more O&D traffic than other hubs, insulating against downside
    risks of those changes. AA now needs 4-5 fewer gates for its
    operation, after making its connecting complex there more efficient.
    It will therefore not need to add the additional 8 gates planned
    before 9/11. These ORD improvements focused on turning aircraft
    faster which freed four aircraft systemwide and facilitated aircraft
    retirements. Additional such efficiency gains will slow future
    aircraft buys.

-   AA is making progress in reducing distribution costs. Still to be
    tackled is the enormous cost of CRS booking fees for outdated
    technology. In this effort, AA is looking at all processes,
    including such things as ticket counter staffing and processes.

-   AA has relaunched AA.com which saves money and manpower.

-   AA has taken initiatives to reduce fuel burn by more carefully
    calculating taxi and flying speeds and carrying less excess water
    and fuel. AA is also streamlining its food and beverage service by
    simplifying its offers. The cumulative impact of these changes is
    significant and would go a long way toward fixing a cyclical
    problem, but the problem facing AA and the industry is not cyclical.
    AA is therefore conducting a more thorough review of its fundamental
    business processes and model.

-   AA expects "significant losses" for the second quarter and for the
    year.

-   AA is also hastening the simplification of its fleet. It has reduced
    its fleet types from 14 to 7 and its subfleets from 30 to 20. It
    will further reduce its subfleets to 15 by mid 2003. It is also
    making additional operational changes to enhance fleet efficiency,
    such as reducing the number of fleet types operated out of any given
    city and crew base \-- another example of reducing costs through
    simplification.

-   AA is also working on initiatives to match a market with the
    appropriate aircraft configuration.

-   Although Southwest designed its system to be low cost, passengers
    still connect on Southwest -- but they do so on price, not
    necessarily convenience. These are propositions which need to be
    re-examined.

-   AA's marketing costs are rapidly closing in on those of the low-cost
    carriers. AA's airport and maintenance costs need to be re-examined,
    however. Between September 11 and December 31, AA saved \$900
    million in structural costs due to such things as reduction in
    overhead, commissions, and management costs. AA is currently
    undertaking a big second round of cost cut identification. AA's cost
    premiums must be brought under the revenue premium umbrella.

-   No matter how hard airlines work on their business models, a
    mechanism to deal with the imbalance between supply and demand is
    still needed.

-   The barriers to exit are higher than the barriers to entry in the
    airline industry. Opposition to consolidation must subside. Reaching
    an acceptable return is key to sustaining the air transport system.

-   The new reality will bring a new breed of carriers. The central
    business problem is that the traditional carriers have been engaged
    in a war of attrition for the past 24 years. Southwest is the only
    different model that has survived the test of time. JetBlue shows
    promise, but so did People Express. Competition between American and
    Southwest is not a revenue problem for American. In head-to-head
    markets, American has demonstrated over time that it can attract a
    revenue premium even in these markets because of its amenities --
    first class cabin, airport clubs, frequent flyer programs, etc. AA
    always gets a better mix even when it matches Southwest's fares. Due
    to AA's global network, AA can get traffic that Southwest can't even
    compete for. AA's revenue premium is down because Southwest is in
    more markets, but it is still there.

-   The airline industry's pricing system is badly in need of change.
    Airlines' best customers feel cheated. AA seeks to avoid a repeat of
    1992 when it tried to simplify its fare structure, leading to an
    industry blood bath. Something needs to be done with the industry's
    pricing structure, but it is too early to tell what.

-   In terms of revenue performance fixes, there is a limited number of
    things AA can do. AA is currently underperforming for structural
    reasons due to the fact that it has assets deployed in economically
    depressed areas: South and Latin America, for example. 38-39% of
    business traffic at AA's DFW hub is highly dependent on the
    telecommunications industry which is depressed at the moment.
    Currently, it would be much more favorable to have a hub in Houston
    where business traffic is predominantly rooted in the oil industry.

-   AA has been successful in leveraging "more room" in its corporate
    deals. AA's corporate market share is up in all but one major
    market. The lone exception is the transcontinental markets where one
    competitor (later identified as Delta) is "behaving in a strange
    fashion" in its aggressive price leadership in transcon markets.

-   AA is aggressively adding capacity at Long Beach and is engaging in
    a lawsuit (which hasn't been filed) in which AA is very confident
    that it will prevail due to previous precedents. AA will not sit
    back and watch its JFK-LAX traffic go to Long Beach.

-   A critical imperative in the industry is to balance the need for
    tighter security with a reasonable level of customer service. While
    the government has done a good job in a short period of time, the
    future of business travel depends on getting this balance right
    soon. Traffic can't be driven away by the hassle factor. There is an
    urgent need to contain costs if the costs of the new security regime
    get passed on to customers and airlines. Carty fears a Pyrrhic
    victory in conquering airline security issues.

-   Carty thought that the implementation of a more thorough security
    system would be quicker and done at less of a hassle factor than it
    was.

-   The economy is substantially weaker at this point in time than AA
    anticipated and Carty sees no evidence that it will get better soon.
    AA is not banking on the economy fixing its problems.

-   Carty notes a greater sense of solidarity within AA since 9/11.

-   AA and BA have obtained a short-term benefit by not having open
    skies and its immunized alliance -- fortuitous in light of 9/11. The
    immunized AA/BA alliance was a long-term win for both but carried a
    significant short-term cost.

-   Carty believes the US is on the verge of a new bilateral with Hong
    Kong -- not a certainty, but a deal can be done unless UA succeeds
    in getting the Secretary to block it.

-   AA's deals with Qantas and Iberia are doing very well. Perhaps there
    might be an opportunity to do an open skies deal with Spain before
    the window closes in August.

-   Foreign ownership restrictions can only be broken in negotiations
    between the US and the EU. It will happen within the next 5-10
    years, but not immediately.

-   AA has screwed down capital expenditures pretty tight, except for
    automation improvements the deployment of which will bring quick pay
    back. JFK's development will go on because it would cost more to
    stop it than continue.

# OPENING REMARKS BY MERRILL LYNCH, Mike Linenberg

-   The industry lost \$2 billion in the March quarter.

-   In the next quarter, revenue could be down 7-8%. The decline in May
    was 6% and in April 9%.

-   In June, a 12% revenue decline is expected. Merrill Lynch is
    forecasting a \$1.3 billion net loss for the June quarter and \$360
    million net loss for the September quarter. Merrill Lynch expects
    only 4 carriers to be in the black in the September quarter:
    Southwest, Alaska, Continental, and Northwest.

-   There are three reasons for the sluggish revenue growth: 1) key
    business traffic is still off, though declines are moderating.
    Business fares are off 15% and there is a shift in behavior due to
    the hassle factor. 2) business passengers will increase over the
    next several months. Changes in airline profits, however, lag
    changes in airline revenues by about one quarter. 3) pricing
    leverage in the industry is non-existent. Carriers are not in
    agreement about where fares need to be. Taxes and security fees
    should be viewed as fare increases -- and are likely viewed this way
    by customers. Since demand for air travel is highly elastic, fees
    could reduce the industry's revenue.

