Airlines Industry Update



## Airlines

Industry Note Daniel McKenzie, CF A Trading Desk

(312) 334-4416 (866) 622-7304

dmckenzie@Hudson Securitiesres.com

www.Hudson Securitiesres.com

March 17, 2010



## Competitive Capacity Study: A Win-Some

Lose-Some Story; How Much, Where, Matters

Companies Mentioned*:

AirTran (AAI, $5.38, Buy, PT $7)

Alaska Air Grp (ALK, $40.95, Buy, PT $54)

AMR Corp (AMR, $9.56, Neutral, PT $7)

Continental (CAL, $22.82, Buy, PT $28)

Delta (DAL, $12.98, Buy, PT $17)

JetBlue (JBLU, $5.43, Buy, PT $6)

Southwest (LUV, $13.1, Neutral, PT $14)

UAL Corp (UAUA, $19.88, Buy, PT $30)

US Airways (LCC, $7.77, Buy, PT $9)

* Midday prices as of 3/17/10.

Please refer to the last page of this report for all disclosures.

Additional information available upon request. 

## E VENT

• While summer schedules are not yet final, they are nonetheless taking

shape so we took a preliminary look at the competitive dynamic for 13 US

airlines flying nonstop to about 13,000 city pairs through Sept (vs June in our

1/15/10 competitive study).



## K EY 

## T AKE 

## -A WAYS FROM THE 

## S CHEDULES 

## D ATA

• Industry capacity is down about 1% in 2Q and up about 2% in 3Q (with low

cost carriers growing 4-5%). Legacy carri ers, in response to low cost growth,

continue to cede share where overlap exists. Consequently, Southwest in this

month’s study enjoys the bes t competitive dynamic, giving it a better pricing

backdrop vs peers. See Figures 1 - 4.

• We found competitive capacity in LUV markets down 3.6% in 2Q & -3.1%

in 3Q, with AMR cutting capacity 4.5% YoY in 2Q where overlap exists; DAL

-6.2%; LCC -6.6%; and UAL -4.0% though is cutting 7.8% in 3Q (with significant

cuts at Chicago and Denver).

• Delta and US Airways follow a close second and third after Southwest;

Alaska a close 4 th (even with Virgin America in its markets).

• Conversely, we found AAI and UAL fa ce the worst competitive dynamic,

though in UAL’s case, we found it offs etting the increased competition with

industry leading capacity cuts in 3Q10 . For AAI, we found industry seats up

4.2% in 2Q and up 5.5% in 3Q, with DAL (at ATL) and LUV (at BOS & MKE)

adding the most.

• While we found US Airways shrinking in Southwest’s markets, we also

found Southwest in turn shrinking 7.6% where direct overlap exists with US

Airways, which suggests LCC should continue to have a decent revenue

backdrop (e.g. overall competitive capacity is down 2% in 2Q).

• International capacity over the Atlantic looks flat through Sept while industry

capacity over the Pacific is up 2-3% in both 2Q & 3Q, with AMR in part

backfilling capacity cuts by Japan Air Lines and Delta adding new service from

Detroit, Salt Lake City, and Seattle. On the transatlantic, US Airways continues

to cut service from Philadelphia to: S hannon; Milan; Stockholm; Birmingham;

and London Gatwick; see Figs 23 & 24.



## I NVESTMENT 

## C ONCLUSIONS

• LUV continues to tighten its market s hare grip in this study and the capacity

cuts in its markets suggest there c ould be revenue upside to our already

aggressive PRASM assumption, but the stock is already discounting the good

news.

• We’re not drawing firm conclusions on AirTran at this point given that

Delta’s schedules beyond May are subject to revision. However, the carrier

continues to face increased competitive pressures suggesting downside risk

exists to our revenue outlook.

• And while its strategy is not sustai nable longer-term, UAL continues to put

profits over market share (unlike others). But it’s evident the longer CAL waits

to merge with UAL, the less it ends up with given share disintermediation from

LUV, a point that supports our view t hat M&A makes sense sooner rather than

later.Airlines Industry Update

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2 Why the Competitive Dynamic is Important

Capacity drives pricing: While a carrier’s revenues are a function of how wisely capacity is deployed, profits in the airline

industry are also in good part a function of what competit ors permit. To the extent key competitors are cutting, adding,

and sometimes even dumping capacity in key markets, revenues are impacted accordingly. Hence our study.

Understanding schedules data, which are adjusted frequently, is a formidable task but we believe an investor imperative

as an assessment of the competitive dynamic is essential input to formulating a revenue outlook

.

