# Presentation: 530039

## The FAA COMMERCIAL AVIATION FORECAST CONFERENCE

*U.S. Carriers Strategy for Growth*
- March 17, 2005
- Washington, D.C. Convention Center

## Slide 2

## Warren R. WilkinsonVice President Government Affairs & Corporate Communications

## Company Profile

- Republic Airways Holdings, Inc. (“RJET”) is the holding company for *Chautauqua* *Airlines, Inc. (“Chautauqua”)* and *Republic Airline, Inc. (“Republic”)*
*Chautauqua* is the platform for flying the ERJ-145 family
*Currently operating 100 ER-145 family aircraft and 16 170’s*
*Republic* is the platform for flying the ERJ-170 family
*Republic* is expected to begin operations in the summer of 2005
- 39 ERJ 170 aircraft under firm contract with 16 in service as of March 1, 2005
- Conditionally Firm on an additional 21 ERJ-170 aircraft with 2006 delivery dates
- Option positions for 40 additional  ERJ-170, -175, -190, or -195 aircraft

**4**

**Notes:**
100 AC = 68 145s, 15 140s, 17 135s (2 Indigo/Charter)
12 additional 170s to UAL by June 2005, 16 170s to DL by Q2 2006
74 Option positions – 40 for 170/190 family, 34 for 145 Family
39 firm + 21 conditional + 40 option = book of 100 EMB 170/190 family

## Industry Trends 

- The transformation and restructuring process of U.S. Legacy Carriers is not complete:
- They must continue to simplify their business (fewer fleet types)
- Scope erosion will continue (allowing more outsourcing of larger regional jets)
- The 170/190 will be the RJ of choice
- This will lead to a convergence of LCC’s and regionals operating 90+ seat aircraft

**3**

**Notes:**
Managing for the long-term
Types of assets we like:  170s/Gates/Slots
Dilution – we don’t take it lightly
Mgt & Wexford pre (79) and post (66)
Getting 70 c on the $, could buy us assets at 50 c on the $
If you understand and believe in our vision of continued industrytransformation, then you understand “why now”? And “what for”?

## Industry Trends Continued

- Regionals will continue to expand their role as they become the domestic spoke service provider for legacy carriers
- Regionals will continue to fly point to point in medium sized markets bypassing hubs which provide greater convenience for legacy carrier’s brand loyal, premium priced passengers

## Industry Trends

- The continued growth of the LCC’s have forced legacy carriers to downsize from their narrow body aircraft to smaller equipment operated by their regional partners which offer dramatically lower trip costs
- RJET is well positioned to be a “solutions provider” as the industry continues its transformation in 2005

## Market Strategy

- Significant growth in the regional industry for low-cost providers
- Several regional operators operate for multiple major partners allowing them to leverage resources over diverse network systems RJET operates for 4 network carriers
- New opportunities for ERJ-170/190 platform given scope relief trends
-  Several regional airlines enjoy secure and predictable earnings due to fixed-fee contracts

**5**

## Significant Growth in the Regional Industry

- Regionals enjoy *higher growth rates* than the Majors and Low-Cost Carriers:
- From 2000 to 2004, regional airlines experienced average annual growth in available seat miles of 32.9% vs. 0.5% for the Majors and 15.4% for the LCC’s
- RJET’s average annual ASM growth rate from 2000 to 2004 was 50.2%

**ASM Growth of Regionals ****(1)**

- Source:  Company filings.
- Regionals Composite includes XJT, SKYW, PNCL, MESA.
- LCC’s Composite Includes: LUV, JBLU, AWA, AAI, FRNT.
- Majors Composite Includes: AMR, DAL, CAL, NWAC, UAL, UAIR, ALK.

- (2)

- (3)

- (4)

**6**

**Notes:**
Under “booked” business:
RJET 2004-2005 Growth = 48%

## Consistent Profitability in the Regional Industry

- Regionals have been consistently profitable in all economic cycles:
- More favorable cost structures at independent regional airlines
- Greater resistance to cyclical downturns due to fixed fee fuel hedged agreements
- RJET’s average annual operating margin from 2000 to September 30, 2004 was 13.9%

**Operating Margin ****(1)**

**Average:  10.1%**

**Average:  (4.1%)**

**Average:  5.3%**

- Source:  Company filings.
- Regionals Composite includes XJT, SKYW, PNCL, MESA.
- LCC’s Composite Includes: LUV, JBLU, AWA, AAI, FRNT.
- Majors Composite Includes: AMR, DAL, CAL, NWAC, UAL, UAIR, ALK.