-   Following a strategy of buying a basket of stocks while at the
    bottom, investors who are pessimistic about the economy should
    consider Southwest, Atlantic Coast, ExpressJet, and Skywest.
    Investors who are optimistic about the economy should also consider
    Continental, Delta, and Northwest.

-   Two large variables are that the economic recovery could be anemic
    and that capacity could come back into the system too quickly.

# CONTINENTAL AIRLINES, Gordon Bethune, Chairman and CEO, Lawrence Kellner, 

# President, Jeffrey J. Misner, Chief Financial Officer

-   Using the measure on loss per ASM (in cents) in the first quarter
    2002, CO compares favorably with its competitors at -.60, America
    West -.79, Northwest -.79, Delta -1.13, American -1.37, United
    -1.42, and US Airways -2.05.

-   CO had a load factor premium versus the rest of the industry of 3.5
    points in 1Q2002, 4.1 points in 4Q2001, 1.3 points in 3Q2001. CO's
    RASM premium of the rest of the industry was 115.2% in 1Q2002.
    (Figures are length of haul adjusted)

-   CO topped DOT lists in flight completion with 99.8% in May 2002,
    99.8% in April 2002 compared to an industry average of 99%. Its
    operating on-time performance in April was 87.9% versus an industry
    average of 82.6%.

-   Continental's elite level frequent flyer program was voted best
    program in 2002. CO made Fortune Magazine's Best 100 companies to
    work for for the fourth year in a row.

-   In 2000, airlines spent \$0.6 billion on security. The current TSA
    budget is \$6.8 billion. Bethune questioned whether the flying
    public was 8 times more safe now. Most passengers, including
    Bethune, don't feel that much better about it.

-   It is imperative to take the hassle factor out of security.
    Implementation of the trusted traveler program is vital as is the
    need to stop harassing crews, and to stop doing things that look
    good, but do no good (e.g., additional gate searches, searching 80
    year-old women)

-   CO's EBITDAR is 11.9% versus an industry average of 0.7%

-   CO's system RASM is 8.77, compared to 8.61 at UA, and 8.27 at AA.
    While other carriers are close to CO in this measure, CO has a cost
    advantage.

-   Bethune believes capacity is coming back faster than expected.
    Pressure on earnings is coming from the domestic entity -- the
    international entity is doing comparatively well. CO is increasing
    capacity by 0.7%, while AA is increasing capacity by 6.9%.

-   In May 2002, business yield is estimated to be down 12.3%
    year-over-year while May 2002 business passengers are estimated to
    be down 21.3%. These numbers compare to January 2002 year-over-year
    declines of 13.6% and 31.5% respectively Thus, business travelers
    are slowly coming back but business yields remain stubbornly down in
    the 12-13% range.

-   Traffic on flights under 250 miles is down by 34%, whereas traffic
    on medium-haul flights is down only 14% and traffic on long-haul
    flights is down only 8%.

-   2,800 passengers per day use the train to EWR, giving that airport
    an advantage.

-   Taxes on a \$200 airline ticket are 34%, versus 63% on cigarettes,
    and 24% on beer (ATA figures). Bethune asked, "Is flying a sin?"

-   CO estimates cash at 30 June at \$1.3 billion. It has \$175 million
    in equity, \$200 million in conventional debt, \$480 million from
    its ExpressJet IPO, and additional liquidity of \$855 million. Its
    annual interest cost is \$9 million.

-   CO will have no further aircraft deliveries for the remainder of
    2002.

-   CO's net debt to EBITDAR is 6.8 compared to 19.8 for AMR.

-   CO's CASM is expected to increase 0-1% in 2002. Its fuel-constant
    CASM is expected to increase 1.2%.

-   As of 5/31/02, CO estimates that 62% of its sales are e-ticket, 52%
    of which use self-check-in kiosks.

-   Construction at Terminal E at IAH has been financed at favorable
    rates and will proceed.

-   ExpressJet was the largest airline IPO ever. CO continues to own 53%
    of ExpressJet which it will dispose of in an orderly fashion. 30
    million shares were sold at \$16 per share.

-   CO has adequate liquidity and its largest challenge remains the TSA.

-   CO mechanics contract opened in January -- an agreement with the
    Teamsters is expected to be announced within the next 30 days. Its
    pilots contract opens in October and initial discussions will begin
    very soon, consistent with CO's policy of starting negotiations
    before the amendable date.

-   CO is more productive than most carriers. CO's wages are based on an
    industry standard average of the majors.

-   Additional terrorist attacks on civil aviation are highly unlikely.
    Bethune said that terrorists are aware that if they try to take over
    a plane, all passengers will intervene just like they did on the
    flight that crashed in Pennsylvania.

-   CO's bookings in June show "fares slightly positive". CO will be
    full during the summer peak (June 15 to August 20) which means that
    lower fare buckets will be closed faster.

-   Figures on business travelers are inaccurate in Bethune's view.
    Business travelers are still out there but they are buying leisure
    fares. The basic network carrier business model isn't failing, there
    is simply a capacity/demand problem.

-   Continental expected to be profitable in the second and third
    quarters of this year. It has backed off its estimates for
    profitability in the second quarter and sees the third quarter as
    more shaky as well.

-   CO's new fleet is 15% more fuel efficient -- acting as a natural
    hedge.

# ALASKA AIR GROUP, John F. Kelly, Chairman, President, and CEO

-   Alaska's wholly owned subsidiary, Horizon Air, has the largest fleet
    of 70 seat regional jets.

-   Alaska Air Group is celebrating its 70^th^ anniversary and has a
    good profitability record.

-   Alaska's post 9/11 strategy focused on right sizing capacity in core
    markets, shifting some flying to strategic new markets, returning to
    a full schedule as soon as possible, and focusing on cost control
    without furloughs. Despite this strategy, the revenue return will
    take years not months.

-   The sources of Alaska's capacity cuts in aircraft out units:

> Anchorage and Fairbanks: 1.2
>
> Southern California: 1.1
>
> Bay Area .8
>
> Arizona: .7
>
> Mexico .2
>
> Other 2.0
>
> 6 new aircraft units redeployed

-   DCA is doing very well. IAD demand has exceeded DCA (SEA-DCA flights
    were temporarily moved to IAD after 9/11). IAD has done surprisingly
    well and is a permanent station with three flights/day while 1
    flight per day has resumed at DCA. Alaska launched new nonstops from
    SEA to Boston and Denver. In addition, Alaska launched service
    between LAX and Cancun and LAX and Calgary.

-   Horizon has added service from Boise and Portland to Denver with
    CRJ-700s

-   The Alaska Air Group resumed a full schedule on February 10. Its
    post 9/11 results are better than the industry average: September
    2001 RPMs were down 32.5% for the industry, but were only down 18.7%
    for Alaska. April 2002 RPMs were down 11.2% for the industry, but
    were up 2.5% for Alaska.

-   Revenue went positive for Alaska in January 2002. AS yield is still
    down 6%.

-   April 2002 revenue is down 23% for the industry, but only down 3%
    for Alaska.

