<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                                          OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934


                         COMMISSION FILE NUMBER 1-12649
                        AMERICA WEST HOLDINGS CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<S>                                                       <C>
                  DELAWARE                                              86-0847214
(STATE OR OTHER JURISDICTION OF INCORPORATION OR          (I.R.S. EMPLOYER IDENTIFICATION NO.)
               ORGANIZATION)

      111 WEST RIO SALADO PARKWAY                                           (480) 693-0800
         TEMPE, ARIZONA 85281                             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<S>                                                     <C>
        TITLE OF EACH CLASS                             NAME OF EACH EXCHANGE ON WHICH REGISTERED:
CLASS B COMMON STOCK, $.01 PAR VALUE                              NEW YORK STOCK EXCHANGE
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

                         COMMISSION FILE NUMBER 1-10140
                           AMERICA WEST AIRLINES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                          <C>
                    DELAWARE                                                       86-0418245
(STATE OR OTHER JURISDICTION OF INCORPORATION OR                      (I.R.S. EMPLOYER IDENTIFICATION NO.)
                  ORGANIZATION)

          4000 E. SKY HARBOR BOULEVARD                                           (480) 693-0800
           PHOENIX, ARIZONA 85034-3899                        (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>


        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         SENIOR UNSECURED NOTES DUE 2005
                                (TITLE OF CLASS)

    INDICATE BY CHECK MARK WHETHER EACH OF THE REGISTRANTS (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
<PAGE>   2
    INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SECTION 229.405 UNDER THE SECURITIES EXCHANGE ACT OF
1934) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF EACH OF
THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. __

    AS OF MARCH 20, 2000, THERE WERE 35,258,623 SHARES OF AMERICA WEST HOLDINGS
CORPORATION CLASS B COMMON STOCK, $.01 PAR VALUE ISSUED AND OUTSTANDING. AS OF
SUCH DATE, BASED ON THE CLOSING SALES PRICE, 34,688,025 SHARES OF CLASS B COMMON
STOCK, HAVING AN AGGREGATE MARKET VALUE OF APPROXIMATELY $520,320,375 WERE HELD
BY NON-AFFILIATES. FOR PURPOSES OF THE ABOVE STATEMENT ONLY, ALL DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANTS ARE ASSUMED TO BE AFFILIATES. AS OF MARCH
20, 2000, ALL OUTSTANDING EQUITY SECURITIES OF AMERICA WEST AIRLINES, INC. WERE
OWNED BY AMERICA WEST HOLDINGS CORPORATION.

    WITH RESPECT TO AMERICA WEST AIRLINES, INC., INDICATE BY CHECK MARK WHETHER
THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY
SECTION 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE
DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES X NO

                       DOCUMENTS INCORPORATED BY REFERENCE

    PORTIONS OF THE PROXY STATEMENT RELATED TO AMERICA WEST HOLDINGS
CORPORATION'S 2000 ANNUAL MEETING OF STOCKHOLDERS, WHICH PROXY STATEMENT WILL BE
FILED UNDER THE SECURITIES EXCHANGE ACT OF 1934 WITHIN 120 DAYS OF THE END OF
AMERICA WEST HOLDINGS CORPORATION'S FISCAL YEAR ENDED DECEMBER 31, 1999, ARE
INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.

    AMERICA WEST AIRLINES, INC., A WHOLLY OWNED SUBSIDIARY OF AMERICA WEST
HOLDINGS CORPORATION, MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH REDUCED
DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION J(2).
<PAGE>   3
                                TABLE OF CONTENTS
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                                                                                                           PAGE
<S>                                                                                                       <C>
PART I

Item 1. Business .....................................................................................       1
Item 2. Properties ...................................................................................      15
Item 3. Legal Proceedings ............................................................................      15
Item 4. Submission of Matters to a Vote of Security Holders...........................................      15

PART II

Item 5. Market for Registrants' Common Equity and Related Stockholder Matters ........................      18
Item 6. Selected Consolidated Financial Data .........................................................      19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........      19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..................................      29
Item 8A. Consolidated Financial Statements and Supplementary Data -- America West Holdings Corporation      30
Item 8B. Financial Statements and Supplementary Data -- America West Airlines, Inc. ..................      51
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........      67

PART III

Item 10. Directors and Executive Officers of the Registrants .........................................      67
Item 11. Executive Compensation ......................................................................      67
Item 12. Security Ownership of Certain Beneficial Owners and Management ..............................      67
Item 13. Certain Relationships and Related Transactions ..............................................      67

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .............................      68
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Note Concerning Forward-Looking Information

    This Report contains various forward-looking statements and information that
are based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this document, the words
"anticipate," "estimate," "project," "expect" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Among the key factors that may have a direct bearing on the
Company's results are competitive practices in the airline and travel industries
generally and particularly in the Company's principal markets, the ability of
the Company to meet existing financial obligations in the event of adverse
industry or economic conditions or to obtain additional capital to fund future
commitments and expansion, the Company's relationship with employees and the
Company's ability to negotiate and the terms of future collective bargaining
agreements and the impact of current and future laws and governmental
regulations affecting the airline and travel industries and the Company's
operations. For additional discussion of such risks see "Business -- Risk
Factors," included in Item 1 of this Report on Form 10-K. Any forward-looking
statements speak only as of the date such statements are made.

                                     PART I

    This combined Form 10-K is filed by each of America West Holdings
Corporation and its wholly owned subsidiary, America West Airlines, Inc. America
West Holdings Corporation is referred to as "Holdings" or "the Company" or "our
Company", and America West Airlines is sometimes referred to as "AWA" or "the
Airline". The Leisure Company, the other wholly owned subsidiary of Holdings, is
sometimes referred to as TLC. The term "we" is used to refer to management of
the Company, the Airline or TLC, as the context requires.

ITEM 1. BUSINESS

OVERVIEW OF OUR COMPANY'S BUSINESSES

    Holdings is the parent company of AWA and TLC. We believe that the holding
company structure improves the Company's ability to manage separate business
segments effectively and that Holdings provides a platform for further expansion
of the Company's travel-related businesses. The Company intends to continue to
evaluate investment and expansion opportunities that would allow it to
capitalize on the key strengths and market positions of AWA, TLC and Holdings'
e-commerce business.

    AWA is the ninth largest commercial airline carrier in the United States,
operating through its principal hubs located in Phoenix, Arizona and Las Vegas,
Nevada, and a mini-hub located in Columbus, Ohio. AWA has the lowest cost
structure of all major full-service domestic airlines in the United States. The
Company's operating cost per available seat mile ("CASM") for 1999 was 7.52
cents, which was approximately 23% less than the average CASM of the other major
domestic airlines. At December 31, 1999, the Airline served 59 destinations,
including seven destinations in Mexico and one in Canada, with a fleet of 123
aircraft and offered service to an additional 84 destinations through alliance
arrangements with other airlines.

    TLC arranges and sells leisure travel products that may include airfare,
hotel accommodations, ground transportation, and a variety of other travel
options. TLC's largest brand, America West Vacations, has significant strength
in the Las Vegas destination market and also has presence in other vacation
destinations such as Arizona, California, Florida, Mexico and Canada.

    Together, Holdings and its subsidiaries employed 13,336 people on December
31, 1999.

STRATEGY

    The Company seeks to maximize stockholder value by capitalizing on the
Company's key competitive strengths while maintaining financial flexibility. The
principal elements of our strategy are to grow America West Airlines, to improve
the Airline's unit revenues, to maintain the Airline's strategic cost advantage,
to ensure financial flexibility for the future and to pursue strategic
e-commerce opportunities in the travel and travel-related industries.




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<PAGE>   5
    GROW THE AIRLINE

    The Company intends to continue growing the Airline primarily by increasing
service to and from Phoenix and Las Vegas. The Phoenix and Las Vegas markets are
among the fastest growing in the United States, and the Company believes that
its Phoenix hub remains undersized relative to its potential. In execution of
this strategy, AWA has increased available seat miles ("ASMs") 20% over the past
three years with the majority of this growth focused on strengthening AWA's
position at Phoenix. Compared with 1999, ASMs are expected to increase
approximately 10% in 2000 and approximately 10% annually through 2003. The
growth will be focused on adding frequencies from Phoenix to existing business
markets and, to a lesser degree, to markets not previously served by AWA.

     The Airline has expanded its reach outside of its core markets through
alliances. AWA has codesharing arrangements with Continental Airlines, Mesa
Airlines, British Airways, Northwest Airlines and EVA Airways of Taiwan, and has
received United States government approval for a codesharing agreement with Air
China. These alliances allow the Airline to expand its passenger base without
significant increases in capital or operating expense and in some cases, achieve
cost savings through economies of scale and joint purchasing agreements. The
Company believes that alliances are an efficient means of developing new markets
and increasing travel opportunities for its customers. We anticipate continuing
to pursue such relationships with existing alliance partners and other domestic
and international carriers.

    IMPROVE THE AIRLINE'S UNIT REVENUES

    Due to AWA's leisure oriented hub markets in Phoenix and Las Vegas, the
competitive nature of many of the western U.S. markets where the Airline flies,
and the Airline's size relative to its competition, AWA's passenger revenue per
available seat mile ("RASM") is approximately 15% less than the average RASM for
the ten largest airlines in the United States. One of the Company's primary
opportunities to improve profitability is to close that RASM gap through three
main efforts: growing in key business markets; investing in scheduling and
revenue management automation and technology; and improving the quality of the
Airline's products. Our efforts to improve unit revenues were successful in 1999
- AWA's passenger RASM improved by 2.4% over 1998, while the industry average
RASM decreased by 0.3% over the same period. Looking forward, we believe that
substantial opportunity exists to further improve AWA's unit revenues by
continuing the strategic growth plan, improving operating performance and
continuing to enhance the Airline's customer service, frequent flyer programs
and onboard products.

    MAINTAIN STRATEGIC COST ADVANTAGE

    The Company is committed to maintaining AWA's low cost structure, which we
believe offers a significant competitive advantage over other major full-service
airlines. AWA's CASM is approximately 23% less than the average CASM of the ten
largest airlines in the United States. AWA has achieved this low cost structure
primarily through employee productivity, favorable labor costs per ASM and
industry-leading aircraft utilization.

    ENSURE FINANCIAL FLEXIBILITY

    The airline and travel industries are cyclical in nature. Because of this,
an important element of the Company's strategy is to maintain financial
flexibility as protection against a downturn in the business cycle. A key
component of this strategy is AWA's aircraft leasing plan. As of December 31,
1999, and through the end of 2004, leases for 56 aircraft will expire. As a
result, if economic conditions change adversely during that period, the Airline
can delay the growth of its fleet and its aircraft-related financial obligations
by electing to not renew these aircraft leases. Another component of this
strategy is the Company's compensation system for its non-union employees, which
includes a variable pay element based largely on the Company's operating income
level. The Company further enhances its financial flexibility by maintaining a
$125 million senior secured revolving credit facility with certain financial
institutions.

    PURSUE STRATEGIC E-COMMERCE OPPORTUNITIES

    In January 2000 we established an e-business division to manage our
electronic business, Internet initiatives and on-line investments. The
objectives of this division include improving customer service, generating
additional





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<PAGE>   6
revenue, reducing our distribution, procurement and other costs through
business-to-business Internet applications and related automation and creating
shareholder value through equity holdings in e-business partners. The e-business
division will provide additional opportunities for customers to purchase airline
seats or vacation packages conveniently over the Internet and will complement,
support and expand our existing successful commercial relationships and equity
partnerships with other companies that offer discount airfares, travel packages
and other services direct to consumers via the Internet.

    We have already made significant progress in our efforts to create value
through equity positions in our partners. During 1999 we recognized pretax gains
of approximately $24 million, primarily through our partnership with
Priceline.com. In addition, we hold equity stakes in four on-line ventures that
are not yet public and we are in investment discussions with several others.

    In addition to partnering with e-business concerns, we continued to develop
and refine our profitable leisure travel business by pursuing opportunities to
transfer some of The Leisure Company lines of business to e-commerce companies
in exchange for cash and equity in these entities. In February 2000, we signed a
letter of intent to sell America West Golf Vacations for equity in
Book4golf.com, a Canadian publicly traded company. Book4golf.com is a provider
of Internet-based, real-time, golf tee time reservations systems. America West
Golf Vacations arranges complete golf vacation packages including air
transportation, hotel accommodations, rental car and guaranteed tee times at
premier golf courses in Arizona, Nevada, California and Mexico. In March 2000,
we reached an agreement to sell a majority interest in TLC's retail operations,
National Leisure Group ("NLG") and The Vacation Store ("TVS"), to Softbank
Capital LP and General Catalyst LLP. Holdings will retain a twelve percent
passive ownership interest in the restructured venture leaving TLC well
positioned to capitalize on future NLG and TVS business growth. We believe that
transferring the golf and retail businesses to entities that are focused on
selling golf and retail vacation packages over the Internet will allow us to
increase vacation package sales while also generating equity returns. The
transactions related to the sale of both America West Golf Vacations and the
retail vacations businesses are subject to certain regulatory and other
approvals, among other things.

AMERICA WEST AIRLINES

    THE AIRLINE'S OPERATIONS

    AWA is the ninth largest commercial airline and our unit cost is the lowest
of all full-service airlines in the United States. The Airline reported
approximately $2.1 billion in revenues in 1999, an increase in annual revenues
of 9.1% over revenues reported in 1998 and 38% over those reported in 1995. The
Airline operates through its hubs in Phoenix, Arizona and Las Vegas, Nevada and
a mini-hub in Columbus, Ohio. At the end of 1999 the Airline operated a fleet of
123 aircraft flying approximately 604 flights each day and served 59
destinations directly and offered service to another 84 destinations through
AWA's alliance agreements with other carriers.

    We seek to maximize AWA's market share and profitability by operating the
Airline through a hub and spoke network, the strategy employed by all but one of
the ten largest airlines in the United States. AWA is the leading airline
serving Phoenix based on ASMs and takeoffs and landings and the leading airline
serving Las Vegas based on ASMs.

    We believe that the success of the Airline's operations in Phoenix and Las
Vegas is due to a number of factors including:

-        Phoenix is the seventh largest city in the United States and its
         metropolitan area is the 14th largest in the country.

-        The attractiveness of Phoenix and Las Vegas as business and leisure
         destinations.

-        The size of those cities' airports. Phoenix Sky Harbor International
         Airport is the 7th largest airport in the United States based on
         takeoffs and landings and Las Vegas McCarran International Airport is
         the 13th largest airport in the country by that measure.




                                       3
<PAGE>   7
-        The geographically favorable location of those cities with convenient
         access to and connecting opportunities for passengers travelling to or
         from key southwest and west coast markets and vacation destinations in
         Mexico.

-        The relatively low operating costs incurred in those cities'
         metropolitan areas and at those airports.

    The Phoenix and Las Vegas metropolitan areas are among the fastest growing
in the country. Moreover, we believe that our Phoenix hub remains undersized
compared to other airlines' hubs of similar or smaller populations and airport
size. Therefore, we believe that the Airline's hubs are well positioned for the
continued growth that is one of the key elements of our strategy.

    Toward that end, the Company has increased service in Phoenix from 174 daily
jet departures at year-end 1995 to 257 at December 31, 1999. America West's goal
is to increase daily jet departures to 300 by year-end 2001 primarily by adding
flight frequencies in existing markets with demonstrated profitability. America
West has a 27% market share of Phoenix-originating passengers and is working
aggressively to capture a greater share of this traffic.

     As a key element of America West's strategy to improve unit revenues we
have placed a greater emphasis on the business traveler over the past three
years. Tailoring its schedule to attract a greater percentage of high-yield
business flyers, America West has added nonstop destinations and increased
flight frequencies to major business destinations. Inventory-management systems,
much improved over the last two years, assure that good seats are available to
the Company's most-frequent and most-lucrative travelers.

     At the same time, the sales and marketing focus on the business traveler
has been increased. A revamped Flight Fund frequent-flyer program was introduced
in early 1999, which includes more domestic and international destinations for
free award travel, as well as for elite level members (predominantly business
travelers), unlimited first class upgrades, increased mileage-credit bonuses and
non-expiring miles. The America West fleet also is undergoing an upgrade, with
new Airbus A319s and A320s being added. Airbus A318 aircraft will be added to
the fleet in 2003. The Airbus aircraft offer wider, more comfortable cabins and
more first class seats than the Boeing 737s that traditionally have been the
mainstay of America West's fleet. The improved in-flight services include
enhanced meal service and in-flight entertainment in first class and in coach on
long-haul flights.

    The Company is also committed to providing quality customer service and
reliability. In this regard, we were less successful in 1999. A key focus for
America West going forward will be improving the Company's operational
reliability. In April 1999 the Company effected a management reorganization
establishing two new organizations within America West, the Operations Group and
the Corporate Group. The existing division structure was repositioned under
those two umbrellas. This change improves management focus on operations,
underlines the Company's commitment to safety, and allows effective pursuit of
the Airlines' growth. The Operations Group, led by Gil Mook, has a new senior
management team in place to oversee and improve the Company's operations.

    ALLIANCES WITH OTHER AIRLINES

    AWA has alliance agreements with Continental Airlines, Mesa Airlines,
British Airways, Northwest Airlines and EVA Airways of Taiwan, and has received
United States government approval for an alliance arrangement with Air China.

    AWA's alliance agreement with Continental Airlines provides for codesharing
arrangements, coordinating flight schedules, sharing ticket counter space and
coordinating ground handling operations. The arrangement also allows AWA
FlightFund (the Airline's frequent flyer program) members to earn credits for
travel on Continental and for frequent flyer benefits earned by AWA customers to
be redeemed for travel on Continental's system.

    By codesharing, each airline is able to offer additional destinations to its
customers under its flight designator code without materially increasing
operating expenses and capital expenditures. The arrangement also provides that
AWA personnel handle Continental's ticket counter and ground operations at
certain airports in the western and southwestern United States and that
Continental's personnel handle those operations for AWA at certain airports in
the east, midwest and south. Through its alliance arrangement with Continental,
AWA offered service to an additional 59 destinations as of December 31, 1999 and
achieves cost savings primarily through the consolidation of





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airport facilities and resources and elimination of duplicative costs for labor
and equipment.

    Mesa Airlines, ("Mesa"), operating as America West Express, provides
regional feeder service to and from the Airline's Phoenix hub to destinations in
the western United States and northern Mexico flying, principally, regional jets
and large turboprop aircraft. In addition, Mesa operates America West Express
regional jet service to and from the Airline's mini-hub in Columbus, Ohio to
midwest and eastern business markets. As of December 31, 1999, 16 regional jets
were committed to America West Express Service.  Through its alliance
arrangement with Mesa, AWA offered America West Express service to an additional
25 destinations as of December 31, 1999. The alliance arrangement with Mesa
provides for the Airline's management of coordinated flight schedules and all
America West Express marketing and sales. All reservations are booked under
AWA's flight designator code. America West Express passengers connecting to or
from an AWA flight can purchase one airfare for their entire trip.

    AWA's alliance agreement with British Airways allows British Airways to
offer connecting service to and from British Airways' flights to Phoenix, San
Francisco and Los Angeles onward to certain destinations served by the Airline.
The arrangement also allows AWA FlightFund members to earn credit for travel on
British Airways and for frequent flyer benefits earned by AWA customers to be
redeemed for travel on British Airways' system.

    Through AWA's alliance agreements with Northwest Airlines and EVA Airways,
AWA provides connecting service from those airlines' Pacific routes to Las Vegas
and Phoenix. Upon implementation of the alliance agreement with Air China, AWA
will provide connecting service to Las Vegas and Phoenix from Air China's
Pacific routes.

    AIRLINE COMPETITION AND MARKETING

    The airline industry is highly competitive. Airlines compete on the basis of
pricing, scheduling (frequency and flight times), on-time performance, frequent
flyer programs, on-board products and other services. AWA competes with a number
of major airlines on medium and long haul routes to and from and through its
hubs and with a number of carriers for short haul flights at its Phoenix and Las
Vegas hubs and its Columbus mini-hub. AWA competes with other major full service
airlines based on price and, due to its low cost structure, is able to compete
with other low cost carriers in both short and long haul markets. The entry of
additional carriers in many of AWA's markets (as well as increased services by
established carriers) could negatively impact AWA's results of operations. For
additional discussion of industry competition and related government regulation,
see "Risk Factors -- The airline industry and the markets we serve are highly
competitive and we may be unable to compete effectively against carriers with
substantially greater resources or low-cost structures" and, generally,
"Government Regulations."

    Most tickets for travel on AWA are sold by travel agents. Travel agents
generally receive commissions based on the price of tickets sold. AWA and other
airlines often pay additional commissions in connection with special revenue
programs, competing not only with respect to the price of tickets sold but also
with respect to the amount of commissions paid. Effective October 18, 1999, AWA
reduced the travel agency base commission rate from 8% to 5% with a maximum
payment of $50 for each round trip flight. We believe that commission structure,
together with AWA's program of additional commissions in connection with special
programs, is competitive with the commission programs of the other major United
States airlines.

    Most tickets sold by travel agents are sold through computer reservation
systems that are controlled by other airlines. Travel agents' reliance on those
computer reservation systems have, from time to time, significantly increased
the cost of making reservations, which costs are born by airlines which
subscribe to the computer reservation systems, including AWA.

    AWA has sought to address these issues through several initiatives. First,
AWA's electronic or paperless ticketing program responds to customer needs and
reduces distribution costs for tickets booked directly through the Airline's
reservation system and through travel agencies. During 1999 approximately 60% of
the Airline's tickets were processed electronically, up from 50% during 1998.
Second, AWA provides the ability for its customers to book tickets directly
through the Internet using the Airline's web site located at
www.americawest.com, thus avoiding the more expensive computer reservation
systems. Bookings through Americawest.com and other travel-related Internet
sites were approximately 7% of total 1999 bookings, up from 1% in 1998.




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    Federal regulations have been promulgated that are intended to diminish
preferential scheduling displays and other practices with respect to computer
reservation systems that place AWA and other similarly situated users at a
competitive disadvantage to airlines controlling the systems. Those regulations
are presently under review by the Department of Transportation ("DOT"). The
Airline is participating aggressively in the federal rule making process related
to computer reservations systems.

    FREQUENT FLYER PROGRAM

    All major United States airlines offer frequent flyer programs to encourage
travel on that airline and customer loyalty. AWA offers the FlightFund program
which allows members to earn mileage credits by flying AWA and America West
Express, by flying on certain partner airlines including Continental Airlines
and British Airways and by using the services of a wide variety of other program
participants such as hotels, rental car agencies and other specialty services.

    Through the FlightFund Program, accumulated mileage credits can be redeemed
for free travel on AWA and America West Express and certain partner airlines
including Continental and British Airways and for first class upgrades on AWA.
Use of mileage credits is subject to industry standard restrictions including
blackout dates. The Airline must purchase space on other airlines
to accommodate FlightFund redemption travel on those airlines.

    The Company accounts for the FlightFund program under the incremental cost
method whereby travel awards are valued at the incremental cost of carrying one
passenger based on expected redemptions. Those incremental costs are based on
expectations of expenses to be incurred on a per passenger basis and include
food, beverages, supplies, fuel, liability insurance and ticketing costs which
are accrued as FlightFund members accumulate mileage credits. No profit or
overhead margin is included in the accrual for those incremental costs.
Non-revenue FlightFund travel accounted for 3.2%, 3.5% and 3.2% of total revenue
passenger miles for the years ended December 31, 1999, 1998 and 1997,
respectively. We do not believe that non-revenue FlightFund travel results in
any significant displacement of revenue passengers.

    THE AIRLINE'S FLEET

    At December 31, 1999, the Airline operated a fleet of 123 aircraft having an
average age of 10.1 years. The Airline's aircraft acquisition program will
provide the aircraft necessary to allow the Airline to continue its strategic
growth. Terminations of aircraft operating leases scheduled to occur over the
next several years will allow the Airline flexibility to manage the growth of
its fleet size and related financial obligations in response to unfavorable
economic conditions.

    In 2000 the Airline intends to take delivery of 14 new aircraft and expects
to operate a fleet of 137 aircraft at the end of 2000 having an average age of
10.2 years.

    The Airline's fleet at the end of 1999 and as expected at the end of 2000
are described in the table below:

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<CAPTION>
                                                    NUMBER 12/31            AVERAGE AGE (YRS.) 12/31
                AIRCRAFT        APPROX.          -------------------        ------------------------
                 TYPES         NO. SEATS         1999           2000           1999           2000
                 -----         ---------         ----           ----           ----           ----
<S>                           <C>               <C>            <C>           <C>            <C>
                B737-200          113             14             14            18.2           19.2
                B737-300          132             47             48            12.2           13.2
                B757-200          190             13             13            13.2           14.2
                A319-100          124             10             18             0.6            1.0
                A320-200          150             39             44             6.2            6.7
                                                 ---            ---            ----           ----
                 Totals                          123            137            10.1           10.2
                                                 ===            ===            ====           ====
</TABLE>


    As of March 29, 2000, AWA had firm commitments to purchase or acquire by
operating lease a total of 15 Airbus A318-100, 14 Airbus A319-100 and 14 Airbus
A320-200 aircraft for delivery in 2000 through 2004. The Airline also has 25
options and 25 purchase rights to acquire aircraft in the "A320 family" of
aircraft (A318s, A319s, A320s and A321s) for delivery in 2004 through 2008. As
of March 29, 2000, leases for 56 of the Airline's aircraft were scheduled to
terminate through the end of 2004.






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    The following table illustrates the Airline's committed orders, purchase
options and scheduled lease terminations over 2001-2004:

<TABLE>
<CAPTION>
    Firm Orders                                 2001              2002               2003              2004
    -----------                                 ----              ----               ----              ----
<S>                                            <C>                <C>               <C>               <C>
    A318-100/319-100/A320-200                    8                  5                 10                10

    Purchase Rights/Options
    -----------------------
    A318/A319/A320/A321                          0                  0                 0                  3

    Scheduled Lease Terminations
    ----------------------------
    Total                                        10                14                 25                 4
</TABLE>


    For further details on the Airline's commitments to acquire aircraft and
financing strategies and capital requirements for aircraft, see "Risk Factors --
Our high level of debt may limit our ability to fund general corporate
requirements, limit our flexibility in responding to competitive developments
and increase our vulnerability to adverse economic and industry conditions." and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations --Liquidity and Capital Resources."

    EMPLOYEES AND LABOR RELATIONS

    The Company's businesses are labor intensive with wages, salaries and
benefits representing approximately 25% of the Company's operating expenses
during 1999.

    As of December 31, 1999, the Airline employed 9,911 full-time and 2,746
part-time employees, for a full-time equivalent of 11,536 employees ("FTEs"). We
believe that the Airline's workforce is very productive, compared to workforces
employed at other major United States airlines. As AWA pursues its growth
strategy, we believe that this productivity will be improved as economies of
scale will allow the Airline to increase the size of its workforce
proportionately less than the growth in number of aircraft or ASMs.

    The Airline's non-union employees are compensated on a pay-for-performance
basis under which salaries and wages are determined in part by performance
evaluations by an employee's superiors and peers. To encourage increased
productivity, the Airline awards performance bonuses, referred to as AWArd Pay,
to eligible, non-executive, non-union employees provided certain annually
established targets are achieved. AWArd Pay bonuses could range from 5% of base
pay if those targets are met to 25% of base pay if those targets are
significantly exceeded. Following the Company's and the Airline's record
financial results in 1999, the Airline paid AWArd Pay performance bonuses equal
to 11.8% of eligible employees' 1999 base pay.

    A large majority of the employees of the major airlines in the United States
are represented by labor unions. There have been numerous attempts by unions to
organize AWA's employees and we expect those organization efforts to continue in
the future. As illustrated by the table below, several groups of AWA's employees
have selected union representation and negotiated collective bargaining
agreements with the Airline. We cannot predict the outcome of any continuing or
future efforts to organize the Airline's employees or the terms of any future
labor agreements or the effect, if any, on the Company's or AWA's operations or
financial performance. For more discussion, see "Risk Factors --Efforts by labor
unions to organize AWA's employees have occurred in the past and we expect will
occur in the future, which could divert management attention and increase our
operating expenses."




                                       7
<PAGE>   11
<TABLE>
<CAPTION>
    EMPLOYEE               APPROX. NO. OF                                           CONTRACT       CONTRACT
      GROUP                  EMPLOYEES          UNION                               EFFECTIVE      AMENDABLE
      -----                  ---------          -----                               ---------      ---------
<S>                        <C>              <C>                                   <C>             <C>
Pilots                         1,560        Airline Pilots Association               May 1995        May 2000

Dispatchers                       60        Transportation Workers Union            March 1998      March 2003

Maintenance technicians
and related personnel            500        International Brotherhood of           October 1998   October 2003
                                            Teamsters

Flight Attendants              2,300        Association of Flight Attendants         May 1999        May 2004

Fleet Service                  2,000        Transportation Workers Union                    -              -

Stock Clerks                      60        International Brotherhood of                    -              -
                                            Teamsters
</TABLE>


    On March 20, 1999, the Company reached a tentative agreement with the
Association of Flight Attendants ("AFA"), which represents AWA's approximately
2,300 flight attendants, on a five-year collective bargaining agreement. The
agreement was ratified on April 30, 1999.

    All of the collective bargaining agreements are consistent with our
productivity objectives and cost advantage, include flexible work rules, and
prohibit sympathy strikes. None of those contracts restrict management's ability
to make key strategic decisions, including entering into or expanding alliances
or considering acquisitions.

    In January 1999 the Airline's approximately 2,000 fleet service workers
voted to be represented by the Transportation Workers Union ("TWU"). In
September 1999 AWA's stock clerks voted to be represented by the International
Brotherhood of Teamsters ("IBT"). The Company is in the process of negotiating
initial contracts with the TWU and IBT as bargaining representatives for the
fleet service workers and stock clerks, respectively. The Company has also begun
negotiations with the Air Line Pilots Association ("ALPA") on a new contract.
The Company cannot predict the form of these future collective bargaining
agreements and therefore the effect, if any, on AWA's operations or financial
performance.