Methodology

We look at the sum of all seats for the entire month fo r each route flown by airline. More specifically, we use

schedules data to identify the city pairs that each airline is flying to, the particular equipment type on that route (e.g.

a 50-seat RJ vs a 777), and the daily frequencies to devel opment a bottoms up count of an airlines total scheduled

seats (not ASMs) by month. See our caveats section at the back of this report.

Figure 1: 2Q10E Scheduled Seat Growth by Airline

Based on avg monthly nonstop seats 1-way as of Mar 12, 2010 Figure 2: 3Q10E Scheduled Seat Growth by Airline

Based on avg monthly nonstop seats 1-way as of Mar 12, 2010

-1.3% -0.9% -0.9% -0.7% 0.5% 0.0% -0.3% 4.3%

-1.8%

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

CAL DAL LU V AMR A LK LCC UAUA JBL U AAIYoY Percent Change

-0.7% 0.7% 0.9% 2.1% 5.2%

4.0%

2.4% 5.2%

-2.4% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

U AU

A CAL

A MR A L K DAL

L C C

L U V AAI JB L UYoY Percent Change

For example, CAL is cutting its average monthly seats in 2Q10 by 1.8% YoY

whereas AirTran is growing its seats by 4.3% YoY. Note that Delta’s schedules

are final through May. Source: APGDat schedules data and Hudson Securities

estimates. For example, UAL is cutting average monthly seats in 3Q10 by 2.4% YoY.

AirTran and JetBlue, conversely, are growing avg monthly seats 5.2% YoY in

3Q10. Note that Delta’s schedules are final through May. Source: APGDat

schedules data and Hudson Securities estimates.

Figure 3: 2Q10 Competitive Capacity by Route Overlap

Based on avg monthly nonstop seats 1- way; Direct Overlap by Route Figure 4: 2Q10 Competitive Dynamic by Metro Area

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

-4.7% -4.4% -3.0% -2.6% 1.8%

-0.2% -0.2% 7.8%

-6.0%

-8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

S outhw es t Delta Alaska jetB l ue

US A i rw ays

A MR

C ontin

en ta l

U ni ted AirTr a nYoY Percent Change

-3.4% -3.3% -2.7% 4.2%

-2.3% -1.2% -0.2% -0.4%

-3.6%

-5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Sout

h we

s t Delt a US Airways

A l a ska jetBlue Continental AMR

U n i t e d AirTranYoY Percent Change

For example, Southwest’s 9 competitors detailed in Fig 17 below are collectively

shrinking 6.0% in markets where direct overlap exists on an airport to airport

basis. Source: APGDat schedules data (a s of 3/12/10) and Hudson Securities

estimates. For example, Alaska’s 9 competitors detailed in Fig 8 below are collectively

shrinking 2.7% in markets where direct and indirect overlap exists at nearby

alternative airports within a metropolitan area. Source: APGDat schedules data

(as of 3/12/10) and Hudson Securities estimates.Airlines Industry Update

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3 Figure 5: AirTran’s Competitive Dynamic – Route Overlap

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 6: AirTran’s Competitive Dynamic - Metro Area

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total AirTran 114,814 4.3% 141,032 5.2%

Alaska 9,525 New 9,629 New

AMR (38,007) -10.4% (20,860) -6.0%

Continental (13,934) -34.8% (10,724) -28.5%

Delta/NW 273,782 6.6% 220,595 5.2%

jetBlue 53,400 24.6% 40,983 19.8%

Midwest 20,453 10.2% 11,259 5.3%

Southwest 163,071 24.0% 212,007 34.0%

United (7,045) -5.8% (12,134) -10.6%

US Airways 23,336 5.5% 54,808 13.4%

Industry 484,580 7.8% 505,563 8.1% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total AirTran 114,814 4.3% 141,032 5.2%

Alaska 9,525 33.3% 9,629 33.3%

AMR (47,000) -4.5% 14,333 1.4%

Continental (26,982) -7.2% (20,310) -6.1%

Delta/NW 275,812 5.9% 201,292 4.2%

jetBlue 46,150 6.8% 65,167 10.4%

Midwest 20,453 10.2% 11,259 5.3%

Southwest 120,918 11.1% 217,704 21.9%

United (31,184) -4.3% (64,265) -9.1%

US Airways 42,042 4.8% 85,923 10.1%

Industry 409,733 4.2% 520,732 5.5%

Note that Delta’s schedules are final through May so we’re not drawing firm

conclusions on AAI’s competitive backdr op at this point for this summer.

Source: APGDat schedules data and Hudson Securities est. Note that Delta’s schedules are final through May so we’re not drawing firm

conclusions on AAI’s competitive backdr op at this point for this summer.

Source: APGDat schedules data (as of 3/12/10) and Hudson Securities ests.