-   Systemwide load factor for the 2Q2002 was 67%; transcon loadfactor
    was 72%. Load factors on new routes were also very good:

> LAX-Cancun 77%
>
> BOS-SEA 70%
>
> DCA-SEA 80%
>
> IAD-SEA 66%
>
> DEN-SEA 72% (this market has a higher average fare than SEA-LAX)
>
> LAX-Calgary 56%

-   Alaska's market share has increased in the SEA-Bay Area, -San Jose,
    -LAX/Orange County markets.

-   In the latter half of 1999 and 2000, Alaska experienced increases in
    fuel cost and inefficiencies due to the effects of the crash. During
    the 1990s, Alaska had the third lowest costs in the industry and its
    present goal is to reduce costs to 8.6 cents in 2002, 8.35 cents in
    2003, 8.10 cents in 2004, and 7.8 cents in 2005 (these are CASM ex
    fuel targets).

-   There are many opportunities to decrease distribution costs.

-   In 2002, Alaska will grow 9%, of which 91% will be in its existing
    network, 2% which will be network extension (connecting the dots);
    and 7% new flying. Horizon will grow 12%, of which 88 % will occur
    in existing markets, 9% in new markets, and 3% in network extension
    (connecting the dots). In 2003, Alaska mainline will grow 8% and
    Horizon will grow 20%.

-   Alaska currently has 102 aircraft:

> 16 737-700s

5.  737-900s (with 172 seats -- very successful aircraft for Alaska
    especially on cost side)

> 40 737-400s

9.  737-200C (combi aircraft used on intra-Alaska routes)

> 32 MD 80s
>
> Alaska will take delivery of one 737-900 in October 2002, 3 737-700s
> and 3 737-900s in 2003 and 3 737-900s in 2004.
>
> Horizon currently has 13 CRJ 700s, 15 Dash Q400 advanced turbos, 28
> Dash Q200 advanced turbos, and 6 F28s for a total of 62 aircraft.

-   Alaska is 20% fuel hedged in 2Q at \$22.90; 40% hedged at \$22.30 in
    Q3; and 40% hedged in Q4 at \$22.10. Projections for Q3 are \$25.00
    and Q4 at \$24.50 so the fuel hedges for those quarters are in the
    money.

-   Alaska has \$800 million in book value equity. Liquidity remains a
    strong focus of management.

-   Alaska aims to increase utilization to 11.5 block hours/day up from
    the high 10s today. Alaska gains huge efficiencies from the 737-900
    due to its larger seating capacity (172).

-   Alaska sees no need to sell its subsidiary Horizon -- a jewel that
    it would like to hold on to and maintain a strategic advantage in
    controlling a fleet from 30 to 172 seat aircraft. Alaska doesn't
    want to worry about minority shareholder interests. Horizon has a
    great cash position and great opportunities.

-   Key elements in Alaska's cost reduction program:

    -   Block hour utilization increases

    -   Commission cuts

    -   Growth without adding to overhead costs (e.g., management and
        airport stations)

    -   Looking at gaining greater efficiencies at airport facilities

    -   1/3 plus cost improvement obtained from adding flying.

    -   Employee productivity

    -   Insurance and distribution opportunities (e.g., 1/3 of AS
        passengers currently check in at kiosks enhancing labor
        productivity)

-   Alaska has rolled out its "airport of the future" concept at ANC.

-   Alaska is growing its hub share at SEA, now at 46% up from 42%.

# SKYWEST, INC., Jerry Atkin, Chairman, President and CEO

-   SkyWest will have \$900 million in revenues this year and has
    operating margins in the "mid-teens." It is celebrating its 30th
    anniversary this year.

-   85 regional jets are on order, in addition to the 40 which have been
    delivered over the past 1.5 years.

-   SkyWest is the largest independent regional airline with 1,000 daily
    flights to 83 cities in 23 states and 2 provinces. It operates
    primarily for Delta at Salt Lake City and United at LAX and SFO. The
    Delta operation represents 68% of SkyWest's capacity and is mostly
    jet. The United operation represents 32% of SkyWest's capacity and
    is mostly turbo prop. 56% of Skywest's capacity is deployed at Salt
    Lake City and 15% is deployed at LAX.

-   100% of SkyWest's flying is contract flying.

-   SkyWest is the largest non-union carrier in the U.S. but it pays
    comparable salaries and benefits. 10% of the company's profits are
    shared with employees and 5% of its profits go into a retirement
    plan.

-   SkyWest's fixed fee agreements with its two primary partners are 10
    year contracts. The major airline partners control the revenue flow
    and obtain the benefits of low cost RJ operations. Yield, load
    factor, and fuel are risks borne by the major. The major airline
    makes no equity investment in SkyWest. The contracts are cost plus a
    margin (in a fixed band) which is variable based on performance
    (i.e., completion factors, on-time performance, and mishandled
    bags). SkyWest gave up the higher margins of its risk flying to gain
    the predictability of contract flying. This has also allowed SkyWest
    to increase its fleet dramatically and make new aircraft profitable
    on day one.

-   SkyWest currently has \$310 million in the bank. Its March Quarter
    revenues were up 32% and its income up 63%.

-   Its 1999/2000 regional jet order included 90 RJs on firm order, 29
    on conditional order, and 119 options.

-   SkyWest currently operates 25 RJs for Delta.

-   In 2002, 12 new RJs will go into service for DL with 2 turboprop
    retirements

20. RJs will go into the UA operation, with 30 turboprops being retired.

-   Since 9/11, UA has reduced its operations, DL operations are status
    quo. Most of SkyWest's losses resulting from 9/11 were offset by the
    government compensation program. SkyWest has also come under cost
    and rate renewal pressure from both United and Delta and SkyWest has
    worked with both partners to revise the contracts. Both partners,
    however, see RJs as a bigger part of their overall business solution
    than a problem. SkyWest has made short-term contract concessions;
    the long-term fundamentals of the 10 year contracts are secure.

-   SkyWest is doing 100% of what it was doing prior to 9/11 for the
    Delta Connection operation. As of October 1, 2001 all 29 CRJs in the
    fleet were operated under fixed fee contracts. Since 9/11, SkyWest
    has acquired 19 additional CRJs as planned with no delays or
    deferrals. Both DL and UA have confirmed their desire to proceed
    with the RJ orders as planned. They intend to replace some mainline
    service, supplement some mainline service, and replace high density
    turboprop operations. RJs will also be used to enter some new
    markets.

-   SkyWest is working out issues arising from 9/11 and the economic
    plight of its mainline partners that were not envisioned and are not
    covered in the contracts. Other issues SkyWest faces are the
    possibility of bankruptcy for the major carriers, the threat of
    airline scope clauses, pressure on costs, and rapid fleet and market
    plan changes requested by the major partners in responding to a
    rapidly changing marketplace. As a result, earnings will be less
    than plan for a while -- about 1 point less.

-   SkyWest believes that it provides substantial value for its major
    carrier partners with a high quality of service, high quality
    personnel and processes, and low costs.