THE LEISURE COMPANY

    TLC'S OPERATIONS, PRODUCTS, MARKETING AND COMPETITION

    The Leisure Company sells individual and group travel products such as air
and ground transportation, land-only accommodations, cruises, all-inclusive
vacation packages, and value-added services and amenities directly to the
consumer and through retail travel agencies. TLC focuses on simple, high-volume,
value-oriented products which are marketed on a national basis. TLC is one of
the largest providers of Las Vegas vacation packages in the United States.

    The majority of TLC's sales are from vacations and tour packages for
destinations in Nevada, Arizona, California, Florida, Mexico and Canada sold
under TLC's largest brand, America West Vacations. In addition to the core
wholesale brand family of America West Vacations products, TLC distributes
products under multiple wholesale brands through affiliations with other
airlines and suppliers to expand destination coverage. In 1998 TLC also began
retail sales of leisure travel products.

    At December 31, 1999, TLC, TVS and NLG employed 679 full-time employees. TLC
employees are compensated in a variety of different ways depending on their
work, including hourly pay plus bonuses, in the case of the telephone sales
representatives, hourly pay plus commissions, in the case of travel agents, and
a pay for performance plan very similar to that described above for the
Airline's employees. To encourage productivity, TLC awards performance bonuses
to eligible, non-executive, non-union employees provided certain established
targets are achieved. Those performance bonuses can range from 2.5% of base pay
if those targets are met to 20% of base pay if those targets are materially
exceeded. TLC paid performance bonuses equal to 8.2% of base pay to eligible
employees for 1999.

     The Vacation Store, acquired in November 1998, and National Leisure Group,
acquired in May 1999, are national retail leisure travel companies that
specialize in the marketing, packaging and retail distribution of cruise and
resort vacations. These acquisitions added established retail networks to TLC's
largely wholesale travel product line.

    In February 2000, TLC signed a letter of intent to sell America West Golf
Vacations for equity in Book4golf.com, a public company whose stock is traded
on the Canadian Venture Exchange. Book4golf.com is a provider of Internet-based,
real-time, golf tee time reservations systems. America West Golf Vacations
arranges complete golf vacation packages including air transportation, hotel
accommodations, rental car and guaranteed tee times at premier golf courses in
Arizona, Nevada, California and Mexico.

                                       8
<PAGE>   12
In March 2000 Holdings and TLC reached an agreement to sell a majority interest
in TLC's retail operations, NLG and TVS, to Softbank Capital LP and General
Catalyst LLP. Holdings will retain a twelve percent passive ownership interest
in the restructured venture, leaving TLC well positioned to capitalize on future
NLG and TVS business growth. The transactions related to the sale of both
America West Golf Vacations and the retail vacations businesses are subject to
certain regulatory and other approvals, among other things.

    The Leisure Company competes in a fragmented, consolidating vacation
industry that is highly competitive with low barriers to entry. Within the
wholesale segment of TLC's business, competitors are vying for customers through
national mass media and the arrangement of preferred supplier relationships.
Fewer larger competitors with stronger market positions and brand recognition
are beginning to emerge. The industry also faces disintermediation as suppliers
rely more on electronic distribution strategies aimed directly at consumers.

    TLC remains focused on simple, high-volume products which have traditionally
provided high margins. TLC's strong position in Las Vegas, strong growth and
knowledge of the vacation package industry and mass marketing effectiveness have
helped strengthen TLC's positioning. TLC will continue to evaluate investment
and expansion opportunities in the leisure travel industry.

    Currently, wholesale and retail travel sales are not subject to government
regulation to any significant extent.

THE COMPANY'S FACILITIES

    Our Company's principal facilities include administrative office space
located in Tempe and Phoenix, Arizona; reservations centers and other call
centers located in Tempe and Reno, Nevada; and airport and airport related
facilities associated with the Airline's hubs in Phoenix and Las Vegas and
mini-hub in Columbus.

    Several of those facilities recently have been or are in the process of
being replaced or upgraded. The new facilities will support key elements of the
Company's strategy and will accommodate the Airline's and TLC's planned growth,
allow the Company to improve employee morale by replacing outdated working
environments with improved facilities, reduce overall occupancy and
administrative costs, facilitate synergies by consolidating functions and take
advantage of improved and state of the art technologies and communications
systems that could not have been deployed in the replaced facilities.

    The Company leases approximately 361,000 square feet of general office and
administrative space in Tempe for Holdings', the Airline's and TLC's
headquarters and administrative offices. In 1999 the Company moved its
headquarters and principal administrative functions to a newly constructed nine
story, 225,000 sq. ft. complex at the site of AWA's original headquarters
facility in Tempe.

    AWA operates from Terminal 4 at Sky Harbor Airport and leases 42 gates,
ticket counter space and administrative offices comprising an aggregate of
approximately 330,000 sq. ft. of space. In November 1999 AWA occupied a new
concourse in Terminal 4 with approximately 65,000 sq. ft. of additional
concourse, ticket counter and office space and 12 additional gates. Two
additional gates will be available for occupancy in 2001.

    The Airline leases approximately 168,000 sq. ft. of space at Las Vegas
McCarran International Airport, which includes 13 gates, ticket counter space
and concourse areas. AWA leases approximately 30,000 sq. ft. and seven gates at
Port Columbus International Airport.

    Space for ticket counters, gates and back offices has been obtained at each
of the other airports operated by AWA personnel, either by lease from the
airport operator or by sublease from another airline. Space and facilities at
airports where AWA's operation is managed by Continental Airlines or Mesa
Airlines is provided by those airlines as part of AWA's alliance arrangements.

    The Airline also owns a 375,000 sq. ft. maintenance and technical support
facility at Sky Harbor Airport on land leased from the City of Phoenix, which
includes four hangar bays, hangar shops, two flight simulator bays and pilot
training facilities and warehouse and commissary facilities.





                                       9
<PAGE>   13
    In March 2000, we announced that AWA would develop an approximately 150,000
sq. ft. new flight training and systems operations control center to accommodate
AWA's pilot and flight attendant training, systems operational control and crew
scheduling functions to be located in Phoenix near Phoenix Sky Harbor
International Airport. We expect to begin construction later in 2000 with
completion expected by late summer or early fall 2001.

GOVERNMENT REGULATIONS

    The airline industry is highly regulated as more fully described below.

    DOT OVERSIGHT

    AWA operates under a certificate of public convenience and necessity issued
by the DOT. Although regulation of domestic routes and fares was abolished by
the Airline Deregulation Act of 1978, the DOT retains the authority to alter or
amend AWA's certificate or to revoke that certificate for intentional failure to
comply with the terms and conditions of the certificate. In addition, the DOT
has jurisdiction over international tariffs and pricing, international routes,
computer reservation systems, domestic code share agreements, and economic and
consumer protection matters such as advertising, denied boarding compensation
and smoking and has the authority to impose civil penalties for violation of the
United States Transportation Code or DOT regulations.

    As a member of the Air Transport Association, AWA voluntarily established a
customer service plan to provide additional information to passengers on flight
delays, cancellations or overbookings, to offer the lowest fare available, allow
reservations to be held or cancelled, provide prompt ticket refunds and be more
responsive to customer complaints. Under new legislation the DOT Inspector
General is to report to Congress by December 31, 2000 on the effectiveness of
the airlines' implementation of these plans. Based on this report Congress could
impose new consumer protection requirements on airlines including payments to
passengers for excessive flight delays and prohibition of the issuance on
non-refundable tickets. As a result of competitive pressures AWA and other
airlines would be limited in their ability to pass costs associated with
compliance with such laws to passengers. We cannot forecast the cost impact of
such measures if enacted.

    FAA FUNDING

    In 1997 new aviation taxes were imposed through September 30, 2007 to
provide funding for the Federal Aviation Administration ("FAA"). Included in
the new law is a phase-in of a modified federal air transportation excise tax
structure with a system that includes: a domestic excise tax which started at
9% and declined to 7.5% in 1999; a domestic segment tax that started at $1.00
and increases to $3.00 by 2003; and an increase in taxes imposed on
international travel from $6.00 per international departure to an arrival and
departure tax of $12.00 (each way). Both the domestic segment tax and the
international arrival and departure tax are indexed for inflation. The
legislation also included a 7.5% excise tax on certain amounts paid to an air
carrier for the right to provide mileage and similar awards (e.g., purchase of
frequent flyer miles by a credit card company). As a result of competitive
pressures, AWA and other airlines have been limited in their ability to pass on
the cost of these taxes to passengers through fare increases.

    In December 1997 the National Civil Aviation Review Commission (the "NCARC")
completed its Report to Congress on FAA funding and recommended implementation
of a cost based user fee system for air carriers. Congress is presently
considering the recommendations of the NCARC, which may result in enactment of a
new funding mechanism. The Company cannot currently estimate the effect the new
combination of ticket and segment taxes, or any change in those taxes as
recommended by the NCARC, will have on its operating results. There can be no
assurance that the new taxes or such changes will not have a material adverse
effect on the Company's financial condition and results of operations.

    FUEL TAX

    In August 1993 the federal government increased taxes on fuel, including
aircraft fuel, by 4.3 cents per gallon. The Company's annual operating expenses
increased by approximately $17.7 million for 1999 because of such fuel tax
increases. Total fuel taxes paid by the Company in 1999 were $26.9 million.




                                       10
<PAGE>   14
    PASSENGER FACILITY CHARGES

    During 1990 Congress enacted legislation to permit airport authorities, with
prior approval from the DOT, to impose passenger facility charges ("PFCs") as a
means of funding local airport projects. These charges, which are intended to be
collected by the airlines from their passengers, are limited to $3.00 per
enplanement, and to no more than $12.00 per round trip. Congress has passed
legislation for reauthorization of airport funding programs, which increases the
current PFC cap to $4.50 per enplanement with a maximum per round trip of
$18.00. As a result of competitive pressure, AWA and other airlines have been
limited in their ability to pass on the cost of the PFCs to passengers through
fare increases.

    SLOT RESTRICTIONS

    At New York City's John F. Kennedy Airport and LaGuardia Airport, Chicago's
O'Hare International Airport and Ronald Reagan Washington National Airport,
which have been designated "High Density Airports" by the FAA, there are
restrictions on the number of aircraft that may land and take off during peak
hours. In the future, these take-off and landing time slot restrictions and
other restrictions on the use of various airports and their facilities may
result in further curtailment of services by, and increased operating costs for,
individual airlines, including AWA, particularly in light of the increase in the
number of airlines operating at such airports. In general, the FAA rules
relating to allocated slots at the High Density Airports contain provisions
requiring the relinquishment of slots for non-use and permit carriers, under
certain circumstances, to sell, lease or trade their slots to other carriers.
All slots must be used on 80% of the dates during each two-month reporting
period. Failure to satisfy the 80% use rate will result in loss of the slot
which would revert to the FAA and be reassigned through a lottery arrangement.

    Congress has passed legislation increasing the availability of slots at all
four High Density Airports. AWA will apply for slots to increase its services at
O'Hare, LaGuardia and National airports. There is no guarantee that AWA will be
granted additional slots at any of these airports. Under the new legislation,
slot restrictions at O'Hare Airport will be limited to the hours between 2:45
p.m. and 8:14 p.m. after July 1, 2001 and all slot restrictions are abolished
after July 1, 2002. At the New York airports, slot restrictions are abolished
after January 1, 2007.

    AWA currently utilizes six slots at both Kennedy and LaGuardia Airports,
nine slots at O'Hare Airport and four slots at National Airport during the
restricted periods. AWA utilizes these slots more than the requisite 80% use
rate. Three of the slots at National Airport are subject to expiration in
December 2001, and AWA intends to file a timely application for renewal.
Approval of such application is discretionary by the FAA.

    PERIMETER RULE AT WASHINGTON'S RONALD REAGAN NATIONAL AIRPORT

    There is a federal prohibition on flights exceeding 1,250 miles operating
from or to National Airport. This "perimeter rule" results in AWA being unable
to fly non-stop to and from National Airport and its principal hubs. Congress
has passed legislation which would authorize the DOT to grant exceptions to the
1,250 mile perimeter rule for up to 12 slots per day. AWA intends to apply for
the right to provide daily Phoenix - National Airport and Las Vegas - National
Airport service. There is no guarantee that AWA will be granted any or all of
the slots it requests.

    NOISE ABATEMENT AND OTHER RESTRICTIONS

    Numerous airports served by AWA, including those at Boston, Burbank, Denver,
Long Beach, Los Angeles, Minneapolis-St. Paul, New York City, Orange County, San
Diego, San Francisco, San Jose and Washington, D.C., have imposed restrictions
such as curfews, limits on aircraft noise levels, mandatory flight paths, runway
restrictions and limits on the number of average daily departures, which limit
the ability of air carriers to provide service to or increase service at such
airports. AWA's Boeing 757-200s, Boeing 737-300s and Airbus A319s and A320s all
comply with the current noise abatement requirements of the airports listed
above.

    AIRCRAFT MAINTENANCE AND OPERATIONS

    AWA is subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, dispatch, communications,
training, flight personnel and other matters affecting air safety. The FAA has





                                       11
<PAGE>   15
the authority to issue new or additional regulations. To ensure compliance with
its regulations, the FAA conducts regular safety audits and requires AWA to
obtain operating, airworthiness and other certificates, which are subject to
suspension or revocation for cause. In addition, a combination of FAA and
Occupational Safety and Health Administration regulations on both federal and
state levels apply to all of AWA's ground-based operations.

    AWA is also subject to the jurisdiction of the Department of Defense with
respect to its voluntary participation in their Commercial Passenger Airlift
program administered by the Air Force's Air Mobility Command.

    AGING AIRCRAFT MAINTENANCE

    The FAA issued several Airworthiness Directives ("ADs") in 1990 mandating
changes to the older aircraft maintenance programs. These ADs were issued to
ensure that the oldest portion of the nation's aircraft fleet remains airworthy
and require structural modifications to or inspections of those aircraft. All of
AWA's currently affected aircraft are in compliance with the aging aircraft
mandates. AWA constantly monitors its fleet of aircraft to ensure safety levels
that meet or exceed those mandated by the FAA and the DOT.

    ADDITIONAL SECURITY AND SAFETY MEASURES

    In 1996 and 1997 the President's Commission on Aviation Safety and Security
issued recommendations and the U.S. Congress and the FAA adopted increased
safety and security measures designed to increase airline passenger safety and
security and protect against terrorist acts. Such measures have resulted in
additional operating costs to the airline industry. Examples of increased safety
and security measures include the introduction of a domestic passenger manifest
requirement, increased passenger profiling, enhanced pre-board screening of
passengers and carry-on baggage, positive bag match for profile selections,
continuous physical bag search at checkpoints, additional airport security
personnel, expanded criminal background checks for selected airport employees,
significantly expanded use of bomb-sniffing dogs, certification of screening
companies, aggressive testing of existing security systems, expansion of aging
aircraft inspections to include non-structural components, development of
objective methods for carriers to monitor and improve their own level of safety
and installation of new ground proximity warning systems on all commercial
aircraft. We cannot forecast what additional security and safety requirements
may be imposed in the future or the costs or revenue impact that would be
associated with complying with such requirements.

    ENVIRONMENTAL MATTERS

    The Company is subject to regulation under major environmental laws
administered by federal, state and local agencies, including laws governing air,
water and waste discharge activities. While the Company strives to comply with
environmental laws and regulations, the Company has incurred and may incur costs
to comply with applicable environmental laws, including soil and groundwater
cleanup and other related response costs. We believe, however, that under
current environmental laws and regulations these costs would not have a material
adverse effect on the Company's financial condition and results of operations.

    The Comprehensive Environmental Response Compensation and Liability Act of
1980, also known as Superfund, and comparable state laws impose liability
without regard to fault on certain classes of persons that may have contributed
to the release or threatened release of a "hazardous substance" into the
environment. These persons include the owner or operator of a facility and
persons that disposed or arranged for the disposal of hazardous substances. Many
airports in the United States, including Phoenix Sky Harbor International
Airport, are the subject of Superfund investigations or state implemented
groundwater investigations. AWA occupies facilities at some of these affected
airports and is a member of a fuel handling consortium, which has experienced a
fuel leak into ground water at Phoenix Sky Harbor International Airport. The
Company does not believe that its operations have been included within the ambit
of any of these investigations and does not believe that its expenses associated
with the fuel leak at Phoenix Sky Harbor International Airport will be material.

    The trend in environmental regulation is to place more restrictions and
limitations on activities that may affect the environment, and we expect that
the costs of compliance will continue to increase.




                                       12
<PAGE>   16
RISK FACTORS

    THE AIRLINE INDUSTRY AND THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND WE
MAY BE UNABLE TO COMPETE EFFECTIVELY AGAINST CARRIERS WITH SUBSTANTIALLY GREATER
RESOURCES OR LOW-COST STRUCTURES.

    The airline industry is highly competitive and industry earnings are
typically volatile. We compete with other airlines on the basis of pricing,
scheduling (frequency and flight times), on-time performance, frequent flyer
programs and other services. We compete against both larger carriers with
substantially greater resources than we have available as well as smaller
carriers with low-cost structures. Many of our larger competitors have
proprietary reservation systems and more expansive marketing and advertising
programs than we do and smaller carriers may be able to offer prices at
discounts lower than we are able to offer. We may be unable to compete
effectively against carriers with substantially greater resources or low-cost
structures.

    Most of the markets we serve are highly competitive. The markets we serve
are frequently high volume vacation destinations, most of which are likely to
experience discounted fares because ticket prices are a leading consideration
among leisure travel consumers. At our Phoenix and Las Vegas hubs, our principal
competitor is Southwest Airlines. However, we also compete against new carriers
that enter the airline industry, many of which have low-cost structures and
initiate price discounting. Price discounting occurs when a carrier offers
discounts or promotional fares to passengers. The entry of additional new
carriers in many of our markets, as well as increased competition from or the
introduction of new services by existing carriers, could reduce the numbers of
tickets we sell and therefore affect our operating results.

    If the rates of travel on the routes that we serve decrease or if
competition increases between carriers, we may not be able to compete
effectively and our operating results could decline both in absolute terms and
in relation to the operating results of our competitors.

    TLC's business is also highly competitive. TLC competes with wholesalers and
tour operators, some of which have substantially greater financial and other
resources than TLC.

    The Company's results of operations for interim periods are not necessarily
indicative of those for an entire year, because the travel business is subject
to seasonal fluctuations. Due to the greater demand for air and leisure travel
during the summer months, revenues in the airline and leisure travel industries
in the second and third quarters of the year tend to be greater than revenues in
the first and fourth quarters of the year.

    OUR HIGH LEVEL OF DEBT MAY LIMIT OUR ABILITY TO FUND GENERAL CORPORATE
REQUIREMENTS, LIMIT OUR FLEXIBILITY IN RESPONDING TO COMPETITIVE DEVELOPMENTS
AND INCREASE OUR VULNERABILITY TO ADVERSE ECONOMIC AND INDUSTRY CONDITIONS.

    As of December 31, 1999, we owed approximately $155 million of long-term
debt (less current maturities). Much of this debt is secured by a large portion
of our assets, leaving us with a limited number of assets to use to obtain
additional financing which we may need if we encounter adverse industry
conditions or a prolonged economic recession in the future. Our high level of
debt and the financial and other covenants in our debt instruments may also
limit our ability to fund general corporate requirements, including working
capital and capital expenditures, limit our flexibility in responding to
competitive developments and increase our vulnerability to adverse economic and
industry conditions.

     The Airline has outstanding orders to purchase aircraft as well as option
rights to purchase additional aircraft. AWA has arranged for financing for a
portion of the outstanding orders to purchase the aircraft, but will have to
look to outside sources to finance the remaining aircraft. We cannot guarantee
that the Airline will be able to obtain enough capital to finance the remainder
of the aircraft, and if the Airline defaults on commitments to purchase
aircraft, our ability to execute our business strategy could be materially
impaired.




                                       13
<PAGE>   17
    EFFORTS BY LABOR UNIONS TO ORGANIZE AWA'S EMPLOYEES HAVE OCCURRED IN THE
PAST AND WE EXPECT WILL OCCUR IN THE FUTURE, WHICH COULD DIVERT MANAGEMENT
ATTENTION AND INCREASE OUR OPERATING EXPENSES.

    In the recent past, labor unions have made several attempts to organize
AWA's employees, and we expect that these efforts will continue. Currently, the
Transport Workers Union is seeking to organize AWA's customer service
representatives and reservations agents. Certain groups of AWA's employees have
chosen to be represented by unions and we are currently negotiating collective
bargaining agreements with some of these groups. We cannot predict which, if
any, other groups of employees may seek union representation or the outcome of
collective bargaining agreements that we may be forced to negotiate in the
future. The negotiation of these agreements could divert management attention
and result in increased operating expenses and lower net revenues. If we are
unable to negotiate acceptable collective bargaining agreements, we might have
to wait through "cooling off" periods, which are often followed by
union-initiated work actions, including strikes. Depending on the type and
duration of work action we endure, our operating expense could increase
significantly.

    THE STOCKHOLDERS WHO EFFECTIVELY CONTROL THE VOTING POWER OF OUR COMPANY
COULD TAKE ACTIONS THAT WOULD FAVOR THEIR OWN PERSONAL INTERESTS TO THE
DETRIMENT OF OUR INTERESTS.

    Currently, three stockholders collectively control approximately 50% of the
total voting power of Holdings. These stockholders, TPG Partners, L.P., TPG
Parallel I, L.P. and Air Partners II, L.P. are all controlled by the same
company, TPG Advisors, Inc. Since TPG Advisors, Inc. is an investment firm, its
strategic objectives may be different than both the short-term or long-term
objectives of our board of directors and/or management. We cannot guarantee that
the controlling stockholders identified above will not try to influence our
business in a way that would favor their own personal interests to the detriment
of our interests.

    ANY FLUCTUATIONS IN FUEL COSTS COULD AFFECT OUR OPERATING EXPENSES AND
RESULTS.

    The price and supply of jet fuel is unpredictable and fluctuates based on
events outside our control, including geopolitical developments, regional
production patterns and environmental concerns. Since fuel is the principal raw
material used in our business, accounting for approximately 11% of our total
operating expenses in 1999, price escalations or reductions in the supply of jet
fuel will increase our operating expenses and cause our operating results to
decline. For example, with our current level of fuel consumption, a one cent per
gallon increase in jet fuel prices will cause our annual operating results to
decline by $4.6 million. We have implemented a "fuel hedging" program to manage
the risk and effect of fluctuating jet fuel prices on our business. Our hedging
program tries to offset increases in jet fuel costs by acquiring derivative
instruments keyed to the future price of heating oil, effectively resulting in a
lower net cost of jet fuel. Despite this program, we may not be adequately
protected against jet fuel costs. First, we have not executed hedging
transactions beyond June 2000. Second, our hedging program covers only
approximately 36% of jet fuel costs in the first quarter of 2000 and 23% of jet
fuel costs in the second quarter of 2000. Finally, our program primarily
addresses our exposure to fuel requirements on the East Coast as opposed to the
more volatile West Coast jet fuel prices, even though we primarily serve the
Western United States and purchase a substantially larger portion of our jet
fuel requirements on the West Coast compared to our larger competitors. For
these reasons, the protective measures we have adopted to protect against
increases in jet fuel costs may be inadequate and our operating results are
susceptible to decline.

    OUR OPERATING COSTS COULD INCREASE AS A RESULT OF PAST, CURRENT OR NEW
REGULATIONS THAT IMPOSE ADDITIONAL REQUIREMENTS AND RESTRICTIONS ON AIRLINE
OPERATIONS.

    The airline industry is heavily regulated. Both federal and state
governments from time to time propose laws and regulations that impose
additional requirements and restrictions on airline operations. Implementing
these measures, such as recently enacted aviation ticket taxes and passenger
safety measures, has increased operating costs for America West and the airline
industry as a whole. Depending on the implementation of these and other laws,
our operating costs could increase significantly. We cannot predict which laws
and regulations will be adopted or the changes and increased expense that they
could cause. Accordingly, we cannot guarantee that future legislative and
regulatory acts will not have a material impact on our operating results.





                                       14
<PAGE>   18
    BROAD STOCK MARKET FLUCTUATIONS, QUARTERLY VARIATIONS IN OPERATING RESULTS
AND OTHER EVENTS OR FACTORS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR CLASS B
COMMON STOCK.

    The stock market has experienced significant price and volume fluctuations
that have affected the market prices of equity securities of companies in the
airline industry and that often have been unrelated to the operating performance
of such companies. These broad market fluctuations may adversely affect the
market price of the Class B Common Stock of Holdings (the "Class B Common
Stock"). In addition, the market price of the Company's Class B Common Stock is
volatile and subject to fluctuations in response to quarterly variations in
operating results, announcements of new services by the Company or its
competitors, changes in financial estimates by securities analysts or other
events or factors, many of which are beyond the Company's control. See "Item 5.
Market for Registrants' Common Equity and Related Stockholder Matters."

ITEM 2. PROPERTIES

    For a description of the Company's properties, see Item 1 of Part I of this
Report on Form 10-K.

ITEM 3. LEGAL PROCEEDINGS

    Holdings and its subsidiaries are parties to various legal proceedings,
including some purporting to be class actions, and some which demand large
monetary damages or other relief which, if granted, would require significant
expenditures.

    In February 1999 Holdings, its directors and certain of its stockholders
were named as defendants in lawsuits filed on behalf of Holdings' stockholders
alleging various breaches of fiduciary duties in connection with the Board of
Directors' response to unsolicited expressions of interest proposing the
potential acquisition of Holdings or similar transactions. The plaintiffs
voluntarily dismissed these lawsuits without prejudice in July 1999. In
addition, the Company, Holdings and certain of Holdings' stockholders, executive
officers and directors have been named as defendants in lawsuits alleging
violations of the Securities Exchange Act of 1934, as amended, in connection
with Holdings' public disclosures regarding its business and prospects during
1997 and 1998. The defendants deny and are vigorously defending the claims set
forth in these lawsuits. While the outcome of these lawsuits cannot be predicted
with certainty, we currently expect that any liability arising from such
matters, to the extent not provided for through insurance or otherwise, will not
have a material adverse effect on the Company's business, financial condition
and results of operation.

    Holdings and AWA are named defendants in a number of additional lawsuits and
proceedings arising in the ordinary course of business. While the outcome of the
contingencies, lawsuits or other proceedings cannot be predicted with certainty,
we currently expect that any liability arising from such matters, to the extent
not provided for through insurance or otherwise, will not have a material
adverse effect on the financial condition and results of operations of the
Company.

    AWA leases six aircraft which may be subject to a claim in an unspecified
amount as a result of the Internal Revenue Service potentially disallowing
investment tax credits and accelerated depreciation claimed by the lessor of
such aircraft. Under the terms of indemnity agreements, if such tax benefits
were fully or partially disallowed, AWA's monthly payment obligation under the
agreements could be increased by up to approximately $15,000 per aircraft
(approximately $1,080,000 per year for all six aircraft) for the period from
1991 to 2013. The payment increase applicable to periods prior to the
determination of an indemnity obligation would be payable monthly over a
24-month period, with interest calculated at a specified prime rate. We are
unable to predict whether the Internal Revenue Service will prevail in matters
asserted against the lessor and, consequently, whether AWA will incur any
liability in connection with such claims or the amount of any such liability, if
incurred. Based on information and relevant documents available to the Company,
however, we currently believe that it is unlikely that the disposition of these
matters will have a material adverse effect on the Company's financial condition
and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.





                                       15
<PAGE>   19
EXECUTIVE OFFICERS OF THE REGISTRANT

    Set forth below is information respecting the names, ages as of March 29,
2000, positions and offices with the Company of the executive officers of the
Company.

    WILLIAM A. FRANKE, AGE 62. Chairman of the Board, President and Chief
Executive Officer of Holdings and AWA. Mr. Franke has served as Chairman of the
Board of Directors of AWA since September 1992 and as Chairman of the Board and
Chief Executive Officer of Holdings since its formation in December 1996. In
addition to his responsibilities at the Company, Mr. Franke serves as president
of Franke & Company, Inc., a financial services company he has owned since May
1987 and as a managing partner of Newbridge Latin America Fund, L.P. Mr. Franke
serves as a director of Phelps Dodge Corp., the Air Transport Association of
America, Beringer Wine Estates, Inc., ON Semiconductor, Inc., Alpargatas
S.A.I.C. and AerFi Group plc.

    W. DOUGLAS PARKER, AGE 38. Executive Vice President of Holdings and
Executive Vice President, Corporate Group of AWA. Mr. Parker joined the Company
in June 1995 as Chief Financial Officer. In September 1997, Mr. Parker's
responsibilities were expanded to include oversight of AWA's planning,
scheduling and revenue management. He was elected to his present positions in
April 1999 and oversees all of AWA's finance, scheduling and revenue management,
sales and marketing, information technologies, administration and legal affairs.
From 1991 to June 1995, Mr. Parker worked at Northwest Airlines, most recently
as Vice President - Assistant Treasurer and Vice President Financial Planning
and Analysis.

    GILBERT D. MOOK, AGE 57. Executive Vice President - Operations Group and
Chief Operating Officer of AWA. Mr. Mook joined the Company in April 1999. From
1983 through 1998, Mr. Mook was employed with Federal Express Corporation, where
he served as Senior Vice President - Air Operations Division from 1996 to 1998.

    JOHN R. GAREL, AGE 41. President and Chief Executive Officer of The Leisure
Company. Mr. Garel joined AWA in April 1995 as Senior Vice President - Marketing
and Sales and was elected to his current position in July 1997. Mr. Garel has
announced that he will leave the Company effective March 31, 2000.

    BERNARD L. HAN, AGE 35. Senior Vice President - Planning and Revenue
Management of AWA. Mr. Han joined AWA in January 1996 as Vice President -
Financial Planning and Analysis and was elected to his current position in May
1998. From 1991 through 1995, Mr. Han held management positions at Northwest
Airlines in financial planning, yield management, fleet planning and corporate
finance. Prior to that, Mr. Han worked for American Airlines in several
financial management positions.