Figure 7: Alaska’s Competitive Dynamic – Route Overlap

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 8: Alaska’s Competitive Dynamic - Metro Area

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total Alaska (19,408) -0.7% 24,414 0.9%

AirTran (1,050) NM 46 NM

jetBlue (8,233) -15.6% 20,067 38.9%

AMR 9,491 5.2% 28,152 15.8%

Continental 2,282 1.8% 1,279 0.9%

Delta (30,470) -15.2% (3,145) -1.4%

Southwest * (36,279) -5.6% 4,128 0.6%

United 80 0.0% (22,546) -3.9%

US Airways (22,763) -20.6% (17,023) -16.0%

Virgin 373 0.4% (95) -0.1%

Industry (86,570) -4.4% 10,861 0.5% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total Alaska (19,408) -0.7% 24,414 0.9%

AirTran 1,050 NM 685 NM

jetBlue 433 0.3% 30,383 18.3%

AMR * (21,016) -7.8% 2,920 1.1%

Continental 2,282 1.8% 1,279 0.9%

Delta (26,739) -11.8% (131) -0.1%

Southwest (32,721) -2.3% 876 0.1%

United 2,390 0.3% (41,939) -4.7%

US Airways (22,763) -20.6% (17,023) -16.0%

Virgin 7,634 6.9% (997) -0.8%

Industry (89,449) -2.7% (23,947) -0.7%

ALK faces disproportionate competition to UAL and Southwest; other

competitors are significantly smaller by comparison. Southwest capacity cuts

are occurring primarily at ALK’s PDX and SEA hubs. Delta’s cuts are primarily

SEA to Hawaii. AMR’s new route overlap incl ORD to SEA & ANC; LAX to San

Jose Cabo (MX), and Reno. Source: APGDat schedules data (as of 3/12/10)

and Hudson Securities estimates. * AMR is cutting in alternative airports; e.g. San Fran area to LA Metro area,

also San Fran area to Austin, & San Diego. Note, AirTran competes with Alaska

on transcon flying between the LAX metro area and the Washington DC metro

area. Source: APGDat schedules data (as of 3/12/10) and Hudson Securities

estimates.Airlines Industry Update

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4 Figure 9: AMR’s Competitive Dynamic – Route Overlap

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 10: AMR’s Competitive Dynamic - Metro Area

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total AMR (101,656) -0.9% 82,670 0.7%

AirTran 9,018 6.2% 10,985 7.2%

Alaska (449) -0.4% 4,274 3.9%

Continental (12,971) -3.0% 15,125 3.5%

Delta 63,475 3.8% 36,747 2.1%

jetBlue * 48,533 7.1% 84,883 11.4%

Southwest 62,098 8.8% 91,642 12.8%

United ** (91,242) -2.5% (150,628) -4.1%

US Airways (54,951) -6.4% (34,946) -4.1%

Virgin 11,428 5.1% (10,551) -4.3%

Industry (28,536) -0.2% 10,784 0.1% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total AMR (100,762) -0.9% 119,888 1.0%

AirTran (6,517) -1.4% 9,448 2.1%

Alaska (449) -0.3% 4,274 3.1%

Continental (33,010) -1.8% (9,013) -0.5%

Delta / NW 58,422 2.3% 30,027 1.1%

jetBlue 81,817 5.5% 126,650 8.4%

Southwest 87,758 1.7% 207,147 4.0%

United (116,665) -2.7% (190,103) -4.4%

US Airways (106,522) -7.9% (57,042) -4.4%

Virgin 35,992 15.8% 18,860 7.7%

Industry (57,597) -0.4% 110,222 0.7%

* jetBlue’s growth in AMR’s markets is primarily at San Juan, PR; JFK-LAX; the

Dominican Republic; & Jamaica. ** UAL’s cuts in AMR’s markets are primarily

at Chicago. Source: APGDat schedules data (as of 3/12/10) and Hudson

Securities estimates. Source: APGDat schedules data (as of 3/12/10) and Hudson Securities

estimates.

Figure 11: Continental’s Competitive Dynamic – by Route

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 12: Continental’s Competitive Dynamic – by Metro

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total CAL (124,397) -1.8% (46,350) -0.7%

AirTran (31,278) -91.1% (31,590) -91.2%

Alaska 2,628 1.4% (4,770) -2.1%

AMR 15,055 3.2% 1,723 0.4%

Delta 15,509 3.0% 15,510 2.9%

jetBlue (9,350) -7.8% (2,433) -2.3%

Southwest (12,071) -10.0% (6,090) -5.3%

United (20,041) -5.9% (18,060) -5.1%

US Airways 19,570 8.0% 25,717 10.3%

Industry (19,977) -0.2% (19,994) -0.2% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total CAL (124,397) -1.8% (46,350) -0.7%

AirTran (10,964) -5.6% (8,967) -4.5%

Alaska 2