# ATLANTIC COAST, Kerry Skeen, Chairman and CEO

-   Atlantic Coast (ACA) is the sole provider of Fairchild Dornier 328
    regional jet service to Delta -- primarily at BOS and LGA

-   Last year, ACA had revenues of \$750 million, carried 6.2 million
    passengers, operated 90 RJs, and employed 4,447 people.

-   ACA's ORD operation for UA is now larger than that at IAD.

-   ACA also added operations at CVG for DL. As the CRJ market matures,
    ACA sees a "jet imperative" in the marketplace even for short-haul
    markets. 300+ mile stage lengths are necessary to capture some of
    the economics of regional jets, however. The smaller 328 RJ can be
    used to replace CRJs on the short-haul routes so that the CRJs can
    be redeployed on longer haul routes to capture the economics of that
    aircraft.

-   During 2001, ACA's UA Express program added 26 new markets (23 at
    ORD, 3 at IAD), including 9 stations where ACA assumed total station
    operations away from UA. ACA's Delta Connection program added 19 new
    markets in 2001, 12 at CVG, 6 at BOS, and 1 at JFK. Regionals are
    smaller and more flexible and are able to establish new markets in
    3-6 months -- much faster than the major can establish mainline
    service.

-   ACA notes changes in its RJ deployment as follows:

> [January 2001]{.underline} [January 2002]{.underline}
>
> 97% in RJ markets 58% in RJ markets
>
> 3% complementary flying to mainline service 27% complementary flying
>
> 15% replacing mainline service

-   82% of ACA's operation is for UA of which 55% is deployed at ORD and
    45% at IAD. 18% of ACA's operation is for DL of which 41% is at LGA,
    27% at CVG, and 31% at BOS. Skeen noted that IAD has "so much
    potential."

-   UA also wanted to add the 32 seat 328 RJ to its fleet and ACA had 30
    more on order for UA when Fairchild Dornier declared bankruptcy.
    These orders were changed to 25 CRJs.

-   ACA plans capacity growth of 25% in 2004.

-   ACA's union contract status: mechanics' contract expires June 2002,
    flight attendants' contract expires in October 2002, and its ALPA
    pilot contract expires in August 2005. Due to the nature of the
    negotiations, labor is a 2003 issue, not a 2002 issue.

-   ACA's flying is fixed fee with inventory and marketing under the
    control of UA and DL. The contract covers a base amount to cover
    costs plus a narrowly defined margin used as an incentive for
    operating performance. Cost recovery rates are reset annually,
    margins are not. ACA is paid prior to flying the operations.

-   ACA's CASM excluding fuel was 13.2 cents in 2000 and 13 cents in
    2001, reflecting a decrease of 2%.

> ACA's CASM including fuel was 16.1 cents in 2000 and 15.7 cents in
> 2001, reflecting a decrease of 2%.
>
> ACA's turboprops fly at a higher CASM than the RJs.

-   In 1Q2002, ACA earned 31 cents per share versus 22 cents in the
    1Q2001. ACA's operating margin was 11.5% in 2001. The contract
    flying represents less downside risk but its margins will probably
    never be over 15%. In 2004, ACA anticipates a 12-14% operating
    margin.

-   ACA has retired its 19 seaters.

-   ACA's cash as of 12/31/01 was \$181 million.

-   In a bankruptcy situation of a major partner, ACA believes its
    "contracts are enforceable."

**EXPRESSJET HOLDINGS, INC., James B. Ream, President and CEO**

-   ExpressJet (EJ) has been public for 7 weeks, after the largest US
    airline IPO ever. ExpressJet is the second largest RJ operator.

-   ExpressJet's projected revenues for 2002 are \$1.1 to \$1.2 billion,
    operating 153 RJs with 121 firm orders and 100 options. EJ has 875
    daily departures.

-   EJ currently operates the ERJ having a rather limited 1,100 mile
    range. It has 104 firm orders for a newer version of the ERJ having
    a 1,500 mile range and 100% fleet commonality with the earlier
    version in all but spare parts which have a 95% commonality.

-   EJ has a 10 year agreement with CO which extends through 2010 and
    covers 274 regional aircraft. CO has the right to add 100 options.
    EJ is CO's exclusive RJ operator through 2005 -- providing CO with
    sole source provider economics. This contract notwithstanding, EJ
    has the right to pursue new business at any time.

-   EJ's capacity purchase agreement excludes weather and ATC
    cancellations from its operating targets. EJ has no cost exposure on
    turboprop disposal. Its revenue rates through 2004 target a 10%
    operating margin. Through 2004, revenues that cover approximately
    66% of expenses are automatically adjusted including airport
    facilities, landing fees, hull insurance, and security. Remaining
    expenses can vary within an 8.5-11.5% operating margin band based on
    cost performance of factors such as airport services and staffing
    and maintenance. Labor risk exposure does fall on EJ. EJ is not
    concerned about being sole source to CO since CO grows its hubs more
    quickly than other majors -- securing growth for EJ.

-   EJ's operating margin was 13.4% in 1Q2002; its completion factor was
    99.9%.

-   EJ has ACARS equipped aircraft and heavy maintenance bases in
    Shreveport and Knoxville. Its training center has 2 flight
    simulators, and 2 fixed training devices, and a full motion cabin
    trainer.

-   ExpressJet's 274 aircraft are subleased from CO. Combining CO's
    credit rating with ExpressJet's provided better economics.
    ExpressJet retains affirmative use of aircraft not used by CO.

-   EJ's costs are at the lower one-third of the low-cost RJ capacity
    operators in its class. Low costs are achieved through quick asset
    turn times, maintaining a low-cost environment, retaining a
    size/scale advantage, a single fleet strategy, and scaling the
    operation to aircraft size (labor, maintenance, and overhead).

-   Regionals have more opportunities for growth than are available to
    mainline carriers.

# NORTHWEST AIRLINES, Richard Anderson, CEO

-   Northwest's net margin was (7.8%), its booked load factor is 5
    points above the industry average. NW has been constrained on
    introducing additional capacity and therefore maintains a positive
    share gap in RPMs over capacity.

-   NW has deferred remaining aircraft deliveries to 2003 and will
    retire the remainder of its DC-10 domestic fleet.

-   NW's booked load factor is now ahead of 2001 levels. NW enjoys a
    RASM premium of 107% relative to the rest of the industry and a 6
    point load factor premium relative to the rest of the industry.

-   RASM declined 2.5% in May. But the Pacific and Atlantic entities are
    up in both RASM and yield.

-   While rack rate published fares are up 43% since 1997, average fares
    have declined 3%. The issue for the industry is mix, not price. The
    industry is on sale 75% of the time these days. In April and May of
    this year, the industry was on sale 30-35% of the time. NW believes
    that the market clearing prices in the industry need to be published
    prices, not deeply discounted opaque internet prices (e.g.,
    Priceline/Hotwire) where many carriers are selling a substantial
    amount of inventory.