    C.A. HOWLETT, AGE 56. Senior Vice President - Public Affairs of AWA and
Holdings. Mr. Howlett joined AWA as Vice President - Public Affairs in January
1995. On January 1, 1997, he was appointed Vice President - Public Affairs of
Holdings. He was elected to his present positions in February 1999. Prior to
1995, Mr. Howlett maintained a government relations practice as a principal at
the law firm of Lewis and Roca in Phoenix. Mr. Howlett's prior work experience
included senior positions with Salt River Project, the City of Phoenix and The
White House where he served as special assistant to President Ronald Reagan for
intergovernmental affairs.

    STEPHEN L. JOHNSON, AGE 43. Senior Vice President of Holdings and Senior
Vice President, Chief Administrative Officer and Assistant Corporate Group
Manager of AWA. Mr. Johnson joined the Company in February 1995 as Vice
President - Legal Affairs. In December 1995, Mr. Johnson was elected to the
position of Senior Vice President Legal Affairs and in December 1997, he was
elected to the position of Senior Vice President - Corporate Affairs of AWA and
Holdings. He was elected to his current positions in April 1999. From 1993 to
1994, Mr. Johnson served as Senior Vice President and General Counsel to GE
Capital Aviation Services Limited. From 1989 to 1993, Mr. Johnson was employed
by GPA Group plc, from 1991 to 1993 as Senior Vice President and General Counsel
to GPA's Leasing Division. Prior to joining GPA, Mr. Johnson was engaged in the
private practice of law.




                                       16
<PAGE>   20
    EVON L. JONES, AGE 35. Senior Vice President and Chief Information Officer
of Holdings and AWA. Mr. Jones joined the Company in November 1998. From 1995
until 1998, Mr. Jones served as Vice President - Global Financial Technologies
of American Express Company. From 1994 until 1995, he was employed as an
information technologies manager for Salomon Brothers. Prior to that, he served
as Assistant Vice President - Derivative Technologies for Lehman Brothers.

    J. SCOTT KIRBY, AGE 32. Senior Vice President - E-Business of Holdings and
AWA. Mr. Kirby joined AWA in October 1995 as Senior Director - Schedules and
Planning. In October 1997 Mr. Kirby was elected to the position of Vice
President - Planning and in May 1998 he was named Vice President - Revenue
Management. He was elected to his current position in January 2000. From 1992 to
1995 Mr. Kirby was an operations research consultant for Sabre Decision
Technologies. From 1989 to 1992 he served as an economist in the Under Secretary
of Defense Program Acquisition and Evaluation Office at the Pentagon.

    JEFFREY D. MCCLELLAND, AGE 40. Senior Vice President - Operations and
Assistant Operations Group Manager of AWA. Mr. McClelland joined the Company in
August 1999. From 1991 to 1999, Mr. McClelland worked at Northwest Airlines,
most recently as Senior Vice President - Finance and Controller. From 1988 to
1991, Mr. McClelland served in various financial analysis positions at American
Airlines. Prior to that, he spent six years as a pilot, flight instructor and
aviation safety officer with the United States Navy.

    JACK RICHARDS, AGE 46. Chief Operating Officer of TLC. Mr. Richards joined
the Company in April 1999. From 1992 through 1998, Mr. Richards served as
President and Chief Operating Officer of Adventure Tours USA. Prior to that, Mr.
Richards held several management positions with American Trans Air, the last
being Vice President Tour Operations.

    MICHAEL A. SMITH, AGE 46. Senior Vice President - Marketing and Sales of
AWA. Mr. Smith joined AWA in November 1997. From 1977 through 1997, Mr. Smith
served in various management positions with American Airlines, the last being
Managing Director - European Sales and Marketing.

    MICHAEL R. CARREON, AGE 46. Vice President and Controller of AWA. Mr.
Carreon joined AWA in December 1994 as Senior Director - Corporate Audit and in
January 1996 was elected to his current position. From 1986 to 1994, Mr. Carreon
held accounting and audit-related management positions at United Airlines. From
1981 through 1986, he served in the Audit Services Practice of Arthur Andersen &
Co. in Chicago.

    LINDA M. MITCHELL, AGE 41. Vice President and General Counsel of AWA. Ms.
Mitchell joined AWA in January 1996 as Senior Director - Legal Affairs and was
elected to her current position in February 2000. From 1992 to 1995, Ms.
Mitchell was in private practice with the law firm of Squire Sanders & Dempsey
LLP in Phoenix and from 1987 to 1991 she was with the law firm of Hopkins &
Sutter in Chicago. Prior to that Ms. Mitchell was a military intelligence
officer in the United States Army.





                                       17
<PAGE>   21
                                     PART II

ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Effective midnight December 31, 1996, AWA became a direct wholly owned
subsidiary of Holdings. Each share of Class A Common Stock of AWA was exchanged
for one share of Class A Common Stock of Holdings and each share of Class B
Common Stock of AWA was exchanged for one share of Class B Common Stock of
Holdings. As a result, Holdings became the successor issuer to AWA of the Class
A and Class B Common Stock. Also, each Warrant, which previously entitled
holders to purchase from AWA one share of Class B Common Stock of AWA, entitled
the holders to purchase from AWA one share of Class B Common Stock of Holdings
anytime before August 25, 1999. The Class A Common Stock of Holdings, par value
$.01 per share (the "Class A Common Stock"), is not publicly traded. The Class B
Common Stock, par value $.01 per share, and Warrants have been traded on the New
York Stock Exchange under the symbol "AWA" and "AWAws," respectively, since
August 26, 1994. Unexercised Warrants expired and trading ceased on August 25,
1999.

    The following table sets forth, for the periods indicated, the high and low
sales prices of the Class B Common Stock and the Warrants as reported on the New
York Stock Exchange.

<TABLE>
<CAPTION>
                                                          CLASS B
                                                        COMMON STOCK                  WARRANTS
                                                      ---------------------  ------------------------
                                                       HIGH        LOW          HIGH           LOW
                                                       ----        ---          ----           ---
<S>                                                <C>          <C>          <C>            <C>
          Year Ended December 31, 1999
           First Quarter...................        $  24 1/8    $  16        $  19 3/16     $  6 1/2
           Second Quarter..................           22 3/4       16 1/2       10 3/4         5 1/4
           Third Quarter...................           21 7/8       16 15/16      9             4 1/2
           Fourth Quarter..................           21 3/4       17 7/16        -             -

          Year Ended December 31, 1998
           First Quarter...................           27 1/2       17 3/4       15 9/16        7 3/16
           Second Quarter..................           31 5/16      25 1/2       19 1/8        13 3/4
           Third Quarter...................           30 3/8       12 5/16      18 3/16        3 1/2
           Fourth Quarter..................           17 11/16      9 9/16       7 7/8         3
</TABLE>


    As of December 31, 1999, there were four record holders of Class A Common
Stock and approximately 8,912 record holders of Class B Common Stock.

    Holdings has not paid cash dividends in any of the last three fiscal years
and does not anticipate paying cash dividends in the foreseeable future. We
expect that the Company will retain all available earnings generated by its
operations for the development and growth of its business. Any future
determination as to the payment of dividends will be made at the discretion of
the Board of Directors and will depend upon the Company's operating results,
financial condition, capital requirements, general business conditions and such
other factors as the Board of Directors deems relevant. Certain debt instruments
of the Company restrict the Company's ability to pay cash dividends on its
Common Stock and make certain other restricted payments (as defined therein).
Under these restrictions, as of December 31, 1999, the Company's ability to pay
dividends, together with any other restricted payments, would be limited to an
aggregate of $3.3 million. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."

    In September 1995 the Company adopted a stock repurchase program. The
program was amended in December 1995, August 1997, August 1998 and May 1999.
During 1995 through 1999 the Company purchased approximately 13.5 million shares
of Class B Common Stock and 7.4 million Warrants. As of December 31, 1999, the
program authorized the Company to purchase 148,700 shares of issued and
outstanding Class B Common Stock. In February 2000 the Company's Board of
Directors approved the extension of the stock repurchase program to provide for
the repurchase of up to 3.0 million additional shares of Class B Common Stock
by December 31, 2002.

    AWA has 1,000 shares of Common Stock outstanding, all of which are owned by
Holdings. There is no established public trading market for AWA's Common Stock.
AWA's ability to pay cash dividends on its Common Stock is restricted by the
debt instruments and in the manner described above.






                                       18
<PAGE>   22
ITEM 6.       SELECTED CONSOLIDATED FINANCIAL DATA

                                       SELECTED CONSOLIDATED FINANCIAL DATA

    The selected consolidated data presented below under the captions
"Consolidated Statements of Income Data" and "Consolidated Balance Sheet Data"
as of and for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 are
derived from the audited consolidated financial statements of the Company.  The
selected consolidated data should be read in conjunction with the consolidated
financial statements for the respective periods, the related notes and the
independent auditors' report.

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                            ----------------------------------------------------------------------
                                                 1999           1998           1997           1996            1995
                                                 ----           ----           ----           ----            ----
<S>                                         <C>            <C>            <C>            <C>             <C>
Consolidated statements of income data:
Operating revenues...................       $2,210,884     $2,023,284     $1,874,956     $1,739,526      $1,550,642
Operating expenses...................        2,006,333      1,814,221      1,713,130      1,670,860       1,395,910
Operating income.....................          204,551        209,063        161,826         68,666         154,732
Income before income taxes and
   extraordinary items...............          206,150        194,346        140,001         34,493         108,378
Income taxes.........................           86,761         85,775         65,031         24,883          53,608
Income before extraordinary items....          119,389        108,571         74,970          9,610          54,770
Extraordinary loss (a)...............                -              -              -         (1,105)           (984)
Net income...........................          119,389        108,571         74,970          8,505          53,786
Earnings per share:
    Basic:
       Before extraordinary items....             3.17           2.58           1.68            .21            1.21
       Extraordinary items (a) ......                -              -              -           (.02)           (.02)
       Net income....................             3.17           2.58           1.68            .19            1.19
    Diluted:
       Before extraordinary items....             3.03           2.40           1.63            .20            1.18
       Extraordinary items (a) ......                -              -              -           (.02)           (.02)
       Net income....................             3.03           2.40           1.63            .18            1.16
Shares used for computation
    Basic............................           37,679         42,102         44,529         44,932          45,158
    Diluted..........................           39,432         45,208         46,071         47,733          46,327
Consolidated balance sheet data
   (at end of period):
Total assets.........................       $1,507,154     $1,525,030     $1,546,791     $1,597,650      $1,588,709
Long-term debt, less current
   maturities........................          155,168        207,906        272,760        330,148         373,964
Total stockholders' equity...........          714,169        669,458        683,570        622,753         649,472
</TABLE>

------------
 (a)  Includes (i) an extraordinary loss of $1.1 million in 1996 resulting from
      the partial prepayment of its 10 3/4% Senior Unsecured Notes; and (ii) an
      extraordinary loss of $984,000 in 1995 resulting from the exchange of debt
      by the Company.



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

    Holdings became the holding company for AWA effective midnight, December 31,
1996. In January 1998 TLC, a subsidiary of Holdings', began operations as a new
leisure travel company to develop and grow the Company's vacation package tour
business. Holdings' primary business activity is ownership of all the capital
stock of AWA and TLC. Management's Discussion and Analysis of Financial
Condition and Results of Operations presented below relates to the consolidated
financial statements of Holdings presented in Item 8A. Financial statements for
AWA, Holdings' wholly owned subsidiary, are presented in Item 8B.





                                       19
<PAGE>   23
1999 IN REVIEW

RECORD FINANCIAL RESULTS

    In 1999 Holdings earned a record $119.4 million in consolidated net income,
a 10% increase above the previous record year in 1998. Diluted earnings per
share for the year were a record $3.03.

    The Company's EBITDAR (operating income before depreciation, amortization
and rent) margin for 1999 was 29.4%, the highest of all major domestic airlines.
The Company believes that EBITDAR margin, which is a non-GAAP measurement, is
the best measure of relative airline operating performance. EBITDAR measures
operating performance before depreciation and aircraft rentals. By excluding
both rentals and depreciation, differences in the method of financing aircraft
acquisitions are eliminated. Cash earnings are distorted by differences in
financing aircraft as depreciation attributable to owned aircraft (including
those acquired through finance leases) is added back to cash earnings while
operating lease rentals are deducted. Operating profit is also flawed as a basis
of comparison because both the depreciation and interest element of aircraft
acquisitions are included in operating profit for aircraft acquired through
operating leases. While excluded from EBITDAR margin, depreciation, amortization
and rent are components of operating expense which are significant in
understanding and assessing the Company's financial performance. In addition,
the Company's use of EBITDAR margin may not be comparable to similarly titled
measures presented by other companies. 1999 marks the fifth consecutive year the
Company has led major domestic airlines in EBITDAR margin.

IMPROVED REVENUE PERFORMANCE

    Total operating revenues increased 9.3% to a record $2.2 billion in 1999
from the Company's previous record of $2.0 billion in 1998. On a year-over-year
comparative basis, passenger revenue per available seat mile ("RASM") increased
2.4% to 7.83 cents in 1999. RASM for the other major domestic airlines decreased
0.3%. AWA's RASM improvement occurred despite a 4.9% increase in average stage
length due to additional flying in long-haul business markets. Factors
contributing to these 1999 gains included continued upgrading of the Company's
revenue management process, improved airline scheduling systems which allowed
the Company to optimize its scheduled flight times and a rational industry
pricing environment.

LOW UNIT COSTS

    In 1999 the Company's operating cost per available seat mile ("CASM") was
7.52 cents, a 3.2% increase when compared with 1998. This was approximately 23%
less than the average CASM of the other major domestic airlines which increased
by 2.7%. The Company has achieved this low cost structure primarily through
employee productivity, favorable labor costs per ASM and industry-leading
aircraft utilization.

DEBT REDUCTION/EQUITY PURCHASES

    Cash flows provided by operating and investing activities in 1999 were used
to reduce debt and repurchase equity:

-       Total long-term debt (including current maturities) was reduced from
        $288 million at December 31, 1998 to $200 million at December 31, 1999,
        a reduction of 31%. Over the last five years, the Company has reduced
        total debt by approximately $330 million or 62%.

-       In May 1999 the Company's Board of Directors approved the extension of
        the Company's stock repurchase program to provide for the repurchase of
        up to 5.0 million shares of Class B Common Stock and all of AWA's then
        publicly traded warrants by December 31, 2001. In 1999 the Company
        purchased $122 million of equity as part of this program. Since the
        program's inception in 1995, the Company has repurchased $313 million of
        equity.





                                       20
<PAGE>   24
FIRST QUARTER 2000 OUTLOOK

    As discussed in "Risk Factors", included in Part I, Item I, "Business" of
this Form 10-K, fuel accounted for approximately 11% of the Company's total 1999
operating expenses. During 1999, the average cost per gallon of jet fuel rose
from a low of 43.1 cents in March 1999 to 63.6 cents in December 1999. This
trend has continued in the first quarter 2000. The average cost per gallon of
fuel for the two months ended February 29, 2000 was 73.2 cents, an increase of
61.4% over the same period in 1999. This upward trend in fuel prices will have a
significant negative impact on first quarter 2000 operating expenses.

    In addition, AWA experienced operating challenges in the first quarter. In
January 2000 AWA's on-time performance, as reported by the United States
Department of Transportation, was 68.8%, and ranked ninth among the ten major
airlines. In February the Airline's automated flight management system, which
provides flight crews with flight plans, aircraft routing, air traffic control
management plans, en route and destination weather and fuel requirements, failed
for over five hours. Over a period a three days, this resulted in the
cancellation of over 280 flights, many more flight delays and significant
interrupted travel expenses for inconvenienced customers. In the first week of
March AWA experienced a significant number of weather-related cancellations and
delays due to winter storms in Phoenix and other key markets.

    As a result of higher fuel prices and AWA's operating challenges, the
Company expects to report a decline in operating earnings in the first quarter
of 2000, versus the record first quarter of 1999.

RESULTS OF OPERATIONS

    With commencement of TLC operations, Holdings 1999 operations consist of two
distinct lines of business for financial reporting purposes. Management believes
that a discussion of each of the business lines is appropriate to understand the
Company's results of operations. Management also believes that an improved
understanding of the Company's results can be gained by comparing the years
ended December 31, 1999 and 1998 to pro forma results for the year ended
December 31, 1997 which assumes TLC had commenced operations as a subsidiary of
Holdings on January 1, 1997. The unaudited pro forma statement of income
presented herein has been prepared based upon certain pro forma adjustments to
AWA's historical statement of income for the year ended December 31, 1997. The
1997 pro forma results are for information purposes only and are not necessarily
indicative of what actually would have been achieved if TLC had functioned as a
separate entity during 1997. In addition, the pro forma information is not
intended to be a projection of results that will be obtained in the future.

SUMMARY

    Holdings earned record consolidated net income of $119.4 million in 1999, a
10% increase over 1998's previous record consolidated net income of $108.6
million. Diluted earnings per share for the year ended December 31, 1999 were a
record $3.03 compared to $2.40 for the year ended December 31, 1998.
Consolidated income tax expense for financial reporting purposes was $86.8
million in 1999 compared to $85.8 million in 1998.

    In 1997 the Company recognized net income of $75.0 million and income tax
expense for financial reporting purposes of $65.0 million. Diluted earnings per
share for 1997 were $1.63.

AWA

    The following discussion provides an analysis of AWA's results of operations
and reasons for material changes therein for the years ended December 31, 1999,
1998 and 1997.






                                       21
<PAGE>   25
                           AMERICA WEST AIRLINES, INC.
                              STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                  PRO FORMA
                                                                                                  UNAUDITED
                                                                       1999            1998            1997
                                                                 ----------      ----------      ----------
<S>                                                              <C>             <C>             <C>
       Operating revenues:
            Passenger.....................................       $2,028,223      $1,858,551      $1,764,206
            Cargo.........................................           41,936          45,551          51,699
            Other.........................................           76,796          64,612          59,051
                                                                 ----------      ----------      ----------
                Total operating revenues..................        2,146,955       1,968,714       1,874,956
                                                                 ----------      ----------      ----------
       Operating expenses:
            Salaries and related costs....................          498,490         448,049         410,292
            Aircraft rents................................          277,326         244,088         223,423
            Other rents and landing fees..................          122,034         119,089         119,470
            Aircraft fuel.................................          220,380         194,360         243,423
            Agency commissions............................          114,742         117,483         143,900
            Aircraft maintenance materials and repairs....          218,319         182,844         146,618
            Depreciation and amortization.................           48,442          49,026          48,158
            Amortization of reorganization value in
                excess of amounts allocable to
                identifiable assets.......................           19,896          19,896          22,444
            Other.........................................          429,425         396,033         367,380
                                                                 ----------      ----------      ----------
                Total operating expenses..................        1,949,054       1,770,868       1,725,108
                                                                 ----------      ----------      ----------

       Operating income...................................          197,901         197,846         149,848
                                                                 ----------      ----------      ----------
       Nonoperating income (expenses):
            Interest income...............................           19,593          20,682          17,432
            Interest expense, net.........................          (29,352)        (33,807)        (39,110)
            Gain (loss) on disposition of property and
                equipment.................................            1,095            (638)              -
            Other, net....................................           11,737             474            (222)
                                                                 ----------      ----------      ----------
                Total nonoperating income (expenses), net.            3,073         (13,289)        (21,900)
                                                                 ----------      ----------      ----------
                Income before income taxes................       $  200,974      $  184,557      $  127,948
                                                                 ==========      ==========      ==========
</TABLE>



    The table below sets forth selected operating data for AWA.

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,               PERCENT       PERCENT
                                                              ------------------------------------         CHANGE        CHANGE
                                                              1999            1998            1997        1999-1998     1998-1997
                                                              ----            ----            ----        ---------     ---------
<S>                                                         <C>             <C>             <C>          <C>             <C>
Aircraft (end of period) .............................          124             111             102          11.7            8.8
Average daily aircraft utilization (hours) ...........         11.6            12.0            12.3          (3.3)          (2.4)
Available seat miles (in millions) ...................       25,912          24,307          23,568           6.6            3.1
Block hours (in thousands) ...........................          493             461             455           6.9            1.3
Average stage length (miles) .........................          862             822             779           4.9            5.5
Average passenger journey (miles) ....................        1,303           1,218           1,134           7.0            7.4
Revenue passenger miles (in millions) ................       17,711          16,374          16,204           8.2            1.0
Load factor (percent) ................................         68.4            67.4            68.8           1.0pts        (1.4)pts
Passenger enplanements (in thousands) ................       18,704          17,792          18,331           5.1           (2.9)
Yield per revenue passenger mile (cents) .............        11.45           11.35           10.89           0.9            4.2
Revenue per available seat mile:
     Passenger (cents) ...............................         7.83            7.65            7.49           2.4            2.1
     Total (cents) ...................................         8.29            8.10            7.96           2.3            1.8
Fuel consumption (gallons in millions) ...............          412             387             377           6.5            2.7
Average Fuel price (cents per gallon) ................         53.4            50.3            64.6           6.2          (22.1)
Full-time equivalent employees (end of period) .......       11,536          10,759           9,615           7.2           11.9
</TABLE>




                                       22
<PAGE>   26
    The table below sets forth the major components of CASM for AWA for the
applicable years. CASM for 1997 is based on pro forma operating expenses.


<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------             PERCENT       PERCENT
                                                                              PRO FORMA      CHANGE        CHANGE
                                                      1999         1998          1997       1999-1998     1998-1997
                                                      ----         ----          ----       ---------     ---------
                                                                (IN CENTS)
<S>                                                  <C>          <C>         <C>           <C>           <C>
Salaries and related costs....................        1.92         1.84          1.74           4.3           5.7
Aircraft rents................................        1.07         1.01           .95           5.9           6.3
Other rents and landing fees..................         .47          .49           .51          (4.1)         (3.9)
Aircraft fuel.................................         .85          .80          1.03           6.2         (22.3)
Agency commissions............................         .44          .48           .61          (8.3)        (21.3)
Aircraft maintenance materials and repairs....         .84          .75           .62          12.0          21.0
Depreciation and amortization.................         .19          .20           .20          (5.0)           -
Amortization of reorganization values in excess
     of amounts applicable to identifiable assets      .08          .08           .10            -          (20.0)
Other.........................................        1.66         1.64          1.56           1.2           5.1
                                                      ----         ----          ----
                                                      7.52         7.29          7.32           3.2          (0.4)
                                                      ====         ====          ====
</TABLE>



1999 COMPARED WITH 1998

    For 1999 AWA realized operating income of $197.9 million, which was
relatively flat when compared to the $197.8 million of operating income
recognized in 1998. Income before income taxes for 1999 was a record $201.0
million compared to $184.6 million in 1998.

    Total operating revenues for 1999 were a record $2.1 billion. Passenger
revenues were $2.0 billion in 1999, an increase of $169.7 million or 9.1% from
1998. RASM in 1999 increased 2.4% to 7.83 cents from 7.65 cents driven by a 0.9%
increase in revenue per passenger mile ("yield"). The increase in RASM and yield
occurred despite a 4.9% increase in average stage length due to increased flying
to long-haul business markets. Capacity, as measured by available seat miles
("ASMs") increased 6.6% in 1999 as compared to 1998 while load factor (the
percentage of available seats that are filled with revenue passengers) increased
by 1.0 points to 68.4%. Cargo revenues for 1999 decreased $3.6 million (7.9%)
due to lower freight and mail volumes. Other revenues, which consist primarily
of alcoholic beverage sales, contract service sales, service charges and Mesa
Airlines net revenues, increased $12.2 million (18.9%) due primarily to
expansion and increased profitability of AWA's codesharing agreement with Mesa
Airlines.

    Operating expenses in 1999 increased $178.2 million, or 10.1% year-over-year
while ASMs increased 6.6% in 1999 as compared to 1998. As a result, CASM
increased 3.2% to 7.52 cents in 1999 from 7.29 cents in 1998. Significant
changes in the components of operating expense per ASM are explained as follows:

    -   Salaries and related costs per ASM increased 4.3% primarily due to a
        higher number of employees in 1999 to support anticipated growth. Also,
        contracts with the International Brotherhood of Teamsters ("IBT")
        (signed October 1998) and the Association of Flight Attendants ("AFA")
        (signed May 1999), covering the airline's mechanics and flight
        attendants, respectively, included higher wage rates. Payroll expense
        for maintenance-related personnel increased by $3.7 million (21.3%) and
        flight attendant salaries increased $8.4 million (18.6%) in 1999. In
        addition, the contract with Airline Pilots Association ("ALPA") (signed
        May 1995) required longevity-related salary level increases. Payroll
        expense for pilots increased by $11.2 million (8.8%) in 1999.

    -   Aircraft rent expense per ASM increased 5.9% due primarily to the net
        addition of 12 leased aircraft to the fleet during 1999 as compared to
        1998. The effect of a sale/leaseback transaction involving six
        previously owned aircraft, which was completed in August 1999, increased
        aircraft rent expense by approximately $5.5 million in 1999.

    -   Other rents and landing fees expense per ASM decreased 4.1% in 1999 due
        to the 6.6% increase in ASMs. A decrease in aircraft part borrow costs
        of $2.4 million was substantially offset by higher landing fees ($1.4
        million) and airport rents ($1.0 million).



                                       23
<PAGE>   27
    -   Aircraft fuel expense per ASM increased 6.2% due to a 6.2% increase in
        the average price per gallon of fuel to 53.4 cents in 1999 from 50.3
        cents in 1998.

    -   Agency commissions expense per ASM decreased 8.3% due to an increase in
        the mix of non-commissionable revenue in 1999 as compared to 1998. A
        decrease in the base commission rate from 8% to 5% effective October 18,
        1999 and the institution of a $50 commission cap implemented on May 1,
        1998 also contributed to the decrease.

    -   Aircraft maintenance materials and repairs expense per ASM increased
        12.0% primarily due to a $21.9 million increase in capitalized
        maintenance amortization expense for 1999 when compared to 1998 and
        higher airframe maintenance costs ($5.7 million).

    -   Depreciation and amortization expense per ASM decreased 5.0% due
        primarily to the airline extending the estimated depreciable service
        lives of certain Boeing 737-200 aircraft that have been modified to meet
        the FAA's Stage III noise requirements. This change increased the
        average depreciable life by approximately four years. The sale/leaseback
        transaction involving six previously owned aircraft, which was completed
        in August 1999, also decreased depreciation and amortization expense by
        approximately $4.0 million.

    -   Other operating expenses per ASM increased 1.2% to 1.66 cents from 1.64
        cents primarily due to the effect in 1999 of non-salary related Year
        2000 costs ($6.9 million), higher interrupted trip expense ($4.3
        million) and higher costs resulting from growth. Growth-related costs
        include catering costs ($3.6 million), refueling and service checks
        ($3.3 million), credit card discount fees ($2.8 million), EDS
        reservation systems fees ($2.8 million), aircraft fuel tax ($2.4
        million) and property taxes ($2.1 million). These increases were offset
        in part by a $3.7 million gain on sale of AWA's investment in Equant, a
        $2.6 million decrease in traffic liability insurance expense primarily
        due to a rate decrease in 1999 and a $5.3 million decrease in expense
        associated with AWA's frequent flyer program resulting from a reduction
        in the estimated liability for travel awards.

    Net non-operating expenses benefited from a $2.7 million gain on sale of
AWA's investment in 30,000 shares of Priceline.com ("Priceline") common stock in
June 1999. AWA also recognized an $11.9 million unrealized gain related to an
investment in 294,109 shares of Priceline common stock, which are classified as
trading securities in the Company's consolidated balance sheet. (See "(a) Fair
Value of Financial Instruments - Investment in Equity Securities" in Note 6,
"Financial Instruments and Risk Management.") Net interest expense decreased
$4.5 million in 1999 primarily due to lower average outstanding debt and
interest income decreased $1.1 million due to lower cash and cash equivalent
balances.

1998 COMPARED WITH 1997

    For 1998 AWA realized record operating income of $197.8 million, a 32.0%
increase over the previous record $149.8 million of operating income recognized
in 1997. Income before income taxes for 1998 was also a record $184.6 million
compared to $127.9 million in 1997.

    These record results were achieved despite a significant increase in
canceled flights during the 1998 third quarter as contract negotiations with the
airline's mechanics, represented by the IBT, continued. In late July 1998 AWA
undertook an aggressive recovery plan to improve operational performance. Also,
in October 1998 AWA entered into a five-year collective bargaining agreement
with the IBT. As a result of these factors, AWA experienced a significant
reduction in cancellations in the fourth quarter of 1998.

    Total operating revenues for 1998 were $2.0 billion. Passenger revenues were
$1.9 billion in 1998, an increase of $94.3 million or 5.4% from 1997. RASM in
1998 increased 2.1% to 7.65 cents from 7.49 cents driven by a 4.2% increase in
yield. The increase in RASM and yield occurred despite a 5.5% increase in
average stage length due to increased flying to long-haul business markets and
the lapse of a federal transportation excise tax for the period January 1 to
March 6, 1997. ASMs increased 3.1% in 1998 as compared to 1997 while load factor
decreased by 1.4 points to 67.4%. Cargo and other revenues for 1998 ($110.2
million) were relatively flat when compared to 1997.

    Operating expenses in 1998 increased $45.8 million, or 2.7% year-over-year
while ASMs increased 3.1% in 1998 as compared to 1997. As a result, CASM
decreased 0.5% to 7.29 cents in 1998 from 7.32 cents in 1997.



                                       24
<PAGE>   28
Significant changes in the components of operating expense per ASM are explained
as follows:

    -   Salaries and related costs per ASM increased 5.9% primarily due to a
        $11.5 million increase in the accrual for AWArd Pay resulting from
        higher operating income in 1998. In addition, longevity-related salary
        increases required by the collective bargaining agreement with the
        airline's pilots and increased training contributed to an increase in
        pilot salaries in 1998 by $9.5 million (8.1%) compared to 1997. Payroll
        expense for maintenance-related personnel also increased by $5.0 million
        (21.0%) in 1998 as a result of higher headcount to address
        unsatisfactory operational performance in the third and fourth quarters
        of 1998 and the IBT contract, which included higher wage rates and a
        $1.4 million signing bonus.

    -   Aircraft rent expense per ASM increased 5.9% due primarily to the net
        addition of nine leased aircraft to the fleet during 1998 as compared to
        1997.