- (2)

- (3)

- (4)

**7**

**Notes:**
RJET ’01 = 6.5% (4.5% pre-tax) includes impairment of $8.1M
(7.9% pre-tax in ’01 w/o impairment)

RJET ’02 = 12.7% (9.1% pre-tax) includes impairment of $3.8M
(10.3% pre-tax in ’02 w/o impairment)

RJET ’03 = 18.5% (13.4% pre-tax) includes impairment of $10.2M
(15.8% pre-tax in ’03 w/o impairment)

RJET ’04 (YTD 9/30) = 17.7% (13.0% pre-tax)

## RJET’s Low Cost Strategy

- Mainline narrow body Direct Operating Costs (DOC) per block hour are on average approximately 90% higher than the cost of *RJET’s* ERJ 170s
- This cost gap allows our partners to match the right aircraft to the market at the _*lowest possible “network” cost*_
- In addition regional airlines have _*substantially lower indirect costs*_ compared to major airlines

- Note Derived from Form 41 and internal RJET data – Q2 2004
- (1)      DOC is comprised of fuel, maintenance, crew cost, and aircraft ownership costs including interest expense.

**+59%**

**+100%**

**+117%**

**Excess ****Cost ****over ****RJET**

**8**

- (1)

**Notes:**

Note – JBLU is losing it’s advantage (mtc costs up by $200/BH year over year)
29% gap is now just 16% on the A320
US/UAL down from 2,768 to 2,538 (8% decrease).
JBLU up from $1,899 to $2,122 (12% increase).

RJET 170 DOC Costs will approximate $1,600/BH.

## Low Cost Business Model

- 	Strategy for maintaining low Costs are the same for Regionals as they are for LCC’s and Network carriers
- Operate a Single-Fleet Type or as few as possible
- Achieve High Utilization of Aircraft and Human Resources
- Utilize assets efficiently
- Our contracts economically incentivize our partners to utilize our assets efficiently
- Maintain Low Overhead
- We leverage Our Maintenance and Crew Resources Across Multiple Partners (“Connect the Dots”)
- Maintain a positive employee culture

**10**

**Notes:**
Our aircraft are utilized at a clip of about 10.5 hours per day, which isamong the highest in the industry.

## New ERJ-170 Platform

***Republic***** was established to meet the growing demand for larger gauge aircraft**

**16**

**Notes:**
Look at the pretty plane.

## ERJ-170/190 Platform Strategy

- Demand for larger capacity RJ’s is double  the same market outlook for the traditional 30 – 50 seat RJ’s
- A large void exists between the 50-130 seat marketplace
- The Embraer 170/190 allows operators to deliver mainline cabin comfort at regional jet economics

**Current forecasts call for over 2,500 70 to 110 seat aircraft to enter the U.S. fleet over the next 10 years **

- Source:  Embraer.

**17**

**Notes:**
When we were out on the road just 7 months ago, we had 16 shellsunder firm contract
We’ve added 23 more shells (with 2 partners) in just 7 months

## ERJ-170/190 Platform Strategy

- Many mid-sized markets are beyond the capability of a low-cost carrier
- There will be an opportunity for the first-mover
- The ERJ-170 provides a high-quality, low-cost answer to this scenario
- Republic will most likely be the only regional airline certified to fly ERJ-170s in 2005

- Source:  Embraer.

**17**

**Notes:**
When we were out on the road just 7 months ago, we had 16 shellsunder firm contract
We’ve added 23 more shells (with 2 partners) in just 7 months

## Continued Growth Strategy

- The transformation and restructuring process of the Legacy Carriers is not complete:
- They must continue to simplify their business (fewer fleet types)
- Scope erosion will continue (allowing more outsourcing of larger RJ’s)
- The 170/190 will be the RJ of choice (to compete against LCC’s)
- The sustained rapid growth  of LCC’s will force the legacy carriers to continue to shift their smaller narrowbody flying to regional operators due to a diminished premium priced, brand loyal air travel market
- RJET is well positioned to be a key part of the solution as the industry continues its transformation in 2005

**28**

**Notes:**
Managing for the long-term
Types of assets we like:  170s/Gates/Slots
Dilution – we don’t take it lightly
Mgt & Wexford pre (79) and post (66)
Getting 70 c on the $, could buy us assets at 50 c on the $
If you understand and believe in our vision of continued industrytransformation, then you understand “why now”? And “what for”?

## Strategies For Growth & Success 

- Maintain low costs!
- Maintain high asset utilization!
- Maintain high human productivity!
- Sell your product for more than it costs to produce it!

## 36

**36**