-   NW compares favorably in the stage-length adjusted cost per ASM in
    the first quarter of 2002

> NW: 9.65 cents
>
> DL: 9.61 cents
>
> CO: 10.2 cents
>
> UA: 12.44 cents

-   Having extended its pilot contract to September 2003, NW has no open
    contracts until February 2003 when its ramp agent contract becomes
    amendable. Its mechanics contract becomes amendable in May 2005 and
    its flight attendant contract in June 2005.

-   NW reports its east-bound cargo yields improving on strong loads
    which it sees as an encouraging sign.

-   Transpacific pax load factors are 87.2% on a 13% year/year decline
    in capacity. U.S. point of sale front end cabin bookings are up 10%.
    NW has been helped by the reduction in capacity over the Pacific --
    particularly the overflys of NRT many of which are now out of the
    market. U.S. carriers' capacity is down 20%, foreign capacity is
    down 13%. NW will operate a record 149 weekly flights to Tokyo this
    summer.

-   NW is reducing its scheduled block hours -- it is not going to buy
    on-time performance with block hours. Departure performance must be
    the focus of on-time performance.

-   Taxes are biting into industry revenue -- a \$278 roundtrip ticket
    has a tax rate of 25%.

-   Security is an increasing burden on carriers. The TSA has many
    unfunded mandates. Airlines are still required to have a full-time
    employee at every check point and airlines still pay for airport
    square footage used by TSA.

-   TSA has not done a good job at providing consistent, quality service
    to passengers in 10 minutes. The legislative deadlines under which
    it is operating are impossible and unrealistic. The primary problem
    is consistency throughout the system. Passengers don't know what
    they are going to find when they get to airports across the country.

-   There is no market for war risk insurance. NW is currently paying
    \$7.50 per departure for insurance.

-   NW has the highest return on capital in the industry. Part of the
    reason for this is that it uses its assets for their full usable
    life and finances their replacements at very favorable rates with
    backstop financing provided by the manufacturers. NW is replacing
    its DC-10-40s with 757-300s. Typically, airlines enjoy an 8 year
    maintenance holiday on a new airplane. Its DC-9s have a block hour
    cost of \$1,900. This very favorable cost allows NW to react to
    market conditions without concerns over outstanding notes on the
    aircraft.

-   Responding to a question on the prospect of open skies with Hong
    Kong, NW responded that the impact on NW on the pax side was "de
    minimus" but cargo fifth freedoms would be positive for NW.

-   Starting nonstop service on a daily basis from points in the U.S. to
    an Asian point requires two airplanes with high capital cost. NW
    says that launching such new nonstop service to Asia costs \$200
    million plus. The aircraft to fly nonstop to Hong Kong efficiently
    really aren't there since seats and cargo bays have to be blocked
    off even on a 747-400 with significant economic/revenue penalty.

-   NW is addressing fare structure issues by:

-Aggressive corporate contracting -- allowing corporations to use
internet bookings in share agreements;

> -Working with its best customers;

-Limiting the use of opaque sites, especially Priceline, thereby working
from the

bottom of the price chain upward -- promoting the buy out of fares up
the price

chain. The market clearing price should not be a sale price, in NW's
view.

#  

# DELTA AIR LINES, Leo F. Mullin, Chairman and CEO

-   Delta sees slow, steady improvement in its business but observes
    that the rate of industry recovery has slowed in recent months. DL
    expects a 2Q loss of \$170 million. While traffic and revenue are
    returning, revenue continues to lag. There have been 17 failed
    attempts at fare increases in the last 30 days.

-   DL's short haul traffic (under 250 miles) is down 12% while its
    long-haul traffic (over 400 miles) is off only 6%.

-   Delta is taking steps to stimulate this much-needed business traffic
    and simultaneously reduce the "hassle factor" of flying. Two recent
    examples are: 1) Expanding the number of airports with faster, more
    convenient frequent flyer security screening lines to 20, and 2)
    growing the number of self-service kiosk check-in units to more than
    400 in 80 locations by year's end - with 300 already in place at 70
    locations.

-   International entity yields are recovering faster with yields on the
    transatlantic down only 2% year/year.

-   Delta's mainline capacity growth also remains disciplined, with 2Q
    numbers expected to be down 11% YOY. In 3Q02, mainline capacity will
    be lower year over year by 5%-6%.

-   DL expects to have \$2.7 billion in cash and short term liquidity at
    the end of the 2Q2002.

-   DL expects its operations to be cash positive in 2Q2002.

-   DL continues to try to optimize its distribution cost structure. 18%
    of its tickets are sold online, 10% of which are sold on DL.com.
    Tickets sold through online channels cost DL about \$6.00 each while
    tickets sold through traditional travel agents cost DL about \$27.00
    each.

-   While total technology spending is down from \$700MM in CY01 to
    \$550MM in CY02, Delta is directing available funds to areas that
    provide the best payback. Technology renewal at Delta's reservation
    centers has helped make personnel more efficient and decreased
    customer wait time, creating a 6% productivity gain.

-   RJs and alliances have been critical to DL's ability to respond to
    the industry downturn. 35% of all RJs are operated by DL. Delta
    Connection currently has 253 RJs operating under its livery and
    expects to increase that to 377 by the end of 2003. DL's newest
    partner is Chatauqua which will provide RJ service to/from Florida
    destinations.

-   SkyTeam has a price coordination team for all European country
    partners. DL's incremental alliance benefit will be \$500 million in
    2002 despite traffic and yield declines. SkyTeam partners also
    provide an additional \$60MM to Delta's bottom line through
    groundhandling, maintenance, and consulting agreements.

-   While DL assumed that all airlines will survive 9/11 based on
    measures taken to buttress the industry and the pace of recovery
    later last year, that assumption is now less certain. Despite
    efforts to create a new security regime that is sensitive to its
    customers, governmental policies and decisions have played a
    significant role in the difficulty airlines face in returning to a
    firm financial footing. An Air Transport Association team of airline
    executives, including Richard Anderson, Herb Kelleher, Bob Baker,
    and Leo Mullin met last week at the White House to express their
    growing concerns.

-   The TSA has been difficult for all airlines. Changes such as
    frequent flyer lines for preferred customers are important in
    attracting high yield business passengers and alleviating the hassle
    factor they face. The industry has no pricing power -- at a time
    when security and insurance costs have dramatically increased and
    have become a direct hit to the bottom line. Since 9/11, DL has
    calculated that the additional security and insurance costs had a
    \$1.3 billion impact on DL's pre-tax profit. Of this figure, \$266
    million is from security taxes, \$250 in increased insurance
    premiums (if the government doesn't guarantee war risk insurance and
    airlines have to rely on the commercial market), \$175 million for
    security-related revenue losses from postal service and cargo
    restrictions, as well as unreimbursed security costs for cockpit
    door fortifications, ramp security, checkpoint document
    verification, screening of catering supplies and material, airport
    space occupied by TSA, security equipment, personnel training, and
    airline seating for Federal Air Marshals, and \$600 million in
    revenue losses due to customers deterred from air travel by the
    hassle factor.