    -   Other rents and landing fees expense per ASM decreased 3.4% in 1998 due
        to the 3.1% increase in ASMs. An increase in airport rents of $2.5
        million was substantially offset by lower landing fees ($1.6 million) as
        landings decreased by 3.2%.

    -   Aircraft fuel expense per ASM decreased 22.6% due to a 22.1% decrease in
        the average price per gallon of fuel to 50.3 cents in 1998 from 64.6
        cents in 1997.

    -   Agency commissions expense per ASM decreased 20.8% as the cost
        reductions associated with the change in agency commission rate from 10%
        to 8% in October 1997 and the institution of the $50 commission cap
        implemented on May 1, 1998 more than offset the effects of higher
        passenger revenues in 1998.

    -   Aircraft maintenance materials and repairs expense per ASM increased
        20.9% primarily due to a $25.6 million increase in capitalized
        maintenance amortization expense for 1998 when compared to 1997 and
        higher airframe maintenance costs ($9.7 million).

    -   Amortization of excess reorganization value expense per ASM decreased
        14.0% as a result of the reduction in the unamortized balance of excess
        reorganization value due to the utilization of tax attributes of the
        pre-reorganized AWA.

    -   Other operating expenses per ASM increased 5.2% to 1.64 cents from 1.56
        cents primarily due to the effect in 1998 of non-salary related Year
        2000 costs ($12.4 million), higher interrupted trip ($7.8 million) and
        crew accommodation ($4.6 million) expenses, the write-off of certain
        software applications ($4.5 million), and the $2.5 million FAA
        settlement (see "(d) FAA Settlement" in Note 11, "Commitments and
        Contingencies" in Notes to Consolidated Financial Statements). These
        increases were offset by reduced advertising costs ($10.4 million) and
        lower hull and traffic liability insurance rates ($5.1 million).

    Net non-operating expenses decreased $8.6 million to $13.3 million in 1998
from $21.9 million in 1997 as net interest expense decreased $5.3 million in
1998 primarily due to lower average outstanding debt and interest income
increased $3.3 million due to higher cash and cash equivalent balances.

TLC

    TLC's consolidated statements of income include the results of The Vacation
Store ("TVS"), acquired in November 1998, and the National Leisure Group
("NLG"), acquired in May 1999. TVS and NLG are national retail leisure travel
companies that specialize in the marketing, packaging and retail distribution of
cruise and resort vacations. These acquisitions add established retail networks
to TLC's largely wholesale travel product line. The following discussion
provides an analysis of TLC's results of operations and reasons for material
changes therein.





                                       25
<PAGE>   29
                               THE LEISURE COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      PRO FORMA
                                                                                     (UNAUDITED)
                                                             1999          1998           1997
                                                         --------      --------       --------
<S>                                                      <C>           <C>           <C>
                Operating revenues..................     $231,373      $182,907      $ 210,762
                Cost of goods sold..................      166,982       128,143        158,011
                                                         --------      --------      ---------
                Net revenues........................       64,391        54,764         52,751

                Total operating expenses............       52,859        39,486         40,026
                                                         --------      --------      ---------

                Operating income....................       11,532        15,278         12,725

                Nonoperating income (expense), net..         (177)           75         (1,387)
                                                         --------      --------      ---------

                Income before income taxes..........     $ 11,355      $ 15,353      $  11,338
                                                         ========      ========      =========

                Supplemental information:
                Gross revenues......................     $261,421      $182,907      $ 210,762
                                                         ========      ========      =========
</TABLE>

Note:  Net revenues represent the gross profit earned on the sale of travel
       services by The Leisure Company. This amount is included in Holdings'
       consolidated operating revenues. Gross revenues represent the total
       purchase price of all travel services booked by The Leisure Company.


1999 COMPARED WITH 1998

    For 1999, TLC's consolidated income before income taxes was $11.4 million, a
decrease of $4.0 million when compared to 1998. Consolidated operating revenues
were $231.4 million or $48.5 million higher than 1998 due primarily to the
acquisition of TVS and NLG, which had 1999 revenues of $20.7 million and $45.8
million, respectively. Wholesale vacation package revenues were $15.0 million
lower than 1998 due primarily to lower passenger volumes. Gross revenues
increased $78.5 million compared to 1998 primarily due to TVS and NLG, which
contributed gross revenue of $23.7 million and $71.6 million, respectively, in
1999. Consolidated cost of goods sold was $167.0 million for 1999, an increase
of $38.9 million. The cost of retail packages sold by TVS and NLG was $17.3
million and $35.0 million, respectively. The cost of wholesale packages sold
decreased $10.9 million compared to 1998 due to lower passenger volumes, which
was partially offset by higher air and hotel costs. Consolidated gross profit
increased $9.6 million in 1999. Total consolidated operating expenses increased
$13.4 million for 1999 primarily due to the newly acquired companies, higher
infrastructure costs related to future growth needs and a year-over-year
increase in fees paid for services provided by AWA.

1998 COMPARED WITH 1997

    TLC's income before income taxes for 1998 was $15.4 million, up $4.0 million
when compared to 1997 on a pro forma basis. Operating revenues fell $27.9
million due to AWA's improving yield profile, which resulted in less reliance on
vacation package traffic and therefore lower volumes for TLC. This shortfall was
offset by a reduction in cost of goods sold due to lower package volumes.
Overall, net revenues increased by $2.0 million while total operating expenses
were relatively unchanged in 1998 when compared to 1997.

LIQUIDITY AND CAPITAL RESOURCES

    Holdings' unrestricted cash and cash equivalents and short-term investments
decreased to $127.8 million at December 31, 1999 from $135.8 million at December
31, 1998. Net cash provided by operating activities decreased to $269.3 million
in 1999 from $348.9 million in 1998, a decrease of $79.6 million. This decrease
was principally due to the period over period change in air traffic liability
which decreased by 8.0% in the 1999 period as compared to a 21% increase in the
1998 period. Air traffic liability represents ticket sales for transportation
which has not yet been provided. The acquisition of NLG by TLC in 1999 also
contributed to the decrease. Net cash used in investing activities decreased to
$106.8 million in 1999 from $212.7 million in 1998. This decrease was primarily
due to the sale in August 1999 of six aircraft for $114.1 million as part of a
sale/leaseback transaction. See "(d) Sale/Leaseback Transaction" in Note 11,
"Commitments and Contingencies" in Notes to Consolidated Financial Statements.
The 1999 period also included sales of short-term investments totaling $11.9
million in 1999 compared to purchases of $27.5 million of short-term investments
in 1998. Net cash used in financing activities was $158.7 million for the year
ended December 31, 1999 compared to $200.1 million in the 1998 period. The 1999
period included $162.1 million of borrowings under AWA's revolving credit
facility, $94.3 million of borrowings in February 1999






                                       26
<PAGE>   30
and $67.8 million in August 1999. These borrowings were repaid in 1999 in
accordance with the terms of the credit facility. The 1999 period also included
proceeds of $32.8 million from the exercise of 2.6 million AWA Warrants to
purchase Holdings' Class B Common Stock and purchases of Holdings Class B Common
Stock and AWA Warrants under the Stock Repurchase Program totaling $121.7
million. In 1998 AWA repaid $30 million of revolving credit facility debt and
the Company repurchased $132.3 million of Holdings Class B Common Stock and AWA
Warrants.

    Operating with a working capital deficiency is common in the airline
industry as tickets sold for transportation which has not yet been provided are
classified as a current liability while the related income producing assets, the
aircraft, are classified as non-current. The Company's working capital
deficiency at December 31, 1999 is $160.8 million.

    As of December 31, 1999, the Company had $200.3 million of long-term debt
(including current maturities) which consists primarily of principal
amortization of notes payable secured by certain of the Company's aircraft.
Management expects to fund these requirements with cash from operations or
refinance these obligations, subject to availability and market conditions at
such time.

     In June 1999 Series 1999 special facility revenue bonds ("new bonds") were
issued by a municipality to fund the retirement of the Series 1994A bonds ("old
bonds") and the construction of a new concourse with 14 gates at Terminal 4 in
Phoenix Sky Harbor International Airport in support of AWA's strategic growth
plan. The new bonds are due June 2019 with interest accruing at 6.25% per annum
payable semiannually on June 1 and December 1, commencing on December 1, 1999.
The new bonds are subject to optional redemption prior to the maturity date on
or after June 1, 2009 in whole or in part, on any interest payment date at the
following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on June
1 or December 1, 2010; and 100% on June 1, 2011 and thereafter. See "(b) Revenue
Bonds" in Note 11, "Commitments and Contingencies" in Notes to Consolidated
Financial Statements.

     At December 31, 1999, AWA had firm commitments to AVSA S.A.R.L., an
affiliate of Airbus Industrie ("AVSA"), to purchase a total of 42 Airbus
aircraft. AWA also received 25 options and 25 purchase rights to purchase
aircraft in the "A320 family" of aircraft (A318s, A319s, A320s and A321s) for
delivery in 2004 through 2008. The aggregate net cost of firm commitments
remaining under the aircraft order is approximately $1.6 billion.

    In September 1999 America West Airlines 1999-1 Pass Through Trusts issued
$253.8 million of Pass Through Trust Certificates in connection with the
financing of five Airbus A319 aircraft and five Airbus A320 aircraft to be
purchased from AVSA. The Pass Through Trust Certificates are not direct
obligations of, nor guaranteed by Holdings and AWA. The combined effective
interest rate on the financing is 8.22%. Four A319 and four A320 aircraft that
are the subject of this financing were delivered in 1999. The remaining two
aircraft were delivered in February 2000.

    AWA intends to seek additional financing (which may include public debt
financing or private financing) in the future when and as appropriate to support
these aircraft orders. There can be no assurance that sufficient funding will be
obtained for all aircraft. A default by AWA under the AVSA purchase commitment
could have a material adverse effect on AWA.

     In December 1999 AWA entered into a $125 million senior secured revolving
credit facility with a group of financial institutions that has a three-year
term. This facility replaced AWA's $100 million revolving credit facility which
was entered into in December 1997. Borrowings under this credit facility will
accrue interest at either the "base rate" (prime rate or the rate which is 1/2
of 1% in excess of the Federal Funds Effective Rate) or the "adjusted
eurodollar rate" (LIBOR rate adjusted for certain reserve requirements in
respect to "Eurodollar liabilities") plus the applicable margin based on
Moody's rating of AWA's senior unsecured notes. The credit agreement is secured
by certain assets of AWA. As of December 31, 1999, $109.2 million was available
for borrowing based on the value of the assets pledged. There were no
outstanding borrowings as of December 31, 1999.

     In February 2000 the Company's Board of Directors approved the extension
of the Company's stock repurchase program to provide for the repurchase of up
to 3.0 million additional shares of Class B Common Stock, in open market or
private transactions, by December 31, 2002.

     In February 2000 TLC signed a letter of intent to sell America West Golf
Vacations to Book4golf.com, a provider of Internet-based, real-time, golf tee
time reservations systems. Book4golf.com and TLC will form a post-acquisition
strategic alliance to create and market golf vacation packages that can be
designed and purchased on-line, including tee times, green fees, golf lessons,
air travel, car rental and hotel accommodations. The consideration for the
America West Golf Vacations acquisition will be common shares and share
purchase warrants of Book4golf.com. The number of warrants will be based, in
part, upon certain performance driven criteria in the future. Book4golf.com has
reserved a price of $18.53 CDN per share for the common shares to be issued to
TLC and $22.00 CDN per common share for the common shares to be purchased upon
the exercise of the warrants. The transaction is subject to certain regulatory
and other approvals, among other things.

     In March 2000 Holdings and TLC reached an agreement to sell a majority
interest in TLC's retail operations, NLG and TVS, to Softbank Capital LP and
General Catalyst LLP. Holdings will receive $48 million in cash and will retain
a twelve percent passive ownership interest in the restructured venture. At
closing, the Company expects to report a gain on sale of approximately $10
million. The transaction is subject to certain regulatory and other approvals,
among other things.

     Capital expenditures for the years ended December 31, 1999, 1998 and 1997
were approximately $299.6 million, $177.0 million and $155.0 million,
respectively. Capital expenditures for capitalized maintenance were $112.8
million, $112.5 million and $86.5 million for the years ended December 31, 1999,
1998 and 1997, respectively. 1999 capital expenditures include $67.8 million to
purchase one Airbus A319 and one Airbus A320 aircraft that were subsequently
refinanced through the sale of America West Airlines 1999-1 Pass Through Trust
Certificates as discussed above. Excluding these aircraft, 1999 capital
expenditures were approximately $231.8 million. Capital expenditures for 2000
are expected to increase to approximately $250 million due primarily to
increased expenditures for capitalized maintenance, computer systems and
equipment. The Company currently intends to fund such expenditures with cash
from operations.




                                       27
<PAGE>   31
OTHER INFORMATION

LABOR RELATIONS

    On March 20, 1999, the Company reached a tentative agreement with the AFA,
which represents AWA's approximately 2,300 flight attendants, on a five-year
collective bargaining agreement. The agreement was ratified on April 30, 1999.

    In January 1999 AWA's approximately 2000 fleet service workers voted to be
represented by the Transportation Workers Union ("TWU"). In September 1999 AWA's
stock clerks voted to be represented by the IBT. The Company is in the process
of negotiating initial contracts with the TWU and IBT as bargaining
representatives for the fleet service workers and stock clerks, respectively.
The Company has also begun negotiations with ALPA on a new contract for AWA's
pilots. The existing contract with ALPA becomes amendable in May 2000. The
Company cannot predict the outcome or the form of these future collective
bargaining agreements and therefore the effect, if any, on AWA's operations or
financial performance.

INCOME TAXES

    At December 31, 1999, the Company had net operating loss ("NOL"), general
business tax credit carryforwards and alternative minimum tax credit
carryforwards of approximately $180.6 million, $12.4 million and $566,000,
respectively. Under Section 382 of the Internal Revenue Code of 1986, as
amended, if a loss corporation has an "ownership change" within a designated
testing period, its ability to use its NOL and tax credit carryforwards is
subject to certain limitations. The Company is a loss corporation within the
meaning of Section 382. The issuance of certain common stock by the Company
pursuant to the plan of reorganization resulted in an ownership change within
the meaning of Section 382. This ownership change has resulted in an annual
limitation (the "Section 382 Limitation") upon the Company's ability to offset
any post-change taxable income with pre-change NOL. The Company's Section 382
Limitation is $36.2 million per year. Should the Company generate insufficient
taxable income in any post-change taxable year to utilize fully the Section 382
Limitation of that year, any excess limitation will be carried forward to use
in subsequent tax years, provided the pre-change NOL has not been exhausted and
the carryforward period has not expired. The amount of the limitation may under
certain circumstances be increased by the built-in gains in assets held by the
Company at the time of the ownership change that are recognized in the five
year period after the change. During 1999, the Company generated a $105 million
built-in gain resulting from a sale/leaseback transaction involving six
previously owned aircraft, thereby increasing the limitation under Section 382.
See "(d) Sale/Leaseback Transaction" in Note 11, "Commitments and
Contingencies" in Notes to Consolidated Financial Statements. The alternative
minimum tax credit may be carried forward indefinitely and is available to
reduce future income tax payable.

    The Company's reorganization and the associated implementation of fresh
start reporting in 1994 gave rise to significant items of expense for financial
reporting purposes that are not deductible for income tax purposes. In large
measure, it is these nondeductible expenses that result in an effective tax rate
(for financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, the Company's actual cash income
tax liability (i.e., current income taxes payable) of $26.7 million in 1999 is
considerably lower than income tax expense shown for financial reporting
purposes of $86.8 million. This difference in financial expense compared to
actual income tax liability is in part attributable to the utilization of
certain tax attributes of the predecessor company that serve to reduce AWA's
actual income tax liability.

GOVERNMENT REGULATIONS

    As a member of the Air Transport Association, AWA voluntarily established a
customer service plan to provide additional information to passengers on flight
delays, cancellations or overbookings, to offer the lowest fare available, allow
reservations to be held or cancelled, provide prompt ticket refunds and be more
responsive to customer complaints. Under legislation recently passed by Congress
the DOT Inspector General is to report to Congress by December 31, 2000 on the
effectiveness of the airlines' implementation of these plans. Based on this
report Congress could impose new consumer protection requirements on airlines
including payments to passengers for excessive flight delays and prohibition of
the issuance on non-refundable tickets. As a result of competitive pressures AWA
and other airlines would be limited in their ability to pass costs associated
with compliance with such laws to passengers. We cannot forecast the cost impact
of such measures if enacted.





                                       28
<PAGE>   32
     In 1997 new aviation taxes were imposed through September 30, 2007 to
provide funding for the FAA. Included in the new law is a phase-in of a modified
federal air transportation excise tax structure with a system that includes: a
domestic excise tax which started at 9% and declined to 7.5% in 1999; a domestic
segment tax that started at $1.00 and increases to $3.00 by 2003; and an
increase in taxes imposed on international travel from $6.00 per international
departure to an arrival and departure tax of $12.00 (each way). Both the
domestic segment tax and the international arrival and departure tax are indexed
for inflation. The legislation also included a 7.5% excise tax on certain
amounts paid to an air carrier for the right to provide mileage and similar
awards (e.g., purchase of frequent flyer miles by a credit card company). As a
result of competitive pressures, AWA and other airlines have been limited in
their ability to pass on the cost of these taxes to passengers through fare
increases.

    In December 1997 the National Civil Aviation Review Commission (the "NCARC")
completed its Report to Congress on FAA funding and recommended implementation
of a cost based user fee system for air carriers. Congress is presently
considering the recommendations of the NCARC, which may result in enactment of a
new funding mechanism. The Company cannot currently estimate the effect the new
combination of ticket and segment taxes, or any change in those taxes as
recommended by the NCARC, will have on its operating results. There can be no
assurance that the new taxes or such changes will not have a material adverse
effect on the Company's financial condition and results of operations.

    For additional information on government regulation and its effect on the
Company see "Government Regulations" in Item 1, Business.

FORWARD LOOKING INFORMATION

    This discussion contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in this document, the
words "anticipate", "estimate", "project", "expect" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Among the key factors that may have a direct bearing on the
Company's results are competitive practices in the airline and travel industries
generally and particularly in the Company's principal markets, the ability of
the Company to meet existing financial obligations in the event of adverse
industry or economic conditions or to obtain additional capital to fund future
commitments and expansion, the Company's relationship with employees and the
terms of future collective bargaining agreements and the impact of current and
future laws and governmental regulations affecting the airline and travel
industries and the Company's operations. For additional discussion of such risks
see "Business - Risk Factors," included in Item 1 of this Report on Form 10-K.
Any forward-looking statements speak only as of the date such statements are
made.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK SENSITIVE INSTRUMENTS

(a) COMMODITY PRICE RISK

    Aircraft fuel costs accounted for approximately 11% of the Company's total
operating expenses during 1999. At current consumption levels, a one cent per
gallon change in the price of jet fuel would affect the Company's annual
operating results in 2000 by approximately $4.6 million. Accordingly, a
substantial change in the price of jet fuel would have a significant impact on
the Company's results of operations.

    In 1996 AWA implemented a fuel hedging program to manage the risk from
fluctuating jet fuel prices. The program's objectives are to provide some
protection against extreme, upward movements in the price of jet fuel and to
protect AWA's ability to meet its annual fuel expense budget. Under the program,
AWA may enter into certain hedging transactions with approved counterparties for
future periods generally not exceeding twelve months.




                                       29
<PAGE>   33
As of December 31, 1999, the Company had entered into fixed price swap and
costless collar transactions hedging approximately 14% of its projected 2000
fuel requirements including 36% related to the first quarter and 23% related to
the second quarter. The Company has not initiated hedge transactions for its
third and fourth quarter 2000 projected fuel requirements. The use of such
hedging transactions in the Company's fuel hedging program could result in the
Company not fully benefiting from certain declines in jet fuel prices. At
December 31, 1999 the Company estimates that a 10% increase in the price per
gallon of fuel would have changed the fair value of the existing hedging
contracts by $3.9 million. A 10% decrease in the price per gallon of fuel would
have changed the fair value of the existing hedging contracts by $3.4 million.

    As of March 20, 2000, approximately 14% of AWA's 2000 fuel requirements are
hedged.

(b) INTEREST RATE RISK

    The Company's exposure to interest rate risk relates primarily to its
variable rate long-term debt obligations. At December 31, 1999, the Company's
variable-rate long-term debt obligations represented approximately 29% of its
total long-term debt. If interest rates increased 10% in 2000, the impact on the
Company's results of operations would not be material.

ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST
HOLDINGS CORPORATION

    Consolidated balance sheets of Holdings as of December 31, 1999 and 1998,
and the related consolidated statements of income, cash flows and stockholders'
equity for each of the years in the three-year period ended December 31, 1999,
together with the related notes and the report of KPMG LLP, independent
certified public accountants, are set forth on the following pages.





                                       30
<PAGE>   34
                          INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
AMERICA WEST HOLDINGS CORPORATION:

    We have audited the accompanying consolidated balance sheets of America West
Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of America West
Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.

                                                                        KPMG LLP

Phoenix, Arizona
March 29, 2000





                                       31
<PAGE>   35
                        AMERICA WEST HOLDINGS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                     1999                  1998
                                                                                                     ----                  ----
<S>                                                                                               <C>                   <C>
ASSETS
Current assets:
     Cash and cash equivalents .........................................................          $   112,174           $   108,360
     Short-term investments ............................................................               15,617                27,485
     Accounts receivable, less allowance for doubtful accounts of
          $2,453 in 1999 and $3,545 in 1998 ............................................              118,076                96,381
     Expendable spare parts and supplies, less allowance for obsolescence
          of $5,612 in 1999 and $4,112 in 1998 .........................................               49,327                31,147
     Prepaid expenses ..................................................................               42,809                38,730
                                                                                                  -----------           -----------
               Total current assets ....................................................              338,003               302,103
                                                                                                  -----------           -----------
Property and equipment:
     Flight equipment ..................................................................              801,541               931,134
     Other property and equipment ......................................................              208,961               157,718
     Equipment purchase deposits .......................................................               79,399                83,649
                                                                                                  -----------           -----------
                                                                                                    1,089,901             1,172,501
     Less accumulated depreciation and amortization ....................................              382,187               410,461
                                                                                                  -----------           -----------
                                                                                                      707,714               762,040
                                                                                                  -----------           -----------
Other assets:
     Restricted cash ...................................................................               35,579                35,262
     Reorganization value in excess of amounts allocable to identifiable
          assets, net ..................................................................              315,275               336,772
     Deferred income taxes, net ........................................................                 --                  28,054
     Other assets, net .................................................................              110,583                60,799
                                                                                                  -----------           -----------
                                                                                                      461,437               460,887
                                                                                                  -----------           -----------
                                                                                                  $ 1,507,154           $ 1,525,030
                                                                                                  ===========           ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current maturities of long-term debt ..............................................          $    45,171           $    80,439
     Accounts payable ..................................................................              149,816               112,563
     Air traffic liability .............................................................              192,799               209,525
     Accrued compensation and vacation benefits ........................................               49,865                48,338
     Accrued taxes .....................................................................               23,158                43,489
     Other accrued liabilities .........................................................               38,030                40,905
                                                                                                  -----------           -----------
          Total current liabilities ....................................................              498,839               535,259
                                                                                                  -----------           -----------
Long-term debt, less current maturities ................................................              155,168               207,906
Deferred credits and other liabilities .................................................              106,989               112,407
Deferred tax liability, net ............................................................               31,989                  --
Commitments and contingencies
Stockholders' equity:
     Preferred stock, $.01 par value.  Authorized 48,800,000 shares; no shares issued ..                 --                    --
     Class A common stock, $.01 par value.  Authorized 1,200,000 shares;
         issued and outstanding 1,100,000 shares at December 31, 1999 and
         at December 31, 1998 ..........................................................                   11                    11
     Class B common stock, $.01 par value. Authorized 100,000,000 shares;
         issued and outstanding 48,561,916 shares in 1999, and 45,280,199 shares
         in 1998 .......................................................................                  486                   453
     Additional paid-in capital ........................................................              599,078               556,508
     Retained earnings .................................................................              373,067               253,678
                                                                                                  -----------           -----------
                                                                                                      972,642               810,650
     Less: Cost of Class B common stock in treasury, 13,384,795 shares in 1999
           7,388,095 shares in 1998 and ................................................             (258,473)             (141,192)
                                                                                                  -----------           -----------
               Total stockholders' equity ..............................................              714,169               669,458
                                                                                                  -----------           -----------
                                                                                                  $ 1,507,154           $ 1,525,030
                                                                                                  ===========           ===========

</TABLE>

          See accompanying notes to consolidated financial statements.





                                       32
<PAGE>   36
                        AMERICA WEST HOLDINGS CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                1999              1998              1997
                                                             -----------       -----------       -----------
<S>                                                          <C>               <C>               <C>
Operating revenues:
   Passenger ..........................................      $ 2,028,223       $ 1,858,551       $ 1,764,206
   Cargo ..............................................           41,936            45,551            51,699
   Leisure Co. net revenues ...........................           64,391            54,764              --
   Other ..............................................           76,334            64,418            59,051
                                                             -----------       -----------       -----------
      Total operating revenues ........................        2,210,884         2,023,284         1,874,956
                                                             -----------       -----------       -----------
Operating expenses:
   Salaries and related costs .........................          500,351           450,220           418,212
   Aircraft rents .....................................          277,326           244,088           223,423
   Other rents and landing fees .......................          122,035           119,091           119,470
   Aircraft fuel ......................................          220,380           194,360           243,423
   Agency commissions .................................          114,742           117,483           151,293
   Aircraft maintenance materials and repairs .........          218,319           182,844           146,618
   Depreciation and amortization ......................           48,442            49,026            48,590
   Amortization of reorganization value in excess of
      amounts allocable to identifiable assets ........           19,896            19,896            23,776
   Leisure Co. expenses ...............................           52,859            39,486              --
   Other ..............................................          431,983           397,727           338,325
                                                             -----------       -----------       -----------
      Total operating expenses ........................        2,006,333         1,814,221         1,713,130
                                                             -----------       -----------       -----------

Operating income ......................................          204,551           209,063           161,826
                                                             -----------       -----------       -----------
Nonoperating income (expenses):
   Interest income ....................................           12,417            13,105            10,646
   Interest expense, net ..............................          (22,253)          (26,050)          (32,249)
   Gain (loss) on disposition of property and equipment            1,095              (638)           (1,710)
   Other, net .........................................           10,340            (1,134)            1,488
                                                             -----------       -----------       -----------
      Total nonoperating income (expenses), net .......            1,599           (14,717)          (21,825)
                                                             -----------       -----------       -----------
      Income before income taxes ......................          206,150           194,346           140,001
                                                             -----------       -----------       -----------
Income taxes ..........................................           86,761            85,775            65,031
                                                             -----------       -----------       -----------
      Net income ......................................      $   119,389       $   108,571       $    74,970
                                                             ===========       ===========       ===========
Earnings per share:
   Basic ..............................................      $      3.17       $      2.58       $      1.68
                                                             ===========       ===========       ===========
   Diluted ............................................      $      3.03       $      2.40       $      1.63
                                                             ===========       ===========       ===========
Shares used for computation:
   Basic ..............................................           37,679            42,102            44,529
                                                             ===========       ===========       ===========
   Diluted ............................................           39,432            45,208            46,071
                                                             ===========       ===========       ===========
</TABLE>


          See accompanying notes to consolidated financial statements.







                                       33
<PAGE>   37
                        AMERICA WEST HOLDINGS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      1999            1998            1997
                                                                   ---------       ---------       ---------
 <S>                                                               <C>             <C>             <C>
 Cash flows from operating activities:
    Net income ................................................    $ 119,389       $ 108,571       $  74,970
    Adjustments to reconcile net income to net cash provided
       by operating activities:
       Depreciation and amortization ..........................       51,385          49,545          48,590
       Amortization of capitalized maintenance ................      113,679          89,347          66,143
       Amortization of reorganization value ...................       21,496          21,496          23,776
       Amortization of deferred credits .......................       (7,521)         (6,798)        (10,405)
       Income taxes attributable to reorganization items ......         --              --            59,444
       Other ..................................................        3,258          14,316           5,843
    Changes in operating assets and liabilities:
       Decrease (increase) in accounts receivable, net ........      (21,693)         (8,091)         18,677
       Increase in expendable spare parts and supplies, net ...      (18,180)         (4,012)         (5,712)
       Decrease (increase) in prepaid expenses ................         (366)             93          10,551
       Decrease (increase) in other assets, net ...............      (51,984)         22,473         (32,464)
       Increase (decrease) in accounts payable ................       37,252         (31,136)         25,450
       Increase (decrease) in air traffic liability ...........      (16,727)         35,141         (40,907)
       Increase in accrued compensation and vacation benefits..        1,526          11,072           7,182
       Increase (decrease) in accrued taxes ...................       39,603          55,913         (35,983)
       Decrease in other accrued liabilities ..................       (2,774)         (1,554)           (282)
       Increase (decrease) in other liabilities ...............          955          (7,435)         (8,871)
                                                                   ---------       ---------       ---------
          Net cash provided by operating activities ...........      269,298         348,941         206,002
                                                                   ---------       ---------       ---------
    Cash flows from investing activities:
       Purchases of property and equipment ....................     (299,571)       (176,996)       (154,969)
       Sale (purchases) of short-term investments .............       11,868         (27,485)         39,131
       Proceeds from sales of property and equipment ..........      187,197           6,147           1,583
       Equipment purchase deposits and other ..................       (6,250)        (14,415)        (15,600)
                                                                   ---------       ---------       ---------
          Net cash used in investing activities ...............     (106,756)       (212,749)       (129,855)
                                                                   ---------       ---------       ---------
    Cash flows from financing activities:
       Proceeds from issuance of debt .........................      162,074            --            30,000
       Repayment of debt ......................................     (239,876)        (72,245)        (55,411)
       Acquisition of treasury stock ..........................     (118,278)       (116,148)         (2,434)
       Acquisition of warrants ................................       (3,378)        (16,175)        (13,342)
       Proceeds from exercise of AWA warrants .................       32,781             325              71
       Other ..................................................        7,949           4,108            (227)
                                                                   ---------       ---------       ---------
          Net cash used in financing activities ...............     (158,728)       (200,135)        (41,343)
                                                                   ---------       ---------       ---------
    Net increase (decrease) in cash and cash equivalents ......        3,814         (63,943)         34,804
                                                                   ---------       ---------       ---------
    Cash and cash equivalents at beginning of year ............      108,360         172,303         137,499
                                                                   ---------       ---------       ---------
    Cash and cash equivalents at end of year ..................    $ 112,174       $ 108,360       $ 172,303
                                                                   =========       =========       =========
    Cash, cash equivalents and short-term investments at end
       of year ................................................    $ 127,791       $ 135,845       $ 172,303
                                                                   =========       =========       =========
</TABLE>



          See accompanying notes to consolidated financial statements.