-   Mullin advocated five public policy objectives:

    1.  aviation security should be viewed as a national security cost
        and should be paid for as such (out of general funds)

    2.  excessive taxation on the airline industry must be halted and
        reversed

    3.  there must be a balance between security and passenger
        convenience

    4.  the imposition of unfunded security mandates and revenue
        restrictions must be stopped.

    5.  Until such time as a functioning and reliable market for war
        risk insurance comes into being, it is imperative that the
        federal government continue and expand its current role in
        providing third party war risk insurance to the industry at the
        cost of \$7.50 per departure with the support of the airline
        industry.

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-   DL has controlled what it can control. Government policy can mean
    the difference between profit and loss, success or failure, in the
    airline industry -- so significant has the TSA become.

-   If the government modified only a portion of the policy decisions
    currently in effect - for example eliminating unfunded security
    mandates, unnecessary postal and cargo restrictions, and just 50% of
    the hassle-factor as well as supporting the industry's need for
    adequate, affordable terrorism insurance \-- the total benefit to
    Delta would total \$646 MM - an enormously important swing.

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-   Mullin believes that the government will be responsive over time
    because Washington recognizes the role of aviation in society and
    the economy. This is indeed the only leverage airlines have in the
    public interest argument.

-   DL has more exposure to low-fare competitors than other airlines --
    about 50-60% of its network is exposed. US Airways has also been an
    aggressive pricing organization in DL's experience. Even if US gets
    a loan, it will have to seek profitability and will therefore
    recognize the imperative to lift prices. Health will return to the
    industry when pricing power returns.

-   Traffic is close to DL's post 9/11 estimates for this point in time,
    though revenue is taking longer than those estimates forecasted.

-   (Responding to a question) Mullin said "DL likes Orbitz a lot." In
    terms of its preferred channels in order of DL preference: 1)
    DL.com, 2) Orbitz, Expedia, Travelocity, 3) DL internal telephone
    reservations, 4) traditional travel agents. "Priceline is also a
    factor."

-   DL still has 50 "good airplanes" on the ground.

-   DL estimates that the hassle factor accounts for 27% of the negative
    impact on DL. Mullin believes that we are not doing security
    intelligently. If \$1.3 billion were added to DL's bottom line, it
    would be solidly profitable.

# AIR TRAN, Robert Fornaro, President and CEO

-   AirTran (AT) says that the operational environment in the aftermath
    of 9/11 and the continuing recovery is much more difficult than it
    was during the Gulf War.

-   AirTran currently operates 61 aircraft, 36 of which are 717s. AT has
    388 daily departures.

-   AT operates in 38 cities, charges fares generally 60% below those of
    major carriers, and carried 8.3 million passengers in 2001.

-   AT's unit costs are 10 cents per ASM at a 541 mile stage length --
    25% below those of DL and 60% below those of US Airways.

-   AT has a diverse revenue mix and defensibility. 51% of its pax are
    local, 49% connect; 52% of its revenue is business, 48% is leisure.

-   AT claims to be an industry leader in unprecedented cost reductions
    post 9/11.

-   AT's customer service, ramp, and reservation agents rejected union
    representation in February 2000 and in January 2002 by a 2:1 margin.

-   AT reached a five-year labor agreement with its mechanics union
    prior to contract expiration.

-   A new, four-year pilot agreement was reached within four months of
    the amendable date.

-   Its AFA flight attendant agreement is amendable in October 2002.

-   AT's business/marketing strategy is to offer key attributes of major
    carriers at affordable prices: business class, assigned seating,
    FFP. It uses everyday low fares to stimulate leisure demand and
    attract price-sensitive business travelers. It serves large business
    centers and develops under-served secondary markets.

-   New AT service stimulates demand: its impact decreases average fares
    50-70% and increases revenues 125-175%.

-   AT is an industry leader in internet bookings which reduces
    distribution costs and improves product availability. The cost per
    booking is 25 cents versus \$8.50 per agency ticket. In 1Q2001
    almost 60% of its bookings were made online, 46% of which are on
    AirTran.com and 11% through other internet channels. The simpler the
    fare structure, the less dilution a carrier experiences from
    internet bookings. Internet fares are 90% of the regular AirTran
    fare. Several weeks ago, AirTran dropped its \$5 everyday discount
    for AirTran.com bookings.

-   AT was one of the few profitable airlines in 2001 with an operating
    margin of about 8% and an EBITDAR margin of about 18%.

-   By year/end 2003, AT expects to operate between 66-70 aircraft. The
    717 can't go beyond 1800 miles or fly coast to coast nonstop.
    AirTran may be engaged in an aircraft purchase competition in a few
    years.

-   AT has future diversification and growth opportunities due to four
    factors: 1) resistance to high fares will create new business for
    AirTran; 2) growth of "low cost" divisions at major airlines faces
    uncertainty as Shuttle by United and MetroJet have shut down , DL
    Express capacity has been cut by more than a third; 3) significant
    and permanent capacity reductions have been made in the Northeast;
    and 4) risk sharing opportunities are available.

-   Departure Mix:

> [July 2001]{.underline} [July 2002]{.underline}
>
> 89% Altanta 77% Atlanta
>
> 3% Florida 13% Florida
>
> 0% Baltimore 5% Baltimore
>
> 8% Other 5% Other

-   (Responding to a question) Fornaro said a loan to US Airways could
    stabilize rather than destabilize the Northeast.

-   Carriers are tightening up on restrictions in the fare structure.
    They have found a price at which the planes will be full and are now
    walking up the fare structure.

-   Overall yields remain weak. Business demand is below last year's
    levels. The hassle factor is significantly impacting short-haul
    routes. AirTran is noticing a dramatic difference between short-haul
    and long-haul routes. Traffic on short-haul routes is down 30%.
    Routes like Savannah are particularly difficult. There has been
    aggressive discounting by all carriers. US Airways' "crisis" is
    creating further pricing pressure due to its cash focus and its
    heavy use of Priceline.

-   Competition with DL remains intense. AirTran impacts over 30% of
    DL's domestic revenues. DL continues to match all fares and
    restrictions. DL has added service increasing their coverage from
    80% to over 95% of all AirTran flights from ATL over the past year.
    AirTran now has only one monopoly market. The lack of monopoly
    short-haul routes will prompt AirTran to go into bigger markets.

-   The 2002 outlook: 1) revenue environment remains difficult; 2)
    expect modest profitability for 2Q and the full year; 3) capacity
    growth of 20% (15% when adjusted for post 9/11); 4) decline in
    operating cost per ASM; 5) competitive environment should improve
    with the economy.

# SOUTHWEST AIRLINES, James Parker, Vice Chairman and CEO

-   Southwest (SW) will begin its first nonstop, coast-to-coast flight
    with BWI-LAX.

-   SW made a \$21 million 1Q profit, down 81% year/year.

-   Profitability in the 2Q will be much lower than 2Q 2001.

-   Depressed revenue environment continues. Yields are down 9.7% due to
    a great deal of price sensitivity. Traffic is up 4.3%

-   SW now seeks to achieve a balance between load factor and yield.

-   **Parker argues that the late 1990s was the anomaly in the airline
    industry, not the present environment because a "normal" situation
    is one in which people care about how much it costs to fly.**

-   1Q2002 CASM was 7.69 cents; SW seeks to get this to 7.31 cents this
    year (some of the reduction will be fuel related but there will be a
    decrease even on an ex fuel basis). SW retains a 30-70% advantage
    vis-à-vis its competitors. SW has the lowest seat mile costs in the
    industry when adjusted for distance.

-   The number one operating challenge is to improve the airport
    experience. Restoring the travel experience is key, especially in
    short-haul markets.

-   SW has eliminated one line from the airport experience as a result
    of getting rid of the plastic boarding passes.

-   SW's 10-year pilot contract was extended from September 2004 to
    September 2006. The stock option component expires in 2004 so, to
    compensate, SW increased pilot wages along with a different stock
    option combination in the extension. Pilot compensation is tied to
    SW profits.

-   78% of profit sharing with employees is put into stock options by
    the employees at their discretion. Employees own about 9% of
    outstanding SW stock.

-   SW will not enter any new cities in 2002, but will add service by
    connecting the dots between existing cities. SW began flying from
    MDW to the West Coast (SEA, LAX, OAK, San Diego). SW is also moving
    into former MetroJet markets. Southwest will grow 5% this year. It
    deferred its 2001 aircraft deliveries by up to a year. It has taken
    14 of the planes on order and 18 of the 19 scheduled for delivery
    prior to 9/11 will be in the fleet by October 2002. 436 aircraft
    remain on order and option until 2012.

-   SW is confident in the future.

-   SW's 401K plan matches up to 7.4% of an employee's salary in
    addition to profit sharing. As such, SW has no unfunded pension
    liabilities and zero hidden liability.

-   SW has added people at the ticket counter and the ramp to deal with
    new security procedures, as well as at security checkpoints. Prior
    to the federalization of security, SW took the initiative to add
    additional security checkpoint facilities with the idea that if they
    were there once TSA took over they would be staffed, but if they
    were not there, it would take a long time to go through the
    procurement process and build the facilities.

-   SW finds that its short-haul markets are holding up very well. The
    softness that it is experiencing is softness across the board, not
    specific to stage length, or geographic region.

-   SW's average stage length has increased, though it is not carrying
    more traffic on a connecting basis. 70-75% of SW pax travel
    point-to-point.

# UNITED AIR LINES, John W. Creighton, Jr., Chairman and CEO

-   UA's survival is no longer in doubt. The only question is for UA to
    determine what kind of airline it wants to be.

-   May 2002 was the best operational month in UA's history in which it
    set a series of records. UA completed 99.56% of 55,000 departures.
    76% of its departures left on time or early due to fewer delays in
    maintenance and fewer cancellations. The more reliable operation is
    improving the bottom line. Pax unit revenue performance was down 29%
    in October and improved to being down only 9% in March. In April, UA
    outperformed the rest of the industry by this measure. May revenue
    was down only 3-4% year/year. The 4Q2001 saw revenue drop 24%
    year/year. UA is beginning to boost yield.

-   UA's system load factor in 1Q was 72% \-- a record first quarter
    load factor. May's system load factor was 73.2%, better than last
    year.

-   UA's expenses were down 19% in 1Q and its cash burn was halved. UA
    still had a net 1Q loss.

-   UA has improved connectivity and eliminated out-of-bank flying. UA's
    international routes have been performing well as the economy
    rebounds. Asia is performing well and the Atlantic is improving
    nicely.

-   UA's recovery program is focused on enhancing revenue, reducing
    operational and capital expenditures, and reducing labor costs. UA
    has realized savings from travel agent commission cuts, the
    retirement of 100 aircraft, and the largest furlough in the
    company's history. UA ended the 1Q with \$2.9 billion in cash and
    reserves.

-   UA will survive, but the perception gap between UA's actual
    situation and its perceived situation unduly penalizes UA compared
    to the rest of the industry. But UA still has a long and difficult
    road to travel.

-   UA will apply for a loan guarantee if a substantial number of
    employees commit to shared sacrifice. Without such shared sacrifice,
    UA's prospects for growth will diminish. UA sees a government loan
    as a belt and suspenders. UA doesn't know what the exact terms of
    the loan will be and the price could be too high.

-   Following 9/11, UA first sought to ensure the safety of its pax and
    employees. It was the first airline to complete cockpit door
    retrofits, it is seeking approval to put tasers in cockpits and
    train pilots to use them, and is installing, on a trial basis, a
    video surveillance system monitored from the cockpit on one 747-400.

-   UA improved its on-time performance from Oct-May. It is currently
    operating the second youngest fleet in the industry having an
    average age of 8 years. It is expanding its offering of "easy
    products and services." It has extended its interline e-ticket
    capability to 4 carriers.

-   UA seeks to return to the principles of safe, dependable,
    comfortable and simple service to guide its recovery.

-   UA has delayed its 2003 aircraft deliveries until 2004. All 2002
    deliveries are financed. UA has cut non-aircraft capital
    expenditures to \$400 million which is mostly comprised of spare
    parts. UA still has 5-10 747-400s in the desert at any one time --
    rotating them through the system. 99 727 and 737-200 aircraft have
    been retired. Of the total UA capacity reduction of 20%, half is
    accounted for by having fewer aircraft in service and half is due to
    lower utilization. Capacity additions have been achieved through
    better utilization.

# FRONTIER AIRLINES, Jeff Potter, President and CEO

-   Frontier's industry position was one of consistent profitability
    prior to September 11. 2001 was Frontier's fourth consecutive year
    of profitability, having utilized 63% of the federal grant
    allocation.

-   Frontier has a healthy balance sheet and cash position. Its new
    markets are meeting its expectations.

-   Frontier plans 15% annual capacity growth at its DEN hub. It is
    continuing its fleet standardization. It is building hub connecting
    opportunities, seeks to achieve a lower cost structure, and will
    position the company to sustain profitability despite business
    cycles.

-   Denver Domestic Marketshare based on ASMs

> [June 2001]{.underline} [June 2002]{.underline}
>
> UA 67% UA 62%
>
> Frontier 10% Frontier 13%
>
> AA 5% AA 6%
>
> DL 5% DL 4%
>
> Other Airlines 13% Other Airlines 15%

-   Low cost carriers (Spirit, JetBlue, Alaska/Horizon) have begun, or
    are planning, service to Denver.

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-   By 1Q2003, Frontier will have 9.4 connection opportunities per
    arrival, compared to 7.2 in 2Q2002.

-   Frontier is focusing on differentiating itself from other carriers,
    and stimulating purchase decisions on factors other than pure price:
    EarlyReturns FFP, Live TV, Corporate-wide branding initiative,
    relaxed standby policy.

-   Frontier's operating margin for 1Q2002 was 5.7%, representing a 35%
    decline year/year. Revenues were down 1.4%, expenses up 2.0%, and
    operating income was down 36.6%.

-   1Q2002 RASM was 8.99, CASM 8.66, and Unit Cost (ex fuel) 7.50.
    Average length of haul is 901 miles.