                                       34
<PAGE>   38
                        AMERICA WEST HOLDINGS CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                        (IN THOUSANDS EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                            CLASS A         CLASS B      ADDITIONAL                      CLASS B
                                            COMMON          COMMON         PAID-IN        RETAINED       TREASURY
                                             STOCK           STOCK         CAPITAL        EARNINGS         STOCK          TOTAL
<S>                                       <C>             <C>            <C>             <C>            <C>             <C>
BALANCE AT JANUARY 1, 1997 ...........     $      12       $     446      $ 577,267       $  70,137      $ (25,109)      $ 622,753
                                           ---------       ---------      ---------       ---------      ---------       ---------
Issuance of 5,534 shares and
   140,167 shares of Class B common
   stock pursuant to the exercise of
   stock warrants and stock options ....        --                 2          1,452            --             --             1,454
Issuance of 10,647 shares of
   Class B common stock ................        --              --              169            --             --               169
Acquisition of 132,300 shares of
  Class B treasury stock ...............        --              --             --              --           (2,434)         (2,434)
Issuance of 43 shares of Class B
   treasury stock ......................        --              --             --              --             --
Repurchase of 1,911,523 warrants
   at $6.98 per warrant ................        --              --          (13,342)           --             --           (13,342)
Net income .............................        --              --             --            74,970           --            74,970
                                           ---------       ---------      ---------       ---------      ---------       ---------
BALANCE AT DECEMBER 31, 1997 ...........          12             448        565,546         145,107        (27,543)        683,570
                                           ---------       ---------      ---------       ---------      ---------       ---------
Issuance of 25,560 shares and 353,000
  shares of Class B common stock
  pursuant to the exercise of stock
  warrants and stock options
  including tax benefit from the
  exercise of stock options of $1,873 ..        --                 4          6,702            --             --             6,706
Issuance of 119,235 shares of
   Class B common stock ................        --                 1          1,683            --             --             1,684
Acquisition of 100,000 shares of
   Class A treasury stock ..............        (1)             --           (1,811)           --             --            (1,812)
Acquisition of 5,951,927 shares of
   Class B treasury stock ..............        --              --             --              --         (114,336)       (114,336)
Issuance of 50,000 shares of Class B
   treasury stock ......................        --              --              563            --              687           1,250
Repurchase of 2,906,867 warrants
   at $5.56 per warrant ................        --              --          (16,175)           --             --           (16,175)
Net income .............................        --              --             --           108,571           --           108,571
                                           ---------       ---------      ---------       ---------      ---------       ---------
BALANCE AT DECEMBER 31, 1998 ...........          11             453        556,508         253,678       (141,192)        669,458
                                           ---------       ---------      ---------       ---------      ---------       ---------
Issuance of 2,573,060 shares and
   481,420 shares of Class B common
   stock pursuant to the exercise of
   stock warrants and stock options
   including tax benefit from the
   exercise of stock options of $647 ...        --                31         41,346            --             --            41,377
Issuance of 227,237 shares of
   Class B common stock ................        --                 2          4,567            --             --             4,569
Acquisition of 6,046,700 shares of
   Class B treasury stock ..............        --              --             --              --         (118,278)       (118,278)
Issuance of 50,000 shares of Class B
   treasury stock ......................        --              --               35            --              997           1,032
Repurchase of 377,400 warrants at
   $8.95 per warrant ...................        --              --           (3,378)           --             --            (3,378)
Net income .............................        --              --             --           119,389           --           119,389
                                           ---------       ---------      ---------       ---------      ---------       ---------
BALANCE AT DECEMBER 31, 1999 ...........   $      11       $     486      $ 599,078       $ 373,067      $(258,473)      $ 714,169
                                           =========       =========      =========       =========      =========       =========
</TABLE>


           See accompanying notes to consolidated financial statements




                                       35
<PAGE>   39
                        AMERICA WEST HOLDINGS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Holdings is the parent company for AWA and TLC. AWA is the ninth largest
commercial airline carrier in the United States serving 59 destinations in the
U.S., Canada and Mexico. In January 1998 TLC began operations as a new leisure
travel subsidiary of Holdings to develop and grow the Company's vacation package
tour business. TLC arranges and sells vacation packages that include hotel
accommodations, airfare, ground transportation and a variety of entertainment
options. Holdings' primary business activity is ownership of all the capital
stock of AWA and TLC.

    (a) BASIS OF PRESENTATION

    The consolidated financial statements include the accounts of Holdings and
its wholly owned subsidiaries AWA and TLC (collectively, the "Company"). All
significant inter-company balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the current year's presentation.

    (b) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

    Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less. Short-term investments consist
of cash invested in certain debt securities with original maturities greater
than 90 days and less than one year. The debt securities are classified as
held to maturity and are carried at amortized cost which approximates fair
value.

    (c) EXPENDABLE SPARE PARTS AND SUPPLIES

    Flight equipment expendable spare parts and supplies are valued at average
cost. An allowance for obsolescence is provided, over the estimated useful life
of the related aircraft and engines, for spare parts expected to be on hand at
the date the aircraft are retired from service.

    (d) PROPERTY AND EQUIPMENT

    Property and equipment are recorded at cost. Interest capitalized on advance
payments for aircraft acquisitions and on expenditures for aircraft improvements
are part of these costs. Interest capitalized for the years ended December 31,
1999, 1998 and 1997 was $6.1 million, $4.9 million and $600,000, respectively.
Property and equipment is depreciated and amortized to residual values over the
estimated useful lives or the lease term, whichever is less, using the
straight-line method.

    The estimated useful lives for the Company's ground property and equipment
range from three to 12 years for owned property and equipment and up to 22 years
for the technical support facility. The estimated useful lives of the Company's
owned aircraft, jet engines, flight equipment and rotable parts range from five
to 22 years. Leasehold improvements relating to flight equipment and other
property on operating leases are amortized over the life of the lease or the
life of the asset, whichever is shorter.

    Effective October 1, 1998, AWA extended the estimated depreciable service
lives of certain owned Boeing 737-200 aircraft which have been modified to meet
the Federal Aviation Administration's ("FAA") Stage III noise reduction
requirements. This change increased the average depreciable life by
approximately four years and reduced depreciation expense in 1999 and 1998 by
approximately $8.0 million and $2.0 million, respectively.

    The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired as defined by Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."



                                       36
<PAGE>   40
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


    (e) RESTRICTED CASH

    Restricted cash includes cash deposits securing certain letters of credit.

    (f) AIRCRAFT MAINTENANCE AND REPAIRS

    Routine maintenance and repairs are charged to expense as incurred. The cost
of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense. Additionally, an accrual for
the estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft prior to their return to the lessors has been
recorded.

    (g) REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS

    Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight line basis over 20 years. Accumulated amortization at
December 31, 1999, 1998 and 1997 was $135.1 million, $113.6 million and $92.1
million, respectively. In accordance with SFAS No. 121, the Company assesses the
recoverability of this asset based upon expected future undiscounted cash flows
and other relevant information.

    (h) FREQUENT FLYER AWARDS

    The Company maintains a frequent travel award program known as "FlightFund"
that provides a variety of awards to program members based on accumulated
mileage. The estimated cost of providing the free travel, using the incremental
cost method as adjusted for estimated redemption rates, is recognized as a
liability and charged to operations as program members accumulate mileage.

    (i) DEFERRED CREDIT-OPERATING LEASES

    Rents for operating leases were adjusted to fair market value when the
Company emerged from bankruptcy in 1994. The net present value of the difference
between the stated lease rates and the fair market rates has been recorded as a
deferred credit in the accompanying consolidated balance sheets. The deferred
credit will be increased through charges to interest expense and decreased on a
straight-line basis as a reduction in rent expense over the applicable lease
periods. At December 31, 1999 and 1998, the unamortized balance of the deferred
credit was $72.2 million and $78.6 million, respectively.

    (j) PASSENGER REVENUE

    Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense.

    (k) ADVERTISING COSTS

    The Company expenses the costs of advertising as incurred. Advertising
expense for the years ended December 31, 1999, 1998 and 1997 was $23.7 million,
$20.6 million and $25.8 million, respectively.

    (l) INCOME TAXES

    Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.




                                       37
<PAGE>   41
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


    (m) STOCK OPTIONS

    The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. In accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company
provides pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and subsequent years as if the
fair-value-based method defined in SFAS No. 123 had been applied. (See Note 4,
"Stock Options and Awards.")

     (n) NEW ACCOUNTING STANDARDS

    In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for all derivative instruments
and hedging activities. SFAS No. 133 requires recognition of all derivatives as
either assets or liabilities in the balance sheet at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposure to changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment ("fair value hedge"), a hedge of the exposure to
variable cash flows of a forecasted transaction ("cash flow hedge"), or a hedge
of the foreign currency exposure ("foreign currency hedge") of a net investment
in a foreign operation or a foreign currency-denominated forecasted transaction.
The accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. In accounting for a fair value hedge, the derivative hedging
instrument will be measured at fair value with the mark to fair value being
recorded in earnings. In a cash flow hedge, the derivative hedging instrument
will be measured at fair value with the effective portion of the gains or losses
on the derivative hedging instrument initially being reported in other
comprehensive income. In June 1999 the Financial Accounting Standards Board
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133", which
defers the effective date of SFAS No. 133 to be effective for all fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 in 2001. SFAS
No. 133 is not expected to have a material effect on the Company's results of
operations or financial position.

    (o) USE OF ESTIMATES

    Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.







                                       38
<PAGE>   42
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


2. LONG-TERM DEBT

    Long-term debt at December 31 consists of the following:

<TABLE>
<CAPTION>
                                                                                        1999          1998
                                                                                        ----          ----
                                                                                          (IN THOUSANDS)
<S>                                                                                   <C>           <C>
    SECURED
    Notes payable, primarily fixed interest rates of 10.75% to 10.79%, averaging
       10.78%, installments due 2000 through 2008 ..............................      $ 87,245      $164,478
                                                                                      --------      --------
    UNSECURED
    10 3/4% Senior Unsecured Notes, face amount of $50 million, interest
       only payment until due in 2005 (a) ......................................        48,820        48,612
    Notes payable, interest rates of 90-day LIBOR +1.25%, averaging
       7.44%, installments due through 2000 ....................................        35,000        45,500
    Industrial development bonds, face amount of $29.3 million, fixed interest
        rate of 6.3% due 2023 (b) ..............................................        29,008        28,995
    Other ......................................................................           266           760
                                                                                      --------      --------
                                                                                       113,094       123,867
                                                                                      --------      --------
    Total long-term debt .......................................................       200,339       288,345
    Less:  current maturities ..................................................        45,171        80,439
                                                                                      --------      --------
                                                                                      $155,168      $207,906
                                                                                      --------      --------
</TABLE>

(a)  The 10 3/4% Senior Unsecured Notes mature on September 1, 2005 and interest
     is payable in arrears semi-annually. The 10 3/4% Senior Unsecured Notes may
     be redeemed at the option of the Company on or after September 1, 2001 at
     any time in whole or from time to time in part, at a redemption price equal
     to the following percentage of principal redeemed, plus accrued and unpaid
     interest to the date of redemption, if redeemed during the 12-month period
     beginning:

<TABLE>
<CAPTION>
                  SEPTEMBER 1,             PERCENTAGE
                                           ----------
<S>                                        <C>
                  2000.........             105.375%
                  2001.........             103.583%
                  2002.........             101.792%
                  2003 and thereafter...    100.000%
</TABLE>

(b) The industrial development revenue bonds are due April 2023. Interest at
    6.3% is payable semiannually (April 1 and October 1). The bonds are subject
    to optional redemption prior to the maturity date on or after April 1, 2008,
    in whole or in part, on any interest payment date at the following
    redemption prices: 102 percent on April 1 or October 1, 2008; 101 percent on
    April 1 or October 1, 2009; and 100 percent on April 1, 2010 and thereafter.



    Secured financings totaling $87.2 million are collateralized by assets,
primarily aircraft and engines, with a net book value of $141.9 million at
December 31, 1999.

    At December 31, 1999, the estimated maturities of long-term debt are as
follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
                                                               (in thousands)
                  2000................................            $  45,171
                  2001................................                9,847
                  2002................................                9,674
                  2003................................                9,674
                  2004................................                8,989
                  Thereafter..........................              116,984
                                                                  ---------
                                                                  $ 200,339
</TABLE>



    In December 1999 AWA entered into a $125 million senior secured revolving
credit facility with a group of financial institutions that has a three-year
term. This facility replaced AWA's $100 million revolving credit facility which
was entered into in December 1997. Borrowings under this credit facility will
accrue interest at either the "base rate" (prime rate or the rate which is 1/2
of 1% in excess of the Federal Funds Effective Rate) or the






                                       39
<PAGE>   43
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


"adjusted eurodollar rate" (LIBOR rate adjusted for certain reserve requirements
in respect to "Eurodollar liabilities") plus the applicable margin based on
Moody's rating of AWA's senior unsecured notes. The credit agreement is secured
by certain assets of AWA. As of December 31, 1999, $109.2 million was available
for borrowing based on the value of the assets pledged. There were no
outstanding borrowings as of December 31, 1999.

    Certain of the Company's long-term debt agreements contain minimum cash
balance requirements, leverage ratios, coverage ratios, limitations on
investments and restricted payments including cash dividends, and other
financial covenants with which the Company was in compliance at December 31,
1999.

3. CAPITAL STOCK

    Effective midnight, December 31, 1996, AWA became a wholly-owned subsidiary
of Holdings and each share of AWA Class A and Class B Common Stock was exchanged
for one share of Holdings Class A or Class B Common Stock.
Holdings' Class B Common Stock is listed on the New York Stock Exchange.

    On August 25, 1994, AWA issued approximately 10.4 million warrants to
purchase Class B Common Stock with an exercise price of $12.74 per share. The
warrants were exercisable by the holders any time before August 25, 1999 and
10.4 million shares of Class B Common Stock were reserved for the exercise of
these warrants. As part of the holding company formation transaction, the AWA
warrants became rights to acquire shares of Holdings Class B Common Stock. AWA
made arrangements for the issuance of Holdings Class B Common Stock upon the
exercise of such warrants by purchasing an option from Holdings to acquire such
stock. AWA issued a $62.4 million note payable to Holdings due December 31, 2005
with an interest rate of 11%. Subsequently, Holdings made a capital contribution
to AWA by issuing a note payable to AWA for $62.4 million due December 31, 2045
with an interest rate of 10 7/8%. As of December 31, 1999, approximately 7.4
million warrants have been repurchased by AWA for approximately $51.0 million
and 2,621,208 warrants have been exercised at $12.74 per share. The balance of
unexercised warrants expired and were cancelled on August 25, 1999.

    PREFERRED STOCK

    The Company's Board of Directors by resolution may authorize the issuance of
the Preferred Stock as a class, in one or more series, having the number of
shares, designations, relative voting rights, dividend rights, liquidation and
other preferences and limitations that the Board of Directors fixes, without any
stockholder approval. No shares of Preferred Stock have been issued.

    COMMON STOCK

    The holders of Class A Common Stock are entitled to fifty votes per share,
and the holders of Class B Common Stock are entitled to one vote per share, on
all matters submitted to a vote of common stockholders except that voting rights
of non-U.S. citizens are limited. The Class A Common Stock is convertible into
an equal number of Class B shares at any time at the election of the holders of
the Class A Common Stock.

    Holders of Common Stock of all classes participate equally as to any
dividends or distributions on the Common Stock, except that dividends payable in
shares of Common Stock, or securities to acquire Common Stock, will be made in
the same class of Common Stock as that held by the recipient of the dividend.
Holders of Common Stock have no right to cumulate their votes in the election of
directors. The Common Stock votes together as a single class, subject to the
right to a separate class vote in certain instances required by law.

4. STOCK OPTIONS AND AWARDS

    Under the 1994 Incentive Equity Plan, as amended (the "Plan"), the Company's
Board of Directors may grant stock options to officers and key employees. The
maximum number of shares of Class B Common Stock authorized for issuance under
the Plan is 9.0 million shares of which 1.8 million shares are available for
grant at December 31, 1999. Stock options are granted with an exercise price
equal to the stock's fair market value at the date of grant, generally become
exercisable over a three-year period and expire if unexercised at the end of 10
years.




                                       40
<PAGE>   44
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



    Stock option activity during the years indicated is as follows:

<TABLE>
<CAPTION>
                                                                          WEIGHTED-
                                                       NUMBER OF           AVERAGE
                                                        SHARES         EXERCISE PRICE
                                                        ------         --------------
<S>                                                   <C>              <C>
             Balance at December 31, 1996:             3,538,000           $ 13.68
                 Granted.....................            479,000           $ 15.54
                 Exercised...................           (140,167)          $  9.87
                 Canceled....................           (425,333)          $ 13.74
                                                       ---------           -------
             Balance at December 31, 1997:             3,451,500           $ 14.09
                                                       ---------           -------
                 Granted.....................          1,867,000           $ 19.60
                 Exercised...................           (353,000)          $ 12.77
                 Canceled....................           (180,500)          $ 16.02
                                                       ---------           -------
             Balance at December 31, 1998:             4,785,000           $ 16.26
                                                       ---------           -------
                 Granted.....................          1,525,650           $ 19.53
                 Exercised...................           (481,420)          $ 16.51
                 Canceled....................           (591,993)          $ 18.74
                                                       ---------           -------
             Balance at December 31, 1999:             5,237,237           $ 16.91
                                                       =========           =======
</TABLE>


    At December 31, 1999, options outstanding and exercisable by price range are
as follows:

<TABLE>
<CAPTION>
                                                 WEIGHTED                                                     WEIGHTED
                                                  AVERAGE                 WEIGHTED            OPTIONS         AVERAGE
    RANGE OF                OPTIONS              REMAINING                AVERAGE             CURRENTLY       EXERCISE
EXERCISE PRICES         OUTSTANDING             CONTRACTUAL LIFE       EXERCISE PRICE        EXERCISABLE        PRICE
---------------         -----------             -----------            --------------        -----------        -----
<S>                    <C>                      <C>                      <C>                 <C>              <C>
$ 8.00 - $12.00           1,330,584                6.47                   $ 10.38             1,011,310        $ 10.18
$12.01 - $16.50           1,060,835                7.54                   $ 13.92               793,515        $ 14.06
$16.51 - $20.00           1,060,000                8.73                   $ 18.48               338,667        $ 17.94
$20.01 - $24.19           1,363,650                8.69                   $ 21.61               401,667        $ 22.09
$24.20 - $29.19             422,168                8.23                   $ 25.88               172,513        $ 26.06
                          ---------                ----                   -------             ---------        -------
                          5,237,237                7.86                   $ 16.91             2,717,672        $ 15.05
                          =========                ====                   =======             =========        =======
</TABLE>


    The per share weighted-average fair value of stock options granted during
1999, 1998 and 1997 was $8.83, $7.88 and $5.39, respectively, on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: 1999 - expected dividend yield of 0.0%, risk-free
interest rate of 5.5%, volatility of 60.0% and an expected life of four years;
1998 - expected dividend yield of 0.0%, risk-free interest rate of 4.5%,
volatility of 52.6% and an expected life of four years; 1997 - expected dividend
yield of 0.0%, risk-free interest rate of 5.7%, volatility of 44.8% and an
expected life of four years.

    The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma (unaudited) amounts indicated below:


<TABLE>
<CAPTION>
                                                 1999              1998             1997
                                                 ----              ----             ----
                                                  (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                      <C>                  <C>                <C>              <C>
Net income:              As reported          $ 119,389          $108,571         $ 74,970
                                              =========          ========         ========
                         Pro forma             $114,323          $103,583         $ 72,214
                                              =========          ========         ========
Earnings per share:
   Basic                 As reported           $   3.17          $   2.58         $   1.68
                                              =========          ========         ========
                         Pro forma             $   3.03          $   2.46         $   1.62
                                              =========          ========         ========
   Diluted               As reported           $   3.03          $   2.40         $   1.63
                                              =========          ========         ========
                         Pro forma             $   2.90          $   2.29         $   1.57
                                              =========          ========         ========
</TABLE>




                                       41
<PAGE>   45
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


    Pro forma net income reflects only options granted during the years 1995
through 1999. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to January 1,
1995 is not considered.

    Under the Plan, the Company granted 221,500 shares and 113,000 shares of
Class B Common Stock as restricted stock to certain officers and key employees
in 1999 and 1998, respectively. There were no grants of restricted stock in
1997. The Company recognized compensation expense of $856,000, $1.1 million and
$944,000 related to restricted stock in 1999, 1998 and 1997, respectively. At
December 31, 1999, 239,338 shares of restricted stock were vested.

    The Plan also provides for the issuance of stock and grant of stock options
to non-employee directors. The Company has granted options to purchase 213,000
shares of Class B Common Stock to members of the Board of Directors who are not
employees of the Company. The options have a ten-year term and are exercisable
six months after the date of grant. As of December 31, 1999, 153,000 options
were outstanding and exercisable at prices ranging from $8.00 to $29.19 per
share. On December 31, 1999, 1998 and 1997, non-employee directors were also
granted Class B Common Stock pursuant to the Plan totaling 5,737 shares, 6,235
shares and 10,647 shares, respectively.

5. EMPLOYEE BENEFIT PLAN

    The Company has a 401(k) defined contribution plan, covering essentially all
employees of the Company. Participants may contribute from 1 to 15% of their
pretax earnings to a maximum of $10,000 in 1999. The Company's matching
contribution is determined annually by the Board of Directors. The Company's
contribution expense to the plan totaled $7.6 million, $6.9 million and $6.1
million in 1999, 1998 and 1997, respectively.

6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

(a) FAIR VALUE OF FINANCIAL INSTRUMENTS

    Cash Equivalents, Short-term Investments and Receivables

    The carrying amount approximates fair value because of the short-term nature
of these instruments.

    Investment in Equity Securities

    As of December 31, 1999, AWA owned 294,109 shares of Priceline common stock,
which was classified as trading securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
estimated fair value of this investment at that date was approximately $13.9
million based on the quoted market price of Priceline common stock. An
unrealized holding gain of $11.9 million related to the Priceline shares was
included in earnings in 1999. AWA sold all 294,109 shares of Priceline for
approximately $15.1 million in January 2000.

    Long-term Debt

    At December 31, 1999 and 1998, the fair value of long-term debt was
approximately $199 million and $292 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.

(b) FUEL PRICE RISK MANAGEMENT

    Under its fuel hedging program, the Company may enter into certain hedging
transactions with approved counterparties for a period generally not exceeding
twelve months. Gains and losses on such transactions are recorded as adjustments
to fuel expense when the underlying fuel being hedged is used. As of December
31, 1999, the Company had entered into fixed price swap and costless collar
transactions hedging approximately 14% of its projected 2000 fuel requirements.





                                       42
<PAGE>   46
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


    The Company is exposed to credit risks in the event any counterparty fails
to meet its obligations. The Company does not anticipate such non-performance as
counterparties are selected based on credit ratings, exposure to any one
counterparty is limited based on formal guidelines and the relative market
positions with such counterparties are closely monitored.

(c) CONCENTRATION OF CREDIT RISK

    The Company does not believe it is subject to any significant concentration
of credit risk. Most of the Company's receivables result from tickets sold to
individual passengers through the use of major credit cards or to tickets sold
by other airlines and used by passengers on AWA. These receivables are
short-term, generally being settled shortly after the sale.

7. INCOME TAXES

    The Company recorded income tax expense as follows:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                               -------------------------------
                                               1999          1998         1997
                                               ----          ----         ----
                                                        (IN THOUSANDS)
<S>                                          <C>           <C>           <C>
Current Taxes:
   Federal ...........................       $23,503       $33,915       $ 2,483
   State .............................         3,215         5,214         3,104
                                             -------       -------       -------
         Total current taxes .........        26,718        39,129         5,587
                                             -------       -------       -------
Deferred taxes .......................        60,043        46,646          --
                                             -------       -------       -------
Income taxes attributable to
   reorganization items and other ....          --            --          59,444
                                             -------       -------       -------
Total income tax expense .............       $86,761       $85,775       $65,031
                                             =======       =======       =======
</TABLE>


    The Company's emergence from bankruptcy reorganization in 1994 and the
associated implementation of fresh start reporting gave rise to significant
items of expense for financial reporting purposes that are not deductible for
income tax purposes. In large measure, it is these nondeductible (for income tax
purposes) expenses and state income taxes that result in an effective tax rate
(for financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, the Company's actual cash income
tax liability (i.e., current income taxes payable) is considerably lower than
income tax expense shown for financial reporting purposes. This difference in
financial expense compared to actual income tax liability is in part
attributable to the utilization of certain tax attributes of the predecessor
company that serve to reduce the Company's current income tax liability. In 1997
the excess of financial expense over the Company's actual income tax liability
was applied to reduce the balance of the Company's reorganization value in
excess of amounts allocable to identifiable assets.

    Income tax expense differs from amounts computed at the federal statutory
income tax rate as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                           ------------------------------
                                                           1999          1998        1997
                                                           ----          ----        ----
                                                                    (IN THOUSANDS)
<S>                                                       <C>         <C>          <C>
           Income tax expense at U.S. statutory rate..    $72,153      $68,021      $49,000
           State income taxes, net of federal income..
              tax benefit ............................      6,620        7,803        5,655
           Nondeductible amortization of
              reorganization value in excess of
              amounts allocable to identifiable
              assets..................................      7,524        7,524        8,322
           Other, net ................................        464        2,427        2,054
                                                          -------      -------      -------
              Total ..................................    $86,761      $85,775      $65,031
                                                          =======      =======      =======
</TABLE>




                                       43
<PAGE>   47
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


    As of December 31, 1999, the Company has available net operating loss
carryforwards ("NOL"), business tax credit carryforwards and alternative minimum
tax credit carryforwards for federal income tax purposes of approximately $180.6
million, $12.4 million and $566,000, respectively. The NOL expire during the
years 2005 through 2009 while the business credit carryforwards expire during
the years 2000 through 2006. However, such carryforwards are not fully available
to offset federal (and in certain circumstances, state) alternative minimum
taxable income. Further, as a result of a statutory "ownership change" (as
defined for purposes of Section 382 of the Internal Revenue Code) that occurred
as a result of the Company's reorganization in 1994, the Company's ability to
utilize its NOL and business tax credit carryforwards may be restricted. The
alternative minimum tax credit may be carried forward without expiration and is
available to offset future income tax payable.

    COMPOSITION OF DEFERRED TAX ITEMS:

    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31, the
significant components of the Company's deferred tax assets and liabilities are
a result of the temporary differences related to the items described as follows:

<TABLE>
<CAPTION>
                                                                             1999            1998
                                                                           ---------       ---------
                                                                                (IN THOUSANDS)
<S>                                                                        <C>            <C>
      Deferred income tax liabilities
          Property and equipment, principally depreciation and "fresh
             start" differences .....................................      $(101,480)      $(131,518)

          Other .....................................................         (6,738)           --
                                                                           ---------       ---------
           Total deferred tax liability .............................       (108,218)       (131,518)
                                                                           ---------       ---------
      Deferred tax assets
          Aircraft leases ...........................................         18,718          23,951
          Frequent flyer accrual ....................................          4,790           6,541
          Net operating loss carryforwards ..........................         68,301          91,587
          Tax credit carryforwards ..................................         12,968          13,272
          Other .....................................................           --            52,769
                                                                           ---------       ---------
             Total deferred tax assets ..............................        104,777         188,120
                                                                           ---------       ---------
           Valuation allowance ......................................        (28,548)        (28,548)
                                                                           ---------       ---------
                Net deferred tax asset (liability) ..................      $ (31,989)      $  28,054
                                                                           =========       =========
</TABLE>


    SFAS No. 109, Accounting for Income Taxes, requires a "more likely than not"
criterion be applied when evaluating the realizability of a deferred tax asset.
The valuation allowance of $28.5 million is necessary because at this time the
Company has not determined it is more likely than not that the balance of the
deferred tax assets will be fully realized. The Company continues to monitor the
valuation allowance and will make adjustments as appropriate. If in future tax
periods, the Company were to recognize additional tax benefits related to items
attributable to the predecessor company such as net operating loss and other
carryforwards, such benefits would be applied to reduce further reorganization
value in excess of amounts allocable to identifiable assets.