-   Frontier's estimated March quarter breakeven load factor was 55%,
    its actual March quarter load factor was 58%.

-   UA cut 10% of its Denver capacity.

-   Two-thirds of Frontier's DEN pax are local O&D. One-third is
    connecting.

-   As of March, Frontier's capacity is back to its original plan after
    a 20% post 9/11 capacity cut.

-   The fare structure has come under pressure -- the 21 day advance
    fare is now 9-14 day advance purchase fare.

-   Frontier's aircraft deliveries for this year have been financed, and
    Frontier's fleet financing has moved away from high-cost operating
    leases.

-   Frontier owns 7 A319s.

-   Frontier is not interested, for the foreseeable future, in expanding
    into a new focus city. It will concentrate on growing its Denver
    hub, absent a unique and dramatic opportunity.

# AMERICA WEST, W. Douglas Parker, Chairman, President, and CEO

-   America West (HP) is outperforming the industry average on every
    metric. The industry's under-performance masks HP's outstanding
    achievements.

-   In 2002, HP improved its on-time performance by 23% to 85%. It is
    now number one in on-time performance.

-   HP achieved a 76% decrease in cancelled flights and a 50% decline in
    customer complaints.

-   On March 24, 2002 HP introduced a new pricing structure, moving from
    the traditional major carrier pricing structure to offering more
    flexible business fares. HP merely modeled what Frontier and JetBlue
    are doing. Prior to the change in pricing structure, 5% of HP's
    revenue came from unrestricted fares. But HP sold a lot of
    restricted fares. HP was more reliant on off-tariff pricing. The new
    structure was designed to reduce its reliance on off-tariff pricing
    channels.

-   RASM has improved relative to the rest of the industry. April RASM
    declined less severely than the industry decline of 12.8%. HP
    expects its May results to significantly outperform the industry. HP
    was selling 8% of its tickets on Priceline (and accounted for 3% of
    all Priceline airline sales), now it accounts for below 1% of
    Priceline sales. This RASM improvement is occurring despite the fact
    that capacity is returning more quickly than anticipated.

-   The share shift resulting from its change in fare structure has been
    better than expected, but the response from its competitors has been
    more aggressive than expected. (In response to questions) Parker
    said that they had considered taking antitrust action but, due to
    the fact that HP has actually benefited from the fare structure
    change and hasn't been harmed -- and to that extent the retaliatory
    behavior hasn't worked -- its case under the antitrust laws is a
    weak one. Parker believes that airlines are run by smart rational
    people and that once they realize that HP is not going to revert
    back to its old fare structure -- and it is not going to do that --
    they will cease retaliating.

-   HP's aircraft rents have been reduced by \$50 million. Its EBITDAR
    is between 6-7%, third behind Southwest and Continental.

-   HP does have 16% higher ownership costs than the industry.

-   HP has 73 days of cash on hand, having received a \$429 million
    loan. Its market capitalization/annual revenue ratio is worse than
    the rest of the industry.

-   Cost control is producing significant CASM declines.

-   HP is not likely to be profitable in the second quarter.

# MESA AIR GROUP, Jonathan Ornstein, Chairman and CEO

-   Mesa has four codeshare partners, US Airways, America West,
    Frontier, and Midwest Express offering service to 146 cities. It has
    62 RJs in its fleet, 48 firm RJ orders for delivery over the next 3
    years, and 145 aircraft order options.

-   75% of its revenue is based on cost plus contract flying for America
    West and US Airways. These are firm contracts which are not
    renegotiated every year. Adjustments have been made to account for
    difficulties since 9/11.

-   Mesa's systemwide annual growth rate is 30%. All growth in 2003 and
    2004 will be under cost plus contracts.

-   US Airways scope clause limits US to 70 regional jets, 32 of which
    are operated by Mesa.

-   Mesa is in active discussions with US Airways on how it can assist
    in US' restructuring. Mesa participated in HP's restructuring in the
    1990s.

-   No airline operates RJs at a lower cost than Mesa.

-   Mesa seeks to improve its turboprop performance. It has secured a
    \$5.5 million subsidy from Raytheon which will reduce or eliminate
    its losses on turboprops. Its CCAir subsidiary has reduced its
    turboprop fleet substantially from 25 to 3.

-   Mesa founded Regional Aviation Partners, which has 85 members,
    including communities and airport authorities, to lobby for the
    interests of regional airlines. Mesa is actively pursuing a big
    piece of the \$115 million EAS budget, bidding new markets in the
    Southeast US. EAS guarantees a 5% margin and Mesa believes it is
    well positioned to gain a large share of this business.

-   Mesa is one of two airlines actively seeking to put stun guns in the
    cockpit.

-   Mesa claims that it could save US Airways \$100 million if it flew
    US Airways' turboprops. Mesa calculates that if US Airways converts
    its turboprop operations to RJs, it could increase its revenues by
    30%.

# JETBLUE AIRWAYS, David Neeleman, CEO

-   JetBlue's 1Q2002 operating margin was 17.5% \-- helped by an early
    Easter and Passover. It is pleased with June thus far as well.

-   JetBlue has done a good job at picking markets, all markets are
    performing well and JetBlue has become the preferred product in many
    of them. In the JFK-FLL market JetBlue has an average fare of \$104
    compared to competitors' fares of \$82 and \$84 yet it is
    maintaining share -- due to its customer service priority.

-   JetBlue's CEO is one of the few airline CEOs that looks daily at
    such matrixes as the time it takes the first bag to reach the
    carrousel from the plane to the time that it takes the last bag to
    reach the carrousel. JetBlue's goals are 10 minutes for the former
    and 20 minutes for the latter. If a station is not meeting its goal,
    Neeleman calls the station to see whether it needs additional help.

-   JFK-OAK has been a great market for JetBlue and its load factors
    have not suffered since AA launched service. Across the board,
    JetBlue has more demand than planes.

-   JetBlue has 25 aircraft now and will have 36 by the end of 2002, and
    50 by the end of 2003.

-   Cost pressures are primarily maintenance and fuel. 30% of fuel is
    hedged through the end of 2002.

-   JetBlue seeks to build economies of scale and thereby exert downward
    pressure on costs -- and this process creates greater downward
    pressure than upward pressure. JetBlue will have 132 planes total at
    the end of the current plan.

-   JetBlue will be using all Long Beach slots by January 6, 2003.

-   JetBlue has high hopes for its Las Vegas service.

-   Web bookings are in the low 60s as a percentage of total bookings.

-   JetBlue paid \$7.4 million in bonuses and profit sharing which
    represent 13.5% of employees' salaries.

-   San Juan service was started very recently and is performing well.
    JetBlue will soon launch a loyalty program (which Neeleman was told
    not to talk about).

-   NYC airport costs are the highest in the nation in per passenger
    terms and JetBlue is trying to work with the Port Authority on ways
    to offset these fees in return for JetBlue's investment in airport
    infrastructure.

-   JetBlue's growth chart: in year one it served 11 cities, in year two
    6 cities were added and in year three 2 cities will be added.

-   As part of its customer service commitment, JetBlue does not
    overbook flights.