                                       44
<PAGE>   48
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


8.   SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS

    Supplemental disclosure of cash flow information and non-cash investing and
financing activities were as follows:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                        ---------------------------------
                                                                           1999         1998         1997
                                                                        -------      -------      -------
                                                                                 (IN THOUSANDS)
<S>                                                                     <C>          <C>          <C>
          Non-cash transactions:
              Notes payable issued for equipment purchase
                 deposits ........................................      $35,000      $45,500      $10,500
              Notes payable canceled under the aircraft
                 purchase agreement ..............................       45,500       12,596       36,019
          Cash transactions:
              Interest paid, net of amounts capitalized ..........       19,920       22,184       30,830
              Income taxes paid ..................................       56,062       20,963          205
</TABLE>


9.   INVESTMENTS IN DEBT SECURITIES

    Cash equivalents and short-term investments as of December 31 are classified
as follows:

<TABLE>
<CAPTION>
                                                                                     1999          1998
                                                                                     ----          ----
                                                                                       (IN THOUSANDS)
<S>                                                                                <C>           <C>
        Debt securities issued by the U.S. Treasury and other U.S. government
            agencies ........................................................      $   --        $ 53,519
        Corporate notes .....................................................        61,135        82,195
        Money Market Funds ..................................................        55,507           131
        Other debt securities ...............................................        11,149            --
                                                                                   --------      --------
                   Total cash, cash equivalents and short-term investments ..      $127,791      $135,845
                                                                                   ========      ========
</TABLE>


10.  EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------------
                                                            1999            1998             1997
                                                        -----------      -----------      -----------
                                                         (IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S>                                                     <C>              <C>              <C>
BASIC EARNINGS PER SHARE
Income applicable to common stock ................      $   119,389      $   108,571      $    74,970
                                                        ===========      ===========      ===========

Weighted average common shares outstanding .......       37,678,947       42,102,211       44,528,575
                                                        ===========      ===========      ===========

Basic earnings per share .........................      $      3.17      $      2.58      $      1.68
                                                        ===========      ===========      ===========

DILUTED EARNINGS PER SHARE

Income applicable to common stock ................      $   119,389      $   108,571      $    74,970
                                                        ===========      ===========      ===========
Share computation:
  Weighted average common shares outstanding .....       37,678,947       42,102,211       44,528,575
  Assumed exercise of stock options and warrants..        1,753,324        3,105,982        1,542,375
                                                        -----------      -----------      -----------
  Weighted average common shares
        outstanding as adjusted ..................       39,432,271       45,208,193       46,070,950
                                                        ===========      ===========      ===========
Diluted earnings per share .......................      $      3.03      $      2.40      $      1.63
                                                        ===========      ===========      ===========
</TABLE>


    For the years ended December 31, 1999, 1998 and 1997, options of 1,632,041,
1,843,391 and 1,089,016, respectively, are not included in the computation of
diluted EPS because the option exercise prices were greater than the average
market price of common stock. (See Note 15, "Subsequent Events".)





                                       45
<PAGE>   49

11.  COMMITMENTS AND CONTINGENCIES

    (a) LEASES

    As of December 31, 1999, the Company had 112 aircraft under operating leases
with remaining terms ranging from one year to approximately 21 years. The
Company has options to purchase certain of the aircraft at fair market values at
the end of the lease terms. Certain of the agreements require security deposits,
minimum return provisions and maintenance reserve payments and provide the
aircraft lessors with the option during the lease term to reset their respective
rentals to the greater of the existing rentals being paid under the leases or
the then current fair market rates. The Company also leases certain terminal
space, ground facilities and computer and other equipment under noncancelable
operating leases.

    At December 31, 1999, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
are as follows:

<TABLE>
<CAPTION>
                                        (IN THOUSANDS)
<S>                                     <C>
                    2000.........        $  343,709
                    2001.........           313,756
                    2002.........           282,360
                    2003.........           226,631
                    2004.........           181,563
                    Thereafter...         1,359,959
                                         ----------
                                         $2,707,978
                                         ----------
</TABLE>


    Rent expense (excluding landing fees) was approximately $365 million, $330
million and $308 million for the years ended December 31, 1999, 1998, and 1997,
respectively.

    Collectively, the operating lease agreements require security deposits with
lessors of $26.3 million and bank letters of credit of $18.5 million. The
letters of credit are collateralized by $18.5 million of restricted cash as of
December 31, 1999.

    (b) REVENUE BONDS

    In June 1999 Series 1999 special facility revenue bonds ("new bonds") were
issued by a municipality to fund the retirement of the Series 1994A bonds ("old
bonds") and the construction of a new concourse with 14 gates at Terminal 4 in
Phoenix Sky Harbor International Airport in support of AWA's strategic growth
plan. The new bonds are due June 2019 with interest accruing at 6.25% per annum
payable semiannually on June 1 and December 1, commencing on December 1, 1999.
The new bonds are subject to optional redemption prior to the maturity date on
or after June 1, 2009 in whole or in part, on any interest payment date at the
following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on
June 1 or December 1, 2010; and 100% on June 1, 2011 and thereafter.

    (c) AIRCRAFT ACQUISITIONS

    At December 31, 1999, AWA had firm commitments to AVSA for a total of 15
Airbus A318-100, 12 Airbus A319-100 and 15 Airbus A320-200 aircraft with
delivery through 2004 at a net cost of approximately $1.6 billion. The agreement
with AVSA also includes options to purchase an additional 25 A320 family
aircraft during 2004 through 2006 and purchase rights for an additional 25 A320
series aircraft for delivery in 2007 to 2008.

     The Company has an agreement with International Aero Engines ("IAE") which
provides for the purchase by the Company of seven new V2500-A5 spare engines
scheduled for delivery through 2000 for use on certain of the A320 fleet. At
December 31, 1999, the seven engines have an estimated aggregate cost of $30
million.

    The following table reflects estimated cash payments under the aircraft and
engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include progress payments that will be made in cash, as opposed to
being financed under an existing progress payment financing facility.




                                       46
<PAGE>   50
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



<TABLE>
<CAPTION>
                                       (IN THOUSANDS)
<S>                                    <C>
                 2000.........           $356,467
                 2001.........            212,910
                 2002.........            193,006
                                         --------
                                         $762,383
                                         --------
</TABLE>


In September 1999 America West Airlines 1999-1 Pass Through Trusts issued $253.8
million of Pass Through Trust Certificates in connection with the financing of
five Airbus A319 aircraft and five Airbus A320 aircraft to be purchased from
AVSA. The Pass Through Trust Certificates are not direct obligations of, nor
guaranteed by Holdings and AWA. The combined effective interest rate on the
financing is 8.22%. Four A319 and four A320 aircraft that are the subject of
this financing were delivered in 1999. The remaining two aircraft were delivered
in February 2000.

    (d) SALE/LEASEBACK TRANSACTION

    In August 1999, AWA entered into a sale/leaseback transaction whereby the
Company sold five Boeing 737-300 aircraft and one Boeing 757-200 aircraft for
approximately $114 million. To complete this transaction, the Company paid
approximately $49.3 million to retire mortgage debt outstanding on the
aircraft. The aircraft are being leased back from the purchaser for
approximately six years. The sale resulted in a $9.2 million gain for AWA,
which was deferred and is being amortized over the lease term as a reduction in
rent expense. The related lease is being accounted for as an operating lease.
The average annual lease payments, over the life of the leases, are $15.5
million.

    (e) FAA SETTLEMENT

    In July 1998 AWA and the FAA entered into an agreement to settle disputes
over alleged maintenance violations. Under the agreement, AWA did not admit any
wrongdoing, has implemented certain changes in maintenance oversight and paid a
civil penalty of $2.5 million. In July 1999 the FAA determined that AWA has
complied with the terms of the settlement agreement and waived an additional
civil penalty of $2.5 million which could have been assessed under the
agreement.

    (f) CONTINGENT LEGAL OBLIGATIONS

    Holdings and AWA are named defendants in a number of additional lawsuits and
proceedings arising in the ordinary course of business. While the outcome of the
contingencies, lawsuits or other proceedings cannot be predicted with certainty,
management currently expects that any liability arising from such matters, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial condition and results of operations of
the Company.

12.  RELATED PARTY TRANSACTIONS

    In March 1997 AWA purchased 1.91 million of its publicly traded warrants
from TPG and certain of its affiliates for approximately $13.3 million. TPG is
an investment firm that controls approximately 52% of the total voting power of
Holdings.

    AWA has entered into various aircraft leasing arrangements with AerFi Group
plc ("AerFi"), formerly GPA Group plc, at terms comparable to those obtained
from third parties for similar transactions. William A. Franke, the Company's
Chairman, President and CEO, is a director and, indirectly, a minor shareholder
of AerFi. In addition, an affiliate of TPG purchased a large minority stake in
AerFi in November 1998 and has three representatives serving on AerFi's
five-member Board of Directors. AWA currently leases four aircraft
from AerFi and the rental payments for such leases amounted to $14.8 million,
$19.2 million and $31.9 million for the years ended December 31, 1999, 1998 and
1997, respectively. As of December 31, 1999, the Company was obligated to pay
approximately $191.8 million under the AerFi leases which expire at various
dates through the year 2013.

    In June 1997 America West Airlines 1997-1 Pass Through Trusts issued $93.9
million of Pass Through Trust Certificates in connection with the refinancing of
four Airbus A320 aircraft. The proceeds of the transaction were used to
refinance the indebtedness incurred by the owners of the aircraft leased to AWA.
Under the arrangements, the financial benefits of the transactions are shared
among AWA, the equity investors in leverage leases covering the aircraft and
U.S. subsidiaries of AerFi ("AerFi Subs"), the original lessees under the
restructured leases.  As a result of the refinancing, AerFi, the AerFi Subs and
AWA also entered into a Put Termination Agreement which terminated arrangements
with AerFi pursuant to which AerFi could cause AWA to lease up to four
additional aircraft prior to June 30, 1999. Pursuant to the Put Termination
Agreement, AWA is obligated to make certain payments to the AerFi Subs. The
payments due to the AerFi Subs under the Put Termination Agreement were
approximately $1.9 million for each of the years 1999, 1998 and 1997.

    As part of the Company's reorganization in 1994, Continental Airlines made
an investment in the Company, and the Company entered into an alliance agreement
related to code-sharing arrangements and ground handling operations. The Company
paid Continental approximately $31.7 million, $27.8 million and $25.2 million
and also received approximately $24.5 million, $20.5 million and $13.4 million
1999, 1998 and 1997, respectively, from Continental pursuant to these
agreements.

    Mr. John F. Fraser, chairman of the board of Air Canada, served as a
director of the Company until May 20, 1998. The Company has a maintenance
contract with Air Canada on terms comparable to those obtained from third
parties for similar transactions. The Company's payments under the maintenance
contract were $17.3 million, $9.4 million and $5.9 million in 1999, 1998 and
1997, respectively.


                                       47
<PAGE>   51
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


13.  QUARTERLY FINANCIAL DATA (UNAUDITED)

    Summarized quarterly financial data for 1999 and 1998 follows (in thousands
of dollars except per share amounts):

<TABLE>
<CAPTION>
                                                         1ST          2ND           3RD          4TH
                                                       QUARTER      QUARTER       QUARTER      QUARTER
                                                       -------      -------       -------      -------
<S>                                                  <C>          <C>           <C>          <C>
             1999
             Operating revenues..................    $ 519,626    $ 569,480     $ 552,839    $ 568,939
             Operating income....................       50,715       75,591        41,198       37,047
             Nonoperating income (expense), net..       (3,978)        (273)       (3,326)       9,176
             Income tax expense..................      (20,798)     (33,064)      (15,659)     (17,240)
             Net income..........................       25,939       42,254        22,213       28,983 (1)
             Earnings per share:
               Basic.............................          .67         1.12           .60          .79
               Diluted...........................          .63         1.06           .57          .76

                                                         1ST          2ND           3RD          4TH
                                                       QUARTER      QUARTER       QUARTER      QUARTER
                                                       -------      -------       -------      -------
             1998
             Operating revenues..................    $ 483,216    $ 533,695     $ 499,268    $ 507,105
             Operating income....................       49,407       76,741        45,986       36,929
             Nonoperating expense, net...........       (5,151)      (2,993)       (2,244)      (4,329)
             Income tax expense..................      (19,118)     (32,331)      (21,878)     (12,448)
             Net income..........................       25,138       41,417        21,864       20,152
             Earnings per share:
               Basic.............................          .57          .95           .52          .52
               Diluted...........................          .53          .86           .49          .51
</TABLE>


    (1)  Includes an $11.9 million pretax unrealized gain on the Company's
         investment in Priceline common stock and $2.5 million of revenue
         related to additional Priceline warrants granted to AWA in November
         1999.

    The sum of quarterly earnings per share amounts is not the same as annual
earnings per share amounts due to rounding.






                                       48
<PAGE>   52
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


14. SEGMENT DISCLOSURES

    Segment reporting financial data as of and for the years ended December 31,
1999, 1998 and 1997 follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                            DECEMBER 31, 1999
                                                  AIRLINE         TLC       OTHER/ELIMINATIONS          TOTAL
                                                  -------         ---       ------------------          -----
<S>                                          <C>               <C>          <C>                     <C>
      Operating revenue....................  $ 2,146,955       $ 64,391         $     (462)          $2,210,884
      Depreciation & amortization..........       48,442          2,943                  -               51,385
      Amortization of reorganization value.       19,896          1,600                  -               21,496
      Operating income ....................      197,901         11,532             (4,882)             204,551
      Capital expenditures.................      293,424          6,147                  -              299,571
      Segment assets.......................    1,663,495         99,137           (255,478)           1,507,154


                                                                            DECEMBER 31, 1998
                                                  AIRLINE         TLC       OTHER/ELIMINATIONS          TOTAL
                                                  -------         ---       ------------------          -----
      Operating revenue....................  $ 1,968,714       $ 54,764         $     (194)          $2,023,284
      Depreciation & amortization..........       49,026            519                  -               49,545
      Amortization of reorganization value.       19,896          1,600                  -               21,496
      Operating income ....................      197,846         15,278             (4,061)             209,063
      Capital expenditures.................      176,337            659                  -              176,996
      Segment assets.......................    1,594,644         57,823           (127,437)           1,525,030


                                                                            DECEMBER 31, 1997
                                                                                PRO FORMA
                                                AIRLINE            TLC      OTHER/ELIMINATIONS           TOTAL
                                                -------            ---      ------------------           -----
      Operating revenue....................  $ 1,874,956        $52,751          $(52,751)            $1,874,956
      Depreciation & amortization..........       48,158            432                 -                 48,590
      Amortization of reorganization value.       22,444          1,332                 -                 23,776
      Operating income ....................      149,848         12,725              (747)               161,826
      Capital expenditures.................      154,969              -                 -                154,969
      Segment assets.......................    1,498,514         48,817              (540)             1,546,791
</TABLE>


     Amounts included in the "Other/Eliminations" column reflect the elimination
of intercompany investments and transactions between AWA, Holdings and TLC.

15.  SUBSEQUENT EVENTS

   (a) STOCK REPURCHASE PROGRAM

    In February 2000 the Company's Board of Directors approved the extension of
the Company's stock repurchase program to provide for the repurchase of up to
3.0 million additional shares of Class B Common Stock, in open market or private
transactions, by December 31, 2002.

   (b) STRATEGIC ALLIANCE WITH BOOK4GOLF.COM

    In February 2000 TLC signed a letter of intent to sell America West Golf
Vacations to Book4golf.com, a provider of Internet-based, real-time, golf tee
time reservation systems. Book4golf.com and TLC will form a post-acquisition
strategic alliance to create and market golf vacation packages that can be
designed and purchased on-line, including tee times, green fees, golf lessons,
air travel, car rental and hotel accommodations. The consideration for the
America West Golf Vacations acquisition will be common shares and share purchase
warrants of Book4golf.com. The number of warrants will be based, in part, upon
certain performance driven criteria in the future. Book4golf.com has reserved a
price of $18.53 CDN per share for the common shares to be issued to TLC and
$22.00 CDN per common share for the common shares to be purchased upon the
exercise of the warrants. The transaction is subject to certain regulatory and
other approvals.





                                       49
<PAGE>   53
                        AMERICA WEST HOLDINGS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   (c) SALE OF RETAIL VACATIONS BUSINESS

    In March 2000 Holdings and TLC reached an agreement to sell a majority
interest in TLC's retail operations, NLG and TVS, to Softbank Capital LP and
General Catalyst LLP. Holdings will receive $48 million in cash and will retain
a twelve percent ownership interest in the restructured venture. At closing, the
Company expects to report a gain on sale of approximately $10 million. The
transaction is subject to certain regulatory and other approvals.






                                       50
<PAGE>   54

ITEM 8B. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST AIRLINES,
INC. ("AWA")

    Balance sheets of AWA as of December 31, 1999 and 1998, and the related
statements of income, cash flows and stockholder's equity for each of the years
in the three-year period ended December 31, 1999, together with the related
notes and the report of KPMG LLP, independent certified public accountants, are
set forth on the following pages.





                                       51
<PAGE>   55
                          INDEPENDENT AUDITORS' REPORT


THE BOARD OF DIRECTORS AND STOCKHOLDER
AMERICA WEST AIRLINES, INC.:

    We have audited the accompanying balance sheets of America West Airlines,
Inc. as of December 31, 1999 and 1998, and the related statements of income,
cash flows and stockholder's equity for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of America West Airlines, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.

                                                                        KPMG LLP

Phoenix, Arizona
March 29, 2000






                                       52
<PAGE>   56
                           AMERICA WEST AIRLINES, INC.
                                 BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                             1999          1998
                                                                                          ----------      ----------
<S>                                                                                       <C>             <C>
      ASSETS
      Current assets:
         Cash and cash equivalents .................................................      $  105,545      $  107,234
         Short-term investments ....................................................          15,617          27,485
         Accounts receivable, less allowance for doubtful accounts of
            $2,005 in 1999 and $3,268 in 1998 ......................................         102,014          87,048
         Advances to parent company and affiliate, net .............................         248,335         116,128
         Expendable spare parts and supplies, less allowance for obsolescence
            of $5,612 in 1999 and $4,112 in 1998 ...................................          49,327          31,147
         Prepaid expenses ..........................................................          33,903          33,516
                                                                                          ----------      ----------
            Total current assets ...................................................         554,741         402,558
                                                                                          ----------      ----------
      Property and equipment:
         Flight equipment ..........................................................         801,541         931,134
         Other property and equipment ..............................................         197,394         152,298
         Equipment purchase deposits ...............................................          79,399          83,649
                                                                                          ----------      ----------
                                                                                           1,078,334       1,167,081
         Less accumulated depreciation and amortization ............................         378,185         408,065
                                                                                          ----------      ----------
                                                                                             700,149         759,016
                                                                                          ----------      ----------
      Other assets:
         Restricted cash ...........................................................          31,624          32,512
         Reorganization value in excess of amounts allocable to identifiable
            assets, net ............................................................         291,801         311,697
         Deferred income taxes, net ................................................              --          27,440
         Other assets, net .........................................................          85,180          61,421
                                                                                          ----------      ----------
                                                                                             408,605         433,070
                                                                                          ----------      ----------
                                                                                          $1,663,495      $1,594,644
                                                                                          ==========      ==========
      LIABILITIES AND STOCKHOLDER'S EQUITY

      Current liabilities:
         Current maturities of long-term debt ......................................      $   45,171      $   80,439
         Accounts payable ..........................................................         130,752         102,105
         Air traffic liability .....................................................         175,528         196,013
         Accrued compensation and vacation benefits ................................          48,227          47,081
         Accrued taxes .............................................................          54,775          40,809
         Other accrued liabilities .................................................          35,462          40,467
                                                                                          ----------      ----------
            Total current liabilities ..............................................         489,915         506,914
                                                                                          ----------      ----------
      Long-term debt, less current maturities ......................................         155,168         207,906
      Deferred credits and other liabilities .......................................         105,175         110,599
      Deferred tax liability, net...................................................          30,768              --
      Commitments and contingencies
      Stockholder's equity:
         Class B common stock, $.01 par value.  Authorized 1,000 shares;  issued and
            outstanding 1,000 shares ...............................................              --              --
         Additional paid-in capital ................................................         519,748         523,126
         Retained earnings .........................................................         362,721         246,099
                                                                                          ----------      ----------
                Total stockholder's equity .........................................         882,469         769,225
                                                                                          ----------      ----------
                                                                                          $1,663,495      $1,594,644
                                                                                          ==========      ==========
</TABLE>

                 See accompanying notes to financial statements.


                                       53
<PAGE>   57
                           AMERICA WEST AIRLINES, INC.
                              STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                1999             1998               1997
                                                            -----------       -----------       -----------
<S>                                                         <C>               <C>               <C>
Operating revenues:
     Passenger .......................................      $ 2,028,223       $ 1,858,551       $ 1,764,206
     Cargo ...........................................           41,936            45,551            51,699
     Other ...........................................           76,796            64,612            59,051
                                                            -----------       -----------       -----------
          Total operating revenues ...................        2,146,955         1,968,714         1,874,956
                                                            -----------       -----------       -----------

Operating expenses:
     Salaries and related costs ......................          498,490           448,049           418,212
     Aircraft rents ..................................          277,326           244,088           223,423
     Other rents and landing fees ....................          122,034           119,089           119,470
     Aircraft fuel ...................................          220,380           194,360           243,423
     Agency commissions ..............................          114,742           117,483           151,293
     Aircraft maintenance materials and repairs ......          218,319           182,844           146,618
     Depreciation and amortization ...................           48,442            49,026            48,590
     Amortization of reorganization value in excess of
        amounts allocable to identifiable assets .....           19,896            19,896            23,776
     Other ...........................................          429,425           396,033           337,578
                                                            -----------       -----------       -----------
          Total operating expenses ...................        1,949,054         1,770,868         1,712,383
                                                            -----------       -----------       -----------

Operating income .....................................          197,901           197,846           162,573
                                                            -----------       -----------       -----------

Nonoperating income (expenses):
     Interest income .................................           19,593            20,682            17,432
     Interest expense, net ...........................          (29,352)          (33,807)          (39,110)
     Gain (loss) on disposition of property and
        equipment ....................................            1,095              (638)           (1,710)
     Other, net ......................................           11,737               474             1,488
                                                            -----------       -----------       -----------
         Total nonoperating income (expenses), net ...            3,073           (13,289)          (21,900)
                                                            -----------       -----------       -----------

         Income before income taxes ..................          200,974           184,557           140,673
                                                            -----------       -----------       -----------
Income taxes .........................................           84,352            81,541            65,343
                                                            -----------       -----------       -----------
         Net income ..................................      $   116,622       $   103,016       $    75,330
                                                            ===========       ===========       ===========
</TABLE>


                 See accompanying notes to financial statements.

                                       54
<PAGE>   58
                           AMERICA WEST AIRLINES, INC.
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       1999            1998            1997
                                                                     ---------       ---------       ---------
<S>                                                                  <C>             <C>             <C>
Cash flows from operating activities:
  Net income ..................................................      $ 116,622       $ 103,016       $  75,330
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization .............................         48,442          49,026          48,590
    Amortization of capitalized maintenance ...................        113,679          89,347          66,143
    Amortization of reorganization value ......................         19,896          19,896          23,776
    Amortization of deferred credits ..........................         (7,521)         (6,798)        (10,405)
    Income taxes attributable to reorganization items .........             --              --          59,444
    Other .....................................................          2,402          14,009           5,674
Changes in operating assets and liabilities:
  Decrease (increase) in accounts receivable, net .............       (147,173)       (115,471)         18,077
  Increase in expendable spare parts and supplies, net ........        (18,180)         (4,012)         (5,712)
  Decrease (increase) in prepaid expenses .....................           (387)            904          10,551
  Decrease (increase) in other assets, net ....................        (24,172)         43,267         (33,042)
  Increase (decrease) in accounts payable .....................         28,646         (38,803)         25,450
  Increase (decrease) in air traffic liability ................        (20,485)         22,864         (40,907)
  Increase in accrued compensation and vacation benefits ......          1,145          10,530           7,192
  Increase (decrease) in accrued taxes ........................         72,174          51,706         (35,671)
  Decrease in other accrued liabilities .......................         (5,938)           (705)         (1,262)
  Increase (decrease) in other liabilities ....................            950          (7,435)         (8,871)
                                                                     ---------       ---------       ---------
      Net cash provided by operating activities ...............        180,100         231,341         204,357
                                                                     ---------       ---------       ---------
Cash flows from investing activities:
  Purchases of property and equipment .........................       (293,424)       (176,337)       (154,969)
  Sale (purchases) of short-term investments ..................         11,868         (27,485)         39,131
   Proceeds from sales of property and equipment ..............        187,197           1,647           1,583
  Equipment purchase deposits and other .......................         (6,250)         (5,500)        (15,600)
                                                                     ---------       ---------       ---------
      Net cash used in investing activities ...................       (100,609)       (207,675)       (129,855)
                                                                     ---------       ---------       ---------
Cash flows from financing activities
  Proceeds from issuance of debt ..............................        162,074              --          30,000
  Repayment of debt ...........................................       (239,876)        (71,495)        (55,411)
  Acquisition of warrants .....................................         (3,378)        (16,175)        (13,342)
  Other .......................................................             --            (400)         (1,610)
                                                                     ---------       ---------       ---------
    Net cash used in financing activities .....................        (81,180)        (88,070)        (40,363)
                                                                     ---------       ---------       ---------
    Net increase (decrease) in cash and cash equivalents ......         (1,689)        (64,404)         34,139
                                                                     ---------       ---------       ---------
Cash and cash equivalents at beginning of year ................        107,234         171,638         137,499
                                                                     ---------       ---------       ---------
Cash and cash equivalents at end of year ......................      $ 105,545       $ 107,234       $ 171,638
                                                                     =========       =========       =========
Cash, cash equivalents and short-term investments at end of year     $ 121,162       $ 134,719       $ 171,638
                                                                     =========       =========       =========
</TABLE>


                 See accompanying notes to financial statements.

                                       55
<PAGE>   59
                           AMERICA WEST AIRLINES, INC.
                       STATEMENTS OF STOCKHOLDER'S EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                        (IN THOUSANDS EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                  CLASS A     CLASS B   ADDITIONAL                       CLASS B
                                                  COMMON      COMMON     PAID-IN         RETAINED       TREASURY
                                                  STOCK       STOCK      CAPITAL         EARNINGS         STOCK           TOTAL
                                                ----------  ----------  ----------      ----------      ----------      ----------
<S>                                             <C>         <C>         <C>             <C>             <C>             <C>
BALANCE AT JANUARY 1, 1997 ................     $       --  $       --  $  552,643      $   70,137      $       --      $  622,780
                                                ----------  ----------  ----------      ----------      ----------      ----------
Repurchase of 1,911,523 warrants at
   $6.98 per warrant ......................             --          --     (13,342)             --              --         (13,342)
Net income ................................             --          --          --          75,330              --          75,330
                                                ----------  ----------  ----------      ----------      ----------      ----------
BALANCE AT DECEMBER 31, 1997 ..............             --          --     539,301         145,467              --         684,768
Repurchase of 2,906,867
   warrants at $5.56 per warrant ..........             --          --     (16,175)             --              --         (16,175)
Dividend to Holdings ......................             --          --          --          (2,384)             --          (2,384)
Net income ................................             --          --          --         103,016              --         103,016
                                                ----------  ----------  ----------      ----------      ----------      ----------
BALANCE AT DECEMBER 31, 1998 ..............             --          --     523,126         246,099              --         769,225
                                                ----------  ----------  ----------      ----------      ----------      ----------
Repurchase of 377,400 warrants at
   $8.95 per warrant ......................             --          --      (3,378)             --              --          (3,378)
Net income ................................             --          --          --         116,622              --         116,622
                                                ----------  ----------  ----------      ----------      ----------      ----------
BALANCE AT DECEMBER 31, 1999..............      $       --  $       --  $  519,748      $  362,721      $       --      $  882,469
                                                ==========  ==========  ==========      ==========      ==========      ==========
</TABLE>


                 See accompanying notes to financial statements.


                                       56
<PAGE>   60

                           AMERICA WEST AIRLINES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    America West Airlines, Inc. ("AWA"), is a wholly-owned subsidiary of America
West Holdings Corporation ("Holdings"), a Delaware corporation. Holdings'
primary business activity is ownership of all the capital stock of AWA, the
ninth largest commercial airline carrier in the United States serving 59
destinations in the U.S., Canada and Mexico.

    (a) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

    Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less. Short-term investments consist
of cash invested in certain debt securities with original maturities greater
than 90 days and less than one year. The debt securities are classified as held
to maturity and are carried at amortized cost which approximates fair value.

    (b) EXPENDABLE SPARE PARTS AND SUPPLIES

    Flight equipment expendable spare parts and supplies are valued at average
cost. An allowance for obsolescence is provided, over the estimated useful life
of the related aircraft and engines, for spare parts expected to be on hand at
the date the aircraft are retired from service.

    (c) PROPERTY AND EQUIPMENT

    Property and equipment are recorded at cost. Interest capitalized on advance
payments for aircraft acquisitions and on expenditures for aircraft improvements
are part of these costs. Interest capitalized for the years ended December 31,
1999, 1998 and 1997 was $6.1 million, $4.9 million and $600,000, respectively.
Property and equipment is depreciated and amortized to residual values over the
estimated useful lives or the lease term, whichever is less, using the
straight-line method.

    The estimated useful lives for AWA's ground property and equipment range
from three to 12 years for owned property and equipment and up to 22 years for
the technical support facility. The estimated useful lives of AWA's owned
aircraft, jet engines, flight equipment and rotable parts range from five to 22
years. Leasehold improvements relating to flight equipment and other property on
operating leases are amortized over the life of the lease or the life of the
asset, whichever is shorter.

    Effective October 1, 1998, AWA extended the estimated depreciable service
lives of certain owned Boeing 737-200 aircraft which have been modified to meet
the Federal Aviation Administration's ("FAA") Stage III noise reduction
requirements. This change increased the average depreciable life by
approximately four years and reduced depreciation expense in 1999 and 1998 by
approximately $8.0 million and $2.0 million, respectively.

    AWA records impairment losses on long-lived assets used in operations when
events and circumstances indicate that the assets might be impaired as defined
by Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."

    (d) RESTRICTED CASH

    Restricted cash includes cash deposits securing certain letters of credit.

    (e) AIRCRAFT MAINTENANCE AND REPAIRS

    Routine maintenance and repairs are charged to expense as incurred. The cost
of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense. Additionally, an accrual for
the estimated cost of scheduled airframe and engine overhauls required to be
performed on leased aircraft prior to their return to the lessors has been
recorded.

                                       57
<PAGE>   61
                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED


    (f) REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
        ASSETS

    Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight line basis over 20 years. Accumulated amortization at
December 31, 1999, 1998 and 1997 was $131.9 million, $112.0 million and $92.1
million, respectively. In accordance with SFAS No. 121, AWA assesses the
recoverability of this asset based upon expected future undiscounted cash flows
and other relevant information.

    (g) FREQUENT FLYER AWARDS

    AWA maintains a frequent travel award program known as "FlightFund" that
provides a variety of awards to program members based on accumulated mileage.
The estimated cost of providing the free travel, using the incremental cost
method as adjusted for estimated redemption rates, is recognized as a liability
and charged to operations as program members accumulate mileage.

    (h) DEFERRED CREDIT-OPERATING LEASES

    Rents for operating leases were adjusted to fair market value when AWA
emerged from bankruptcy in 1994. The net present value of the difference between
the stated lease rates and the fair market rates has been recorded as a deferred
credit in the accompanying balance sheets. The deferred credit will be increased
through charges to interest expense and decreased on a straight-line basis as a
reduction in rent expense over the applicable lease periods. At December 31,
1999 and 1998, the unamortized balance of the deferred credit was $72.2 million
and $78.6 million, respectively.

    (i) PASSENGER REVENUE

    Passenger revenue is recognized when transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense.

    (j) ADVERTISING COSTS

    AWA expenses the costs of advertising as incurred. Advertising expense for
the years ended December 31, 1999, 1998 and 1997 was $14.4 million, $16.2
million and $25.8 million, respectively.

    (k) INCOME TAXES

    Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.

    (l) NEW ACCOUNTING STANDARDS

    In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for all derivative instruments
and hedging activities. SFAS No. 133 requires recognition of all derivatives as
either assets or liabilities in the balance sheet at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge of
the exposure to changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment ("fair value hedge"), a hedge of the exposure to
variable cash flows of a forecasted transaction ("cash flow hedge"), or a hedge
of the foreign currency exposure ("foreign currency hedge") of a net investment
in a foreign operation or a foreign currency-denominated forecasted transaction.
The accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. In accounting for a fair value hedge, the derivative hedging
instrument will be measured at fair value with the mark to fair value being
recorded in earnings. In a cash flow hedge, the derivative hedging instrument
will

                                       58
<PAGE>   62
                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED


be measured at fair value with the effective portion of the gains or losses on
the derivative hedging instrument initially being reported in other
comprehensive income. In June 1999 the Financial Accounting Standards Board
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133", which
defers the effective date of SFAS No. 133 to be effective for all fiscal years
beginning after June 15, 2000. AWA will adopt SFAS No. 133 in 2001. SFAS No. 133
is not expected to have a material effect on AWA's results of operations or
financial position.

    (m)  USE OF ESTIMATES

    Management of AWA has made certain estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.

    (n) RECLASSIFICATION

    Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.

2.       LONG-TERM DEBT

    Long-term debt at December 31 consists of the following:

<TABLE>
<CAPTION>
                                                                                  1999         1998
                                                                                --------      --------
                                                                                    (IN THOUSANDS)
<S>                                                                             <C>           <C>
SECURED
Notes payable, primarily fixed interest rates of
   10.75% to 10.79%, averaging 10.78%, installments due 2000 through 2008.      $ 87,245      $164,478
                                                                                --------      --------

UNSECURED
10 3/4% Senior Unsecured Notes, face amount of $50 million, interest
   only payments until due in 2005 (a) ...................................        48,820        48,612
Notes payable, interest rates of 90-day LIBOR +1.25%, averaging
   7.44%, installments due through 2000 ..................................        35,000        45,500
Industrial development bonds, face amount of $29.3 million, fixed interest
    rate of 6.3% due 2023 (b) ............................................        29,008        28,995
Other ....................................................................           266           760
                                                                                --------      --------
                                                                                 113,094       123,867
                                                                                ----------------------
Total long-term debt .....................................................       200,339       288,345
Less:  current maturities ................................................        45,171        80,439
                                                                                --------      --------
                                                                                $155,168      $207,906
                                                                                ======================
</TABLE>

(a) The 10 3/4% Senior Unsecured Notes mature on September 1, 2005 and interest
    is payable in arrears semi-annually. The 10 3/4% Senior Unsecured Notes may
    be redeemed at the option of AWA on or after September 1, 2001 at any time
    in whole or from time to time in part, at a redemption price equal to the
    following percentage of principal redeemed, plus accrued and unpaid
    interest to the date of redemption, if redeemed during the 12-month period
    beginning:

<TABLE>
<CAPTION>
SEPTEMBER 1,                   PERCENTAGE
                               ----------
<S>                             <C>
2000 .................          105.375%
2001 .................          103.583%
2002 .................          101.792%
2003 and thereafter ..          100.000%
</TABLE>

(b) The industrial development revenue bonds are due April 2023. Interest at
    6.3% is payable semiannually (April 1 and October 1). The bonds are subject
    to optional redemption prior to the maturity date on or after April 1, 2008,
    in whole or in part, on any interest payment date at the following
    redemption prices; 102 percent on April 1 or October 1, 2008; 101 percent on
    April 1 or October 1, 2009; and 100 percent on April 1, 2010 and thereafter.


                                       59
<PAGE>   63
                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED


    Secured financings totaling $87.2 million are collateralized by assets,
primarily aircraft and engines, with a net book value of $141.9 million at
December 31, 1999.

    At December 31, 1999, the estimated maturities of long-term debt are as
follows:

<TABLE>
<CAPTION>
                      (IN
                   THOUSANDS)
                   ---------
<S>                <C>
2000 ........      $ 45,171
2001 ........         9,847
2002 ........         9,674
2003 ........         9,674
2004 ........         8,989
Thereafter ..       116,984
                   --------
                   $200,339
</TABLE>

    In December 1999 AWA entered into a $125 million senior secured revolving
credit facility with a group of financial institutions that has a three-year
term. This facility replaced AWA's $100 million revolving credit facility
which was entered into in December 1997. Borrowings under this credit facility
will accrue interest at either the "base rate" (prime rate or the rate which is
1/2 of 1% in excess of the Federal Funds Effective Rate) or the "adjusted
eurodollar rate" (LIBOR rate adjusted for certain reserve requirements in
respect to "Eurodollar liabilities") plus the applicable margin based on Moody's
rating of AWA's senior unsecured notes. The credit agreement is secured by
certain assets of AWA. As of December 31, 1999, $109.2 million was available for
borrowing based on the value of the assets pledged. There were no outstanding
borrowings as of December 31, 1999.

    Certain of AWA's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios, limitations on investments and
restricted payments including cash dividends, and other financial covenants with
which AWA was in compliance at December 31, 1999.

3. CAPITAL STOCK

    Effective midnight, December 31, 1996, AWA became a wholly-owned subsidiary
of Holdings and each share of AWA Class A and Class B Common Stock and options
to purchase Class B Common Stock were exchanged for one share of Holdings Class
A or Class B Common Stock and options to purchase Class B Common Stock.
Holdings' Class B Common Stock is listed on the New York Stock Exchange.

    WARRANTS

    On August 25, 1994, AWA issued approximately 10.4 million warrants to
purchase Class B Common Stock with an exercise price of $12.74 per share. The
warrants were exercisable by the holders any time before August 25, 1999 and
10.4 million shares of Class B Common Stock were reserved for the exercise of
these warrants. As part of the holding company formation transaction, the AWA
warrants became rights to acquire shares of Holdings Class B Common Stock. AWA
made arrangements for the issuance of Holdings Class B Common Stock upon the
exercise of such warrants by purchasing an option from Holdings to acquire such
stock. AWA issued a $62.4 million note payable to Holdings due December 31, 2005
with an interest rate of 11%. Subsequently, Holdings made a capital contribution
to AWA by issuing a note payable to AWA for $62.4 million due December 31, 2045
with an interest rate of 10 7/8%. AWA has the right on December 31, 2005 to
repay all or a portion of the then outstanding principal balance of its note
payable by offsetting by an equal amount the then outstanding principal balance
of its note receivable and thus, these notes have been offset in the
accompanying financial statements in accordance with applicable accounting
standards.

    As of December 31, 1999, approximately 7.4 million warrants have been
repurchased by AWA for approximately $51.0 million and 2,621,208 warrants have
been exercised at $12.74 per share. The balance of unexercised warrants expired
and were cancelled on August 25, 1999.

                                       60
<PAGE>   64
                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED


    COMMON STOCK

    The holders of common stock are entitled to one vote for each share of stock
held by the holder. Holders of common stock have no right to cumulate their
votes in the election of directors. The holders of common stock are entitled to
receive, when and if declared by the Board of Directors, out of the assets of
AWA which are by law available, dividends payable either in cash, in stock or
otherwise.

4. EMPLOYEE BENEFIT PLAN

    AWA has a 401(k) defined contribution plan, covering essentially all
employees of AWA. Participants may contribute from 1 to 15% of their pretax
earnings to a maximum of $10,000 in 1999. AWA's matching contribution is
determined annually by the Board of Directors. AWA's contribution expense to the
plan totaled $7.4 million, $6.8 million and $6.1 million in 1999, 1998 and 1997,
respectively.

5. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

(a) FAIR VALUE OF FINANCIAL INSTRUMENTS

    Cash Equivalents, Short-term Investments and Receivables

    The carrying amount approximates fair value because of the short-term nature
of these instruments.

    Investment in Equity Securities

    As of December 31, 1999, AWA owned 294,109 shares of Priceline common stock,
which was classified as trading securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
estimated fair value of this investment at that date was approximately $13.9
million based on the quoted market price of Priceline common stock. An
unrealized holding gain of $11.9 million related to the Priceline shares was
included in earnings in 1999. AWA sold all 294,109 shares of Priceline for
approximately $15.1 million in January 2000.

    Long-term Debt

    At December 31, 1999 and 1998, the fair value of long-term debt was
approximately $199 million and $292 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.

(b) FUEL PRICE RISK MANAGEMENT

    Under its fuel hedging program, AWA may enter into certain hedging
transactions with approved counterparties for a period generally not exceeding
twelve months. Gains and losses on such transactions are recorded as adjustments
to fuel expense when the underlying fuel being hedged is used. As of December
31, 1999, AWA had entered into fixed price swap and costless collar transactions
hedging approximately 14% of its projected 2000 fuel requirements.

    AWA is exposed to credit risks in the event any counterparty fails to meet
its obligations. AWA does not anticipate such non-performance as counterparties
are selected based on credit ratings, exposure to any one counterparty is
limited based on formal guidelines and the relative market positions with such
counterparties are closely monitored.

(c) CONCENTRATION OF CREDIT RISK

    AWA does not believe it is subject to any significant concentration of
credit risk. Most of AWA's receivables result from tickets sold to individual
passengers through the use of major credit cards or to tickets sold by other
airlines and used by passengers on AWA. These receivables are short-term,
generally being settled shortly after the sale.

                                       61
<PAGE>   65
                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED


6. INCOME TAXES

    AWA recorded income tax expense as follows:

<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER
                                          1999         1998         1997
                                         -------      -------      -------
                                                  (IN THOUSANDS)
<S>                                      <C>          <C>          <C>
Current Taxes:
   Federal ........................      $22,983      $29,322      $ 2,622
   State ..........................        3,161        4,959        3,277
                                         -------      -------      -------
         Total current taxes ......       26,144       34,281        5,899
                                         -------      -------      -------
Deferred taxes ....................       58,208       47,260           --
                                         -------      -------      -------
Income taxes attributable to
   reorganization items and other .           --           --       59,444
                                         -------      -------      -------
Total income tax expense ..........      $84,352      $81,541      $65,343
                                         -------      -------      -------
</TABLE>

    AWA's emergence from bankruptcy reorganization in 1994 and the associated
implementation of fresh start reporting gave rise to significant items of
expense for financial reporting purposes that are not deductible for income tax
purposes. In large measure, it is these nondeductible (for income tax purposes)
expenses and state income taxes that result in an effective tax rate (for
financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, AWA's actual cash income tax
liability (i.e., current income taxes payable) is considerably lower than income
tax expense shown for financial reporting purposes. This difference in financial
expense compared to actual income tax liability is in part attributable to the
utilization of certain tax attributes of the predecessor company that serve to
reduce AWA's actual income tax liability. In 1997 the excess of financial
expense over AWA's current income tax liability was applied to reduce the
balance of AWA's reorganization value in excess of amounts allocable to
identifiable assets.

    Income tax expense differs from amounts computed at the federal statutory
income tax rate as follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                   1999         1998         1997
                                                  -------      -------      -------
                                                           (IN THOUSANDS)
<S>                                               <C>          <C>          <C>
Income tax expense at U.S. statutory rate ..       $70,341      $64,595      $49,236
State income taxes, net of federal income
   tax benefit .............................         6,418        7,431        5,967
Nondeductible amortization of
   reorganization value in excess of
   amounts allocable to identifiable
   assets ..................................        6,964        6,964        8,322
Other, net .................................          629        2,551        1,818
                                                  -------      -------      -------
   Total ...................................      $84,352      $81,541      $65,343
                                                  =======      =======      =======
</TABLE>

    As of December 31, 1999, AWA has available net operating loss carryforwards
("NOL"), business tax credit carryforwards and alternative minimum tax credit
carryforwards for federal income tax purposes of approximately $180.6 million,
$12.4 million and $566,000, respectively. The NOL expire during the years 2005
through 2009 while the business credit carryforwards expire during the years
2000 through 2006. However, such carryforwards are not fully available to offset
federal (and in certain circumstances, state) alternative minimum taxable
income. Further, as a result of a statutory "ownership change" (as defined for
purposes of Section 382 of the Internal Revenue Code) that occurred as a result
of AWA's reorganization in 1994, AWA's ability to utilize its NOL and business
tax credit carryforwards may be restricted. The alternative minimum tax credit
may be carried forward without expiration and is available to offset future
income tax payable.

    COMPOSITION OF DEFERRED TAX ITEMS:

    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31, the
significant components of AWA's deferred tax assets and liabilities are a result
of the temporary differences related to the items described as follows:

                                       62
<PAGE>   66
                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

<TABLE>
<CAPTION>
                                                                                  1999             1998
                                                                                ---------        ---------
                                                                                     (IN THOUSANDS)
<S>                                                                             <C>              <C>
       Deferred income tax liabilities
           Property and equipment, principally
           depreciation and "fresh start"
              differences.............................................          $(101,666)       $(131,518)
           Other......................................................             (5,331)              --
                                                                                ---------        ---------
              Total deferred tax liabilities..........................          $(106,997)       $(131,518)
                                                                                ---------        ---------
       Deferred tax assets
           Aircraft leases............................................             18,718           23,951
           Frequent flyer accrual.....................................              4,790            6,541
           Net operating loss carryforwards...........................             68,301           91,587
           Tax credit carryforwards...................................             12,968           13,272
           Other......................................................                  -           52,155
                                                                                ---------        ---------
              Total deferred tax assets...............................            104,777          187,506
                                                                                ---------        ---------
            Valuation allowance.......................................            (28,548)         (28,548)
                                                                                ---------        ---------
                  Net deferred tax asset (liability)..................          $ (30,768)       $  27,440
                                                                                =========        =========
</TABLE>

    Statement of Financial Accounting Standards ("SFAS"), No. 109, Accounting
for Income Taxes requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. The valuation allowance of
$28.5 million is necessary because at this time AWA has not determined it is
more likely than not that the balance of the deferred tax assets will be fully
realized. AWA continues to monitor the valuation allowance and will make
adjustments as appropriate. If in future tax periods, AWA were to recognize
additional tax benefits related to items attributable to the predecessor company
such as net operating loss and other carryforwards, such benefits would be
applied to reduce further reorganization value in excess of amounts allocable to
identifiable assets.

7. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

    Supplemental disclosure of cash flow information and non-cash investing and
financing activities were as follows:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                               1999         1998         1997
                                                              -------      -------      -------
                                                                        (IN THOUSANDS)
<S>                                                           <C>          <C>          <C>
Non-cash transactions:
    Notes payable issued for equipment purchase deposits      $35,000      $45,500      $10,500
    Notes payable canceled under the aircraft
        purchase agreement .............................       45,500       12,596       36,019
Cash transactions:
    Interest paid, net of amounts capitalized ..........       19,920       22,184       30,830
    Income taxes paid ..................................        3,677       20,963          205
</TABLE>


8. INVESTMENTS IN DEBT SECURITIES

    Cash equivalents and short-term investments as of December 31 are classified
as follows:

<TABLE>
<CAPTION>
                                                                        1999          1998
                                                                      --------      --------
                                                                          (IN THOUSANDS)
<S>                                                                   <C>           <C>
Debt securities issued by the U.S. Treasury
and other U.S. government agencies .............................      $     --      $ 52,393
Corporate notes ................................................        65,169        82,195
Money Market Funds .............................................        47,507           131
Other debt securities ..........................................         8,486            --
                                                                      --------      --------
               Total cash equivalents and short-term investments      $121,162      $134,719
                                                                      ========      ========
</TABLE>


                                       63
<PAGE>   67

                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

9.   COMMITMENTS AND CONTINGENCIES

    (a) LEASES

    As of December 31, 1999, AWA had 112 aircraft under operating leases with
remaining terms ranging from one year to approximately 21 years. AWA has options
to purchase certain of the aircraft at fair market values at the end of the
lease terms. Certain of the agreements require security deposits, minimum return
provisions and maintenance reserve payments and provide the aircraft lessors
with the option during the lease term to reset their respective rentals to the
greater of the existing rentals being paid under the leases or the then current
fair market rates. AWA also leases certain terminal space, ground facilities and
computer and other equipment under noncancelable operating leases.

    At December 31, 1999, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
are as follows:

<TABLE>
<CAPTION>
              (IN THOUSANDS)
              --------------
<S>             <C>
2000 .......    $  343,035
2001 .......       313,082
2002 .......       281,830
2003 .......       226,390
2004 .......       181,322
Thereafter..     1,357,708
                ----------
                $2,703,367
                ----------
</TABLE>

    Rent expense (excluding landing fees) was approximately $365 million, $330
million and $308 million for the years ended December 31, 1999, 1998 and 1997,
respectively.

    Collectively, the operating lease agreements require security deposits with
lessors of $26.3 million and bank letters of credit of $18.5 million. The
letters of credit are collateralized by $18.5 million of restricted cash as of
December 31, 1999.

    (b) REVENUE BONDS

    In June 1999 Series 1999 special facility revenue bonds ("new bonds") were
issued by a municipality to fund the retirement of the Series 1994A bonds ("old
bonds") and the construction of a new concourse with 14 gates at Terminal 4 in
Phoenix Sky Harbor International Airport in support of AWA's strategic growth
plan. The new bonds are due June 2019 with interest accruing at 6.25% per annum
payable semiannually on June 1 and December 1, commencing on December 1, 1999.
The new bonds are subject to optional redemption prior to the maturity date on
or after June 1, 2009 in whole or in part, on any interest payment date at the
following redemption prices: 101% on June 1 or December 1, 2009; 100.5% on June
1 or December 1, 2010; and 100% on June 1, 2011 and thereafter.

    (c) AIRCRAFT ACQUISITIONS

    At December 31, 1999, AWA had firm commitments to AVSA for a total of 15
Airbus A318-100, 12 Airbus A319-100 and 15 Airbus A320-200 aircraft with
delivery through 2004 at a net cost of approximately $1.6 billion. The agreement
also includes options to purchase an additional 25 A320 family aircraft during
2004 through 2006 and purchase rights for an additional 25 A320 series aircraft
for delivery in 2007 to 2008.

    AWA has an agreement with International Aero Engines ("IAE") which provides
for the purchase by AWA of 12 new V2500-A5 spare engines scheduled for delivery
from 1998 through 2000 for use on certain of the A320 fleet. At December 31,
1999, five of the engines had been delivered. The seven remaining engines have
an estimated aggregate cost of $30 million.

    The following table reflects estimated cash payments under the aircraft and
engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include progress payments that will be made in cash, as opposed to
being financed under an existing progress payment financing facility.

                                       64
<PAGE>   68

                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

<TABLE>
<CAPTION>
        (IN THOUSANDS)
        --------------
<S>       <C>
2000      $356,467
2001       212,910
2002       193,006
          --------
          $762,383
          --------
</TABLE>

    In September 1999 America West Airlines 1999-1 Pass Through Trusts issued
$253.8 million of Pass Through Trust Certificates in connection with the
financing of five Airbus A319 aircraft and five Airbus A320 aircraft to be
purchased from AVSA. The Pass Through Trust Certificates are not direct
obligations of, nor guaranteed by Holdings and AWA. The combined effective
interest rate on the financing is 8.22%. Four A319 and four A320 aircraft that
are the subject of this financing were delivered in 1999. The remaining two
aircraft were delivered in February 2000.

    (d) SALE/LEASEBACK TRANSACTION

    In August 1999, AWA entered into a sale/leaseback transaction whereby the
Company sold five Boeing 737-300 aircraft and one Boeing 757-200 aircraft for
approximately $114 million. To complete this transaction, the Company paid
approximately $49.3 million to retire mortgage debt outstanding on the aircraft.
The aircraft are being leased back from the purchaser for approximately six
years. The sale resulted in a $9.2 million gain for AWA, which was deferred and
is being amortized over the lease term as a reduction in rent expense. The
related lease is being accounted for as an operating lease. The average annual
lease payments, over the life of the leases, are $15.5 million.

    (e) FAA SETTLEMENT

    In July 1998 AWA and the FAA entered into an agreement to settle disputes
over alleged maintenance violations. Under the agreement, AWA did not admit any
wrongdoing, has implemented certain changes in maintenance oversight and paid a
civil penalty of $2.5 million. In July 1999, the FAA determined that AWA has
complied with the terms of the settlement agreement and waived an additional
civil penalty of $2.5 million which could have been assessed under the
agreement.

    (f) CONTINGENT LEGAL OBLIGATIONS

    Holdings and AWA are named defendants in a number of additional lawsuits and
proceedings arising in the ordinary course of business. While the outcome of the
contingencies, lawsuits or other proceedings cannot be predicted with certainty,
management currently expects that any liability arising from such matters, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial condition and results of operations of
AWA.

10.  ADVANCES TO PARENT COMPANY AND AFFILIATE

    As of December 31, 1999, AWA had net advances to Holdings of $232.3 million.
In addition, AWA had net advances of $16.0 million to TLC, a wholly owned
subsidiary of Holdings.

11.  RELATED PARTY TRANSACTIONS

    In March 1997 AWA purchased 1.91 million of its publicly traded warrants
from TPG Partners, L.P. and certain of its affiliates for approximately $13.3
million. TPG is an investment firm that controls approximately 52% of the total
voting power of Holdings.

    AWA has entered into various aircraft leasing arrangements with AerFi Group
plc ("AerFi"), formerly GPA Group plc, at terms comparable to those obtained
from third parties for similar transactions. William A. Franke, the Company's
Chairman, President and CEO, is a director and, indirectly, a minor shareholder
of AerFi. In addition, an affiliate of TPG purchased a large minority stake in
AerFi in November 1998 and has three representatives serving on AerFi's
five-member Board of Directors. AWA currently leases four aircraft from AerFi
and the rental payments for such leases amounted to $14.8 million, $19.2 million
and $31.9 million for the years ended December 31, 1999, 1998 and 1997,
respectively. As of December 31, 1999, AWA was obligated to pay approximately
$191.8 million under the AerFi leases which expire at various dates through the
year 2013.

    In June 1997 America West Airlines 1997-1 Pass Through Trusts issued $93.9
million of Pass Through Trust Certificates in connection with the refinancing of
four Airbus A320 aircraft. The proceeds of the transaction were used to
refinance the indebtedness incurred by the owners of the aircraft leased to AWA.
Under the arrangements, the financial benefits of the transactions are shared
among AWA, the equity investors in leverage leases covering the aircraft and
U.S. subsidiaries of AerFi, the original lessees under the restructured leases.
As a result of the refinancing, AerFi, the AerFi Subs and AWA also entered
into a Put Termination Agreement which terminated arrangements with AerFi
pursuant to which AerFi could cause AWA to lease up to four additional aircraft
prior to June 30, 1999. Pursuant to the Put Termination Agreement, AWA is
obligated to make certain payments to the AerFi Subs. The payments due to the
AerFi Subs under the Put Termination Agreement were approximately $1.9 million
for each of the years 1999, 1998 and 1997.

    As part of AWA's reorganization in 1994, Continental Airlines made an
investment in AWA, and AWA entered into an alliance agreement related to
code-sharing arrangements and ground handling operations. AWA paid Continental
approximately $31.7 million, $27.8 million and $25.2 million and also received
approximately $24.5 million, $20.5 million and $13.4 million in 1999, 1998 and
1997, respectively, from Continental pursuant to these agreements.

                                       65
<PAGE>   69
                          AMERICA WEST AIRLINES, INC.
                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

    Mr. John F. Fraser, chairman of the board of Air Canada, served as a
director of AWA until May 20, 1998. AWA has a maintenance contract with Air
Canada on terms comparable to those obtained from third parties for similar
transactions. AWA's payments under the maintenance contract were $17.3 million,
$9.4 million and $5.9 million in 1999, 1998 and 1997, respectively.

    AWA provides air transportation and certain administrative services to The
Leisure Company, a wholly owned subsidiary of Holdings that was formed on
January 1, 1998. The cost of air transportation and administrative services are
negotiated on an arms length basis. In 1999 and 1998 AWA had net air
transportation sales to TLC of $54.8 million and $61.6 million, respectively,
and received $1.6 million and $1.9 million, respectively, under the services
agreement.

12.  QUARTERLY FINANCIAL DATA (UNAUDITED)

    Summarized quarterly financial data for 1999 and 1998 follows (in thousands
of dollars):

<TABLE>
<CAPTION>
                                  1ST             2ND             3RD             4TH
                                QUARTER         QUARTER         QUARTER         QUARTER
                                -------         -------         -------         -------
<S>                            <C>             <C>             <C>             <C>
             1999
Operating revenues ........    $ 506,462       $ 554,193       $ 533,894       $ 552,406
Operating income ..........       48,889          74,059          38,848          36,105
Nonoperating expense, net..       (4,098)           (164)         (2,702)         10,037
Income tax expense ........      (19,885)        (32,351)        (14,831)        (17,285)
Net income ................       24,906          41,544          21,315          28,857(1)
</TABLE>

<TABLE>
<CAPTION>
                                  1ST             2ND             3RD             4TH
                                QUARTER         QUARTER         QUARTER         QUARTER
                                -------         -------         -------         -------
<S>                            <C>             <C>             <C>             <C>
             1998
Operating revenues ........    $ 470,953       $ 519,489       $ 485,424       $ 492,848
Operating income ..........       47,823          73,792          41,447          34,784
Nonoperating expense, net..       (4,891)         (2,222)         (2,076)         (4,100)
Income tax expense ........      (18,540)        (31,381)        (20,078)        (11,542)
Net income ................       24,392          40,189          19,293          19,142
</TABLE>

    (1)  Includes an $11.9 million pretax unrealized gain on the Company's
         investment in Priceline common stock and $2.5 million of revenue
         related to additional Priceline warrants granted to AWA in November
         1999.

13.  SEGMENT DISCLOSURES

    AWA is one reportable operating segment. Accordingly, the segment reporting
financial data required by SFAS No. 131 is included in the accompanying balance
sheets and statements of income.

                                       66
<PAGE>   70
ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

    None.



                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information respecting continuing directors and nominees of the Company is
set forth under the caption "Election of Directors" in Holdings' Proxy Statement
relating to its 2000 Annual Meeting of Stockholders and is incorporated by
reference into this Form 10-K Report. The Proxy Statement will be filed with the
Securities and Exchange Commission in accordance with Rule 14a-6(c) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). With
the exception of the foregoing information and other information specifically
incorporated by reference into this Form 10-K Report, the Proxy Statement is not
being filed as a part hereof. Information respecting executive officers of
Holdings is set forth at Part I of this Report.

    Information respecting compliance with Section 16(a) of the Exchange Act is
set forth under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement and is incorporated by references into this
Form 10-K Report.

ITEM 11.      EXECUTIVE COMPENSATION

    Information concerning executive compensation required by Item 11 is set
forth under the captions "Executive Compensation", "Stock Option Grants and
Exercises", "Employment Agreements" and "Compensation Committee Interlocks" in
the Proxy Statement and is incorporated by reference into this Form 10-K Report.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Information concerning security ownership of certain beneficial owners and
management required by Item 12 is set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement
and is incorporated by reference into this Form 10-K Report.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information concerning certain relationships and related transactions
required by Item 13 is set forth under the captions "Employment Agreements" and
"Certain Transactions" in the Proxy Statement and is incorporated by reference
into this Form 10-K Report.

                                       67
<PAGE>   71
                                     PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a) FINANCIAL STATEMENTS.

    The following financial statements and the Independent Auditors' Reports are
filed in Part II, Item 8A and 8B of this report on the pages indicated:

    America West Holdings Corporation

                  Independent Auditors' Report - page 31.

                  Consolidated Balance Sheets - December 31, 1999 and 1998 -
                  page 32.

                  Consolidated Statements of Income-Years ended December 31,
                  1999, 1998 and 1997 - page 33.

                  Consolidated Statements of Cash Flows-Years ended December 31,
                  1999, 1998 and 1997 - page 34.

                  Consolidated Statements of Stockholders' Equity-Years ended
                  December 31, 1999, 1998 and 1997 page 35.

                  Notes to Consolidated Financial Statements - page 36.

   America West Airlines. Inc.

                  Independent Auditors' Report - page 52.

                  Balance Sheets - December 31, 1999 and 1998 - page 53.

                  Statements of Income - Years ended December 31, 1999, 1998 and
                  1997 - page 54.

                  Statements of Cash Flows - Years ended December 31, 1999, 1998
                  and 1997 - page 55.

                  Statements of Stockholder's Equity - Years ended December 31,
                  1999, 1998 and 1997 - page 56.

                  Notes to Financial Statements - page 57.

    (b)           REPORTS ON FORM 8-K

    None.

    (c)           EXHIBITS

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER        TITLE
    ------        -----
<S>               <C>
    2.2           Agreement and Plan of Merger, dated as of December 19, 1996,
                  by and among America West Holdings Corporation ("Holdings"),
                  America West Airlines, Inc. ("AWA") and AWA Merger, Inc., with
                  an effective date and time as of midnight on December 31, 1996
                  - Incorporated by reference to Exhibit 2.1 to Holdings'
                  Registration Statement on Form 8-B dated January 13, 1997.

    3.1           Restated Certificate of Incorporation of AWA (included in
                  Exhibit 2.2 above).
</TABLE>

                                       68
<PAGE>   72
<TABLE>
<S>               <C>
         3.2      Restated Bylaws of AWA - Incorporated by reference to AWA's
                  Annual Report on Form 10-K dated December 31, 1994.

         3.3      Section 4.18 of the Restated Bylaws of AWA (included in
                  Exhibit 2.2 above).

         3.4      Certificate of Incorporation of Holdings (filed with the
                  Secretary of State of the State of Delaware on December 13,
                  1996) - Incorporated by reference to Exhibit 3.1 of Holdings'
                  Registration Statement on Form 8-B dated January 13, 1997.

         3.5      Bylaws of Holdings - Incorporated by reference to Exhibit 3.2
                  to Holdings' Registration Statement on Form 8-B dated January
                  13, 1997.

         4.1      Indenture for 10 3/4% Senior Unsecured Notes due 2005 -
                  Incorporated by reference to Exhibit 4.1 to AWA's Form S-4
                  (No. 33-61099).

         4.2      Form of Senior Note (included as Exhibit A to Exhibit 4.1
                  above).

         4.3      Warrant Agreement dated August 25, 1994 between AWA and First
                  Interstate, N.A., as Warrant Agent - Incorporated by reference
                  to Exhibit 4.3 to AWA's Current Report on Form 8-K dated
                  August 25, 1994.

         4.4      Form of Warrant (included as Exhibit A to Exhibit 4.3 above).

         4.5      Supplemental Warrant Agreement dated effective as of December
                  31, 1996 between AWA and Harris Trust Company of California,
                  as Warrant Agent - Incorporated by reference to Exhibit 4.3 to
                  Holdings' Registration Statement on Form 8-B dated January 13,
                  1997.

         4.7      Stock Option Agreement dated effective as of December 31,
                  1996, between Holdings and AWA Incorporated by reference to
                  Exhibit 4.5 to Holdings' Registration Statement on Form 8-B
                  dated January 13, 1997.

         4.8      Registration Rights Agreement dated August 25, 1994 among AWA,
                  AmWest Partners, L.P. and other holders - Incorporated by
                  reference to Exhibit 4.6 to the AWA's Current Report on Form
                  8-K dated August 25, 1994.

         4.9      Assumption of Certain Obligations Under Registration Rights
                  Agreement executed by Holdings for the benefit of TPG
                  Partners, L.P., TPG Parallel 1, L.P., Air Partners II, L.P.,
                  Continental Airlines, Inc., Mesa Airlines, Inc., Lehman
                  Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont
                  Fund, L.P. - Incorporated by reference to Exhibit 4.7 to
                  Holdings' Registration Statement on Form 8-B dated January 13,
                  1997.

         4.10     Form of Pass Through Trust Agreement, dated as of November 26,
                  1996, between AWA and Fleet National Bank, as Trustee -
                  Incorporated by reference to Exhibit 4.1 to AWA's Report on
                  Form 8-K dated November 26, 1996.

         4.12     Form of Pass Through Trust Agreement, dated as of June 17,
                  1997, between AWA and Fleet National Bank, as Trustee -
                  Incorporated by reference to Exhibit 4.5 to AWA's Registration
                  Statement on Form S-3 (No. 33-327351).

         4.13     Forms of Pass Through Trust Agreements, dated as of October 6,
                  1998, between AWA and Wilmington Trust Company, as Trustee -
                  Incorporated by reference to Exhibits 4.4, 4.5, 4.6, 4.7, 4.8
                  and 4.9 to AWA's Registration Statement on Form S-4 (No.
                  333-71615).
</TABLE>

                                       69
<PAGE>   73
<TABLE>
<S>               <C>

         4.14     Pass Through Trust Agreements, dated as of September 21, 1999,
                  between AWA and Wilmington Trust Company, as Trustee, made
                  with respect to the formation of America West Airlines Pass
                  Through Trusts, Series 1999-1G-S, 1999-1G-O, 1999-1C-S and
                  1999-1C-O and the issuance of 7.93% Initial Pass Through
                  Certificates Series 1999-1G-S and 1999-1G-O, and 8.54% Initial
                  Pass Through Certificates, Series 1999-1C-S and 1999-1C-O, and
                  7.93% Exchange Pass Through Certificates, Series 1999-1G-S and
                  1999-1G-O, and 8.54% Exchange Pass Through Certificates,
                  Series 1999-1C-S and 1999-1C-O - Incorporated by reference to
                  AWA's Quarterly Report on Form 10-Q for the period ended
                  September 30, 1999.

         10.1     Alliance Agreements dated August 25, 1994 between AWA and
                  Continental Airlines, Inc. including the Master Ground
                  Handling Agreement, the Reciprocal Frequent Flyer
                  Participation Agreement, the Code Sharing Agreement, the Cargo
                  Special Pro-Rate Agreement, the Reciprocal Club Usage
                  Agreement and the Memorandum of Understanding Concerning
                  Technology Transfers-Incorporated by reference to Exhibit
                  10.12 to AWA's Current Report on Form 8-K dated August 25,
                  1994.

         10.11    Airport Use Agreement dated July 1, 1989 among the City of
                  Phoenix, The Industrial Development Authority of the City of
                  Phoenix, Arizona and AWA ("Airport Use Agreement") -
                  Incorporated by reference to Exhibit 10-D(9) to AWA's Annual
                  Report on Form 10-K for the year ended December 31, 1989.

         10.12    First Amendment dated August 1, 1990 to Airport Use Agreement
                  - Incorporated by reference to Exhibit 10-(D)(9) to AWA's
                  Quarterly Report on Form 10-Q for the period ended September
                  30, 1990.

         10.19    Management Rights Agreement dated August 25, 1994 between TPG
                  Partners L.P., TPG Genpar, L.P. and AWA - Incorporated by
                  reference to Exhibit 10.47 to AWA's Registration Statement on
                  Form S-1 (No. 33-54243), as amended.

         10.20(1) Amended and Restated V2500 Support Contract dated as of
                  October 7, 1998 between AWA and IAE International Aero Engines
                  AG and Side Letters Nos. 1 and 2 thereto - Incorporated by
                  reference to Exhibit 10.20 to AWA's Annual Report on Form 10-K
                  for the year ended December 31, 1998.

         +10.21   Amended and Restated America West 1994 Incentive Equity Plan -
                  Incorporated by reference to Exhibit 10.21 to AWA's Annual
                  Report on Form 10-K for the year ended December 31, 1998.

         +10.23   Employment Agreement dated as of February 17, 1998 among
                  Holdings, AWA, The Leisure Company and William A. Franke -
                  Incorporated by reference to Exhibit 10.23 to AWA's Annual
                  Report on Form 10-K for the year ended December 31, 1998.

         +10.24   Employment Agreement dated as of February 15, 1997 among
                  Holdings, AWA and Richard R. Goodmanson. - Incorporated by
                  reference to Exhibit 10.24 to the Company's Annual Report on
                  Form 10-K for the year ended December 31, 1996.

         10.25(1) Airbus A320/A319 Purchase Agreement dated September 12, 1997
                  between AVSA S.A.R.L and AWA including Letter Agreements Nos.
                  1-10 - Incorporated by reference to Exhibit 10.26 to Holdings'
                  Quarterly Report on Form 10-Q for the quarter ended September
                  30, 1997.

         10.26    Revolving Credit Agreement dated as of December 12, 1997 among
                  AWA and The Industrial Bank of Japan; Limited, Los Angeles
                  Agency as Agent for the Banks. - Incorporated by reference by
                  Exhibit 10.25 to the Company's Annual Report on Form 10-K for
                  the year ended December 31, 1997.
</TABLE>

                                       70
<PAGE>   74
<TABLE>
<S>               <C>
         10.28(1) Amendment No. 1 dated March 31, 1998 to Airbus A320/A319
                  Purchase Agreement dated September 12, 1997 between AVSA
                  S.A.R.L. and AWA - Incorporated by reference to Exhibit 10.28
                  to Holdings' Quarterly Report on Form 10-Q for the quarter
                  ended June 30, 1998.

         10.29    Financing Agreement dated April 1, 1998 between the Industrial
                  Development Authority of the City of Phoenix, Arizona and AWA
                  - Incorporated by reference to Exhibit 10.29 to Holdings'
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1998.

         10.30    Indenture of Trust dated April 1, 1998 from the Industrial
                  Development Authority of the City of Phoenix, Arizona to
                  Norwest Bank, Arizona N.A. - Incorporated by reference to
                  Exhibit 10.30 to Holdings' Quarterly Report on Form 10-Q for
                  the quarter ended June 30, 1998.

         10.31    Amendment No. 1 to Code Sharing Agreement dated June 29, 1994
                  between AWA and Continental Airlines, Inc. - Incorporated by
                  reference to Exhibit 10.31 to AWA's Annual Report on Form 10-K
                  for the year ended December 31, 1998.

         10.32(1) Amendment No. 2 dated as of December 9, 1998 to the A319/A320
                  Purchase Agreement between AVSA S.A.R.L. and AWA -
                  Incorporated by reference to Exhibit 10.32 to AWA's Annual
                  Report on Form 10-K for the year ended December 31, 1998.

         10.33    Amendment to Employment Agreement, dated as of January 15,
                  1999 among Holdings, AWA, The Leisure Company and William A.
                  Franke - Incorporated by reference to Exhibit 10.33 to AWA's
                  Annual Report on Form 10-K for the year ended December 31,
                  1998.

         10.34    Second Amendment to Airport Use Agreement dated as of August
                  25, 1995 - Incorporated by reference to Exhibit 10.34 to AWA's
                  Annual Report on Form 10-K for the year ended December 31,
                  1998.

         10.35    Indenture of Trust dated as of June 1, 1999 from The
                  Industrial Development Authority of the City of Phoenix,
                  Arizona to Bank One Arizona, N.A. - Incorporated by reference
                  to Exhibit 10.35 to AWA's Quarterly Report on Form 10-Q for
                  the period ended June 30, 1999.

         *10.36(1) Amendment No. 3, dated October 14, 1999, to the A319/320
                  Purchase Agreement dated September 12, 1997 between AVSA,
                  S.A.R.L. and America West and Letter Agreement Nos. 1 - 8
                  thereto.

         *21.1    Subsidiaries of Holdings.

         *23.1    Consent of KPMG LLP.

         24.1     Power of Attorney, pursuant to which amendments to this Annual
                  Report on Form 10-K may be filed, is included on the signature
                  pages of this Annual Report on Form 10-K.

         *27.1    Financial Data Schedule. - America West Holdings Corporation

         *27.2    Financial Data Schedule. - America West Airlines, Inc.
</TABLE>


         *        Filed herewith.

         +        Represents a management contract or compensatory plan or
                  arrangement.

         (1)      The Company has sought confidential treatment for portions of
                  the referenced exhibit.

                                       71
<PAGE>   75
                  (d)      FINANCIAL STATEMENT SCHEDULES.

                  America West Holdings Corporation

                           Independent Auditors' Report on Schedule and Consent
                           - page 75.

                           Schedule II: Valuation and Qualifying Accounts - page
                           76.

                  America West Airlines, Inc.

                           Independent Auditors' Report on Schedule - page 77.

                           Schedule II: Valuation and Qualifying Accounts - page
                           78.

    All other information and schedules have been omitted as not applicable or
because the required information is included in the financial statements or
notes thereto.

                                       72
<PAGE>   76
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, America West Holdings Corporation has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                         AMERICA WEST HOLDINGS CORPORATION

Date: March 29, 2000                     By:  /s/ William A. Franke
                                              ----------------------------------
                                              William A. Franke,
                                              Chairman of the Board and
                                              Chief Executive Officer

                                POWER OF ATTORNEY

    We, the undersigned, directors and officers of America West Holdings
Corporation, do hereby severally constitute and appoint William A. Franke, W.
Douglas Parker and Stephen L. Johnson and each or any of them, our true and
lawful attorneys and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and to file the same with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys and agents, and
each or any of them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys and agents, and each of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 2000.

<TABLE>
<CAPTION>
         SIGNATURE                                       TITLE
         ---------                                       -----
<S>                                  <C>
          /s/ William A. Franke      Chairman of the Board and Chief Executive Officer
     ------------------------------
              William A. Franke      (Principal Executive Officer)

          /s/ W. Douglas Parker      Executive Vice President and Director
     ------------------------------
              W. Douglas Parker      (Principal Financial and Accounting Officer)

          /s/ Gilbert D. Mook.       Executive Vice President and Director
     ------------------------------
              Gilbert D. Mook

          /s/ John L. Goolsby        Director
     ------------------------------
              John L. Goolsby

          /s/ Walter T. Klenz        Director
     ------------------------------
              Walter T. Klenz

          /s/ Richard C. Kraemer     Director
     ------------------------------
              Richard C. Kraemer

          /s/ Robert J. Miller       Director
     ------------------------------
              Robert J. Miller

          /s/ Denise M. O'Leary      Director
     ------------------------------
              Denise M. O'Leary

          /s/ Richard P. Schifter    Director
     ------------------------------
              Richard P. Schifter

          /s/ Jeffrey A. Shaw        Director
     ------------------------------
              Jeffrey A. Shaw

          /s/John F. Tierney         Director
     ------------------------------
             John F. Tierney
</TABLE>

                                       73
<PAGE>   77
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, America West Airlines, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
                                        AMERICA WEST AIRLINES, INC.

Date: March 29, 2000                    By: /s/ William A. Franke
                                            ------------------------------------
                                                William A. Franke,
                                                Chairman of the Board and Chief
                                                Executive Officer

                                POWER OF ATTORNEY

    We, the undersigned, directors and officers of America West Airlines, Inc.,
do hereby severally constitute and appoint William A. Franke, W. Douglas Parker
and Stephen L. Johnson and each or any of them, our true and lawful attorneys
and agents, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, and to file the same with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each or any of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys and agents, and each of them, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 2000.

<TABLE>
<CAPTION>
           SIGNATURE                                          TITLE
           ---------                                          -----
<S>                                     <C>
       /s/ William A. Franke            Chairman of the Board and Chief Executive Officer
   -------------------------------
           William A. Franke            (Principal Executive Officer)

       /s/ W. Douglas Parker            Executive Vice President and Director
   -------------------------------
           W. Douglas Parker            (Principal Financial Officer)

       /s/ Gilbert D. Mook              Executive Vice President, Chief Operating Officer and Director
   -------------------------------
           Gilbert D. Mook

       /s/ Michael R. Carreon           Vice President and Controller
   -------------------------------
           Michael R. Carreon           (Principal Accounting Officer)

       /s/ John L. Goolsby              Director
   -------------------------------
           John L. Goolsby

       /s/ Walter T. Klenz              Director
   -------------------------------
           Walter T. Klenz

       /s/ Richard C. Kraemer           Director
   -------------------------------
           Richard C. Kraemer

       /s/ Robert J. Miller             Director
   -------------------------------
           Robert J. Miller

       /s/ Denise M. O'Leary            Director
   -------------------------------
           Denise M. O'Leary

       /s/ Richard P. Schifter          Director
   -------------------------------
           Richard P. Schifter

       /s/ Jeffrey A. Shaw              Director
   -------------------------------
           Jeffrey A. Shaw

        /s/John F. Tierney              Director
   -------------------------------
           John F. Tierney
</TABLE>

                                       74
<PAGE>   78

              INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
AMERICA WEST HOLDINGS CORPORATION:

    The audits referred to in our report dated March 29, 2000, included the
related consolidated financial statement schedule as listed in Item 14(d) for
the years ended December 31, 1999, 1998 and 1997, included herein. The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

    We consent to incorporation by reference in the Registration Statements
(Form S-8 No. 33-60555), (Form S-8 No. 333-26935), (Form S-8 No. 333-94361),
(Form S-3 No. 333-51107) and (Form S-3 No. 333-02129) of America West Holdings
Corporation of our report dated March 29, 2000, relating to the consolidated
balance sheets of America West Holdings Corporation and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of income,
cash flows and stockholders' equity for each of the years in the three-year
period ended December 31, 1999 and the related consolidated financial statement
schedule, which report appears in the December 31, 1999, annual report on Form
10-K of America West Holdings Corporation.

                                                                        KPMG LLP

Phoenix, Arizona
March 29, 2000

                                       75
<PAGE>   79
                        AMERICA WEST HOLDINGS CORPORATION
                  SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                    BALANCE AT                            BALANCE
                                    BEGINNING                              AT END
        DESCRIPTION                 OF PERIOD   ADDITIONS   DEDUCTIONS   OF PERIOD
-----------------------------       ---------   ---------   ----------   ---------
<S>                                 <C>         <C>         <C>          <C>
Allowance for doubtful
  receivables:
    Year ended December 31, 1999      $3,545      $3,188      $4,280      $2,453
                                      ======      ======      ======      ======
    Year ended December 31, 1998      $3,850      $3,412      $3,717      $3,545
                                      ======      ======      ======      ======
    Year ended December 31, 1997      $3,091      $3,000      $2,241      $3,850
                                      ======      ======      ======      ======

Allowance for obsolescence:
    Year ended December 31, 1999      $4,112      $1,642      $  142      $5,612
                                      ======      ======      ======      ======
    Year ended December 31, 1998      $2,495      $1,699      $   82      $4,112
                                      ======      ======      ======      ======
    Year ended December 31, 1997      $1,713      $1,159      $  377      $2,495
                                      ======      ======      ======      ======
</TABLE>

                                       76
<PAGE>   80
                    INDEPENDENT AUDITORS' REPORT ON SCHEDULE

THE BOARD OF DIRECTORS AND STOCKHOLDER
AMERICA WEST AIRLINES, INC.:

    The audits referred to in our report dated March 29, 2000, included the
related financial statement schedule as listed in Item 14(d) for the years ended
December 31, 1999, 1998 and 1997, included herein. The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

                                                                        KPMG LLP

Phoenix, Arizona
March 29, 2000

                                       77
<PAGE>   81
                           AMERICA WEST AIRLINES, INC.
                  SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                     BALANCE AT                            BALANCE
                                     BEGINNING                             AT END
           DESCRIPTION               OF PERIOD    ADDITIONS  DEDUCTIONS   OF PERIOD
                                     ----------   ---------  ----------   ---------
<S>                                  <C>          <C>        <C>          <C>
Allowance for doubtful receivables:
    Year ended December 31, 1999      $3,268      $3,000      $4,263      $2,005
                                      ======      ======      ======      ======
    Year ended December 31, 1998      $3,850      $3,000      $3,582      $3,268
                                      ======      ======      ======      ======
    Year ended December 31, 1997      $3,091      $3,000      $2,241      $3,850
                                      ======      ======      ======      ======
Allowance for obsolescence:
    Year ended December 31, 1999      $4,112      $1,642      $  142      $5,612
                                      ======      ======      ======      ======
    Year ended December 31, 1998      $2,495      $1,699      $   82      $4,112
                                      ======      ======      ======      ======
    Year ended December 31, 1997      $1,713      $1,159      $  377      $2,495
                                      ======      ======      ======      ======
</TABLE>


                                       78
<PAGE>   82
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER            TITLE
------            -----
<S>               <C>
         2.2      Agreement and Plan of Merger, dated as of December 19, 1996,
                  by and among America West Holdings Corporation ("Holdings"),
                  America West Airlines, Inc. ("AWA") and AWA Merger, Inc., with
                  an effective date and time as of midnight on December 31, 1996
                  - Incorporated by reference to Exhibit 2.1 to Holdings'
                  Registration Statement on Form 8-B dated January 13, 1997.

         3.1      Restated Certificate of Incorporation of AWA (included in
                  Exhibit 2.2 above).

         3.2      Restated Bylaws of AWA - Incorporated by reference to AWA's
                  Annual Report on Form 10-K dated December 31, 1994.

         3.3      Section 4.18 of the Restated Bylaws of AWA (included in
                  Exhibit 2.2 above).

         3.4      Certificate of Incorporation of Holdings (filed with the
                  Secretary of State of the State of Delaware on December 13,
                  1996) - Incorporated by reference to Exhibit 3.1 of Holdings'
                  Registration Statement on Form 8-B dated January 13, 1997.

         3.5      Bylaws of Holdings - Incorporated by reference to Exhibit 3.2
                  to Holdings' Registration Statement on Form 8-B dated January
                  13, 1997.

         4.1      Indenture for 10 3/4% Senior Unsecured Notes due 2005 -
                  Incorporated by reference to Exhibit 4.1 to AWA's Form S-4
                  (No. 33-61099).

         4.2      Form of Senior Note (included as Exhibit A to Exhibit 4.1
                  above).

         4.3      Warrant Agreement dated August 25, 1994 between AWA and First
                  Interstate, N.A., as Warrant Agent - Incorporated by reference
                  to Exhibit 4.3 to AWA's Current Report on Form 8-K dated
                  August 25, 1994.

         4.4      Form of Warrant (included as Exhibit A to Exhibit 4.3 above).

         4.5      Supplemental Warrant Agreement dated effective as of December
                  31, 1996 between AWA and Harris Trust Company of California,
                  as Warrant Agent - Incorporated by reference to Exhibit 4.3 to
                  Holdings' Registration Statement on Form 8-B dated January 13,
                  1997.

         4.7      Stock Option Agreement dated effective as of December 31,
                  1996, between Holdings and AWA Incorporated by reference to
                  Exhibit 4.5 to Holdings' Registration Statement on Form 8-B
                  dated January 13, 1997.

         4.8      Registration Rights Agreement dated August 25, 1994 among AWA,
                  AmWest Partners, L.P. and other holders - Incorporated by
                  reference to Exhibit 4.6 to the AWA's Current Report on Form
                  8-K dated August 25, 1994.

         4.9      Assumption of Certain Obligations Under Registration Rights
                  Agreement executed by Holdings for the benefit of TPG
                  Partners, L.P., TPG Parallel 1, L.P., Air Partners II, L.P.,
                  Continental Airlines, Inc., Mesa Airlines, Inc., Lehman
                  Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont
                  Fund, L.P. - Incorporated by reference to Exhibit 4.7 to
                  Holdings' Registration Statement on Form 8-B dated January 13,
                  1997.

         4.10     Form of Pass Through Trust Agreement, dated as of November 26,
                  1996, between AWA and Fleet National Bank, as Trustee -
                  Incorporated by reference to Exhibit 4.1 to AWA's Report on
                  Form 8-K dated November 26, 1996.
</TABLE>

                                       79
<PAGE>   83
<TABLE>
<S>               <C>
         4.12     Form of Pass Through Trust Agreement, dated as of June 17,
                  1997, between AWA and Fleet National Bank, as Trustee -
                  Incorporated by reference to Exhibit 4.5 to AWA's Registration
                  Statement on Form S-3 (No. 33-327351).

         4.13     Forms of Pass Through Trust Agreements, dated as of October 6,
                  1998, between AWA and Wilmington Trust Company, as Trustee -
                  Incorporated by reference to Exhibits 4.4, 4.5, 4.6, 4.7, 4.8
                  and 4.9 to AWA's Registration Statement on Form S-4 (No.
                  333-71615).

         4.14     Pass Through Trust Agreements, dated as of September 21, 1999,
                  between AWA and Wilmington Trust Company, as Trustee, made
                  with respect to the formation of America West Airlines Pass
                  Through Trusts, Series 1999-1G-S, 1999-1G-O, 1999-1C-S and
                  1999-1C-O and the issuance of 7.93% Initial Pass Through
                  Certificates Series 1999-1G-S and 1999-1G-O, and 8.54% Initial
                  Pass Through Certificates, Series 1999-1C-S and 1999-1C-O, and
                  7.93% Exchange Pass Through Certificates, Series 1999-1G-S and
                  1999-1G-O, and 8.54% Exchange Pass Through Certificates,
                  Series 1999-1C-S and 1999-1C-O - Incorporated by reference to
                  AWA's Quarterly Report on Form 10-Q for the period ended
                  September 30, 1999.

         10.1     Alliance Agreements dated August 25, 1994 between AWA and
                  Continental Airlines, Inc. including the Master Ground
                  Handling Agreement, the Reciprocal Frequent Flyer
                  Participation Agreement, the Code Sharing Agreement, the Cargo
                  Special Pro-Rate Agreement, the Reciprocal Club Usage
                  Agreement and the Memorandum of Understanding Concerning
                  Technology Transfers-Incorporated by reference to Exhibit
                  10.12 to AWA's Current Report on Form 8-K dated August 25,
                  1994.

         10.11    Airport Use Agreement dated July 1, 1989 among the City of
                  Phoenix, The Industrial Development Authority of the City of
                  Phoenix, Arizona and AWA ("Airport Use Agreement") -
                  Incorporated by reference to Exhibit 10-D(9) to AWA's Annual
                  Report on Form 10-K for the year ended December 31, 1989.

         10.12    First Amendment dated August 1, 1990 to Airport Use Agreement
                  - Incorporated by reference to Exhibit 10-(D)(9) to AWA's
                  Quarterly Report on Form 10-Q for the period ended September
                  30, 1990.

         10.19    Management Rights Agreement dated August 25, 1994 between TPG
                  Partners L.P., TPG Genpar, L.P. and AWA - Incorporated by
                  reference to Exhibit 10.47 to AWA's Registration Statement on
                  Form S-1 (No. 33-54243), as amended.

         10.20(1) Amended and Restated V2500 Support Contract dated as of
                  October 7, 1998 between AWA and IAE International Aero Engines
                  AG and Side Letters Nos. 1 and 2 thereto - Incorporated by
                  reference to Exhibit 10.20 to AWA's Annual Report on Form 10-K
                  for the year ended December 31, 1998.

         +10.21   Amended and Restated America West 1994 Incentive Equity Plan -
                  Incorporated by reference to Exhibit 10.21 to AWA's Annual
                  Report on Form 10-K for the year ended December 31, 1998.

         +10.23   Employment Agreement dated as of February 15, 1998 among
                  Holdings, AWA, The Leisure Company and William A. Franke -
                  Incorporated by reference to Exhibit 10.23 to AWA's Annual
                  Report on Form 10-K for the year ended December 31, 1998.

         +10.24   Employment Agreement dated as of February 15, 1997 among
                  Holdings, AWA and Richard R. Goodmanson. - Incorporated by
                  reference to Exhibit 10.24 to the Company's Annual Report on
                  Form 10-K for the year ended December 31, 1996.

         10.25(1) Airbus A320/A319 Purchase Agreement dated September 12, 1997
                  between AVSA S.A.R.L and AWA including Letter Agreements Nos.
                  1-10 - Incorporated by reference to Exhibit 10.26 to Holdings'
                  Quarterly Report on Form 10-Q for the quarter ended September
                  30, 1997.
</TABLE>


                                       80
<PAGE>   84
<TABLE>
<S>               <C>
         10.26    Revolving Credit Agreement dated as of December 12, 1997 among
                  AWA and The Industrial Bank of Japan; Limited, Los Angeles
                  Agency as Agent for the Banks. - Incorporated by reference by
                  Exhibit 10.25 to the Company's Annual Report on Form 10-K for
                  the year ended December 31, 1997.

         10.28(1) Amendment No. 1 dated March 31, 1998 to Airbus A320/A319
                  Purchase Agreement dated September 12, 1997 between AVSA
                  S.A.R.L. and AWA - Incorporated by reference to Exhibit 10.28
                  to Holdings' Quarterly Report on Form 10-Q for the quarter
                  ended June 30, 1998.

         10.29    Financing Agreement dated April 1, 1998 between the Industrial
                  Development Authority of the City of Phoenix, Arizona and AWA
                  - Incorporated by reference to Exhibit 10.29 to Holdings'
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1998.

         10.30    Indenture of Trust dated April 1, 1998 from the Industrial
                  Development Authority of the City of Phoenix, Arizona to
                  Norwest Bank, Arizona N.A. - Incorporated by reference to
                  Exhibit 10.30 to Holdings' Quarterly Report on Form 10-Q for
                  the quarter ended June 30, 1998.

         10.31    Amendment No. 1 to Code Sharing Agreement dated June 29, 1994
                  between AWA and Continental Airlines, Inc. - Incorporated by
                  reference to Exhibit 10.31 to AWA's Annual Report on Form 10-K
                  for the year ended December 31, 1998.

         10.32(1) Amendment No. 2 dated as of December 9, 1998 to the A319/A320
                  Purchase Agreement between AVSA S.A.R.L. and AWA -
                  Incorporated by reference to Exhibit 10.32 to AWA's Annual
                  Report on Form 10-K for the year ended December 31, 1998.

         10.33    Amendment to Employment Agreement, dated as of January 15,
                  1999 among Holdings, AWA, The Leisure Company and William A.
                  Franke - Incorporated by reference to Exhibit 10.33 to AWA's
                  Annual Report on Form 10-K for the year ended December 31,
                  1998.

         10.34    Second Amendment to Airport Use Agreement dated as of August
                  25, 1995 - Incorporated by reference to Exhibit 10.34 to AWA's
                  Annual Report on Form 10-K for the year ended December 31,
                  1998.

         10.35    Indenture of Trust dated as of June 1, 1999 from The
                  Industrial Development Authority of the City of Phoenix,
                  Arizona to Bank One Arizona, N.A. - Incorporated by reference
                  to Exhibit 10.35 to AWA's Quarterly Report on Form 10-Q for
                  the period ended June 30, 1999.

        *10.36(1) Amendment No. 3, dated October 14, 1999, to the A319/320
                  Purchase Agreement dated September 12, 1997 between AVSA,
                  S.A.R.L. and America West and Letter Agreement Nos. 1 - 8
                  thereto.

         *21.1    Subsidiaries of Holdings.

         *23.1    Consent of KPMG LLP.

         24.1     Power of Attorney, pursuant to which amendments to this Annual
                  Report on Form 10-K may be filed, is included on the signature
                  pages of this Annual Report on Form 10-K.

         *27.1    Financial Data Schedule. - America West Holdings Corporation

         *27.2    Financial Data Schedule. - America West Airlines, Inc.
</TABLE>


         *        Filed herewith.

         +        Represents a management contract or compensatory plan or
                  arrangement.

         (1)      The Company has sought confidential treatment for portions of
                  the referenced exhibit.

                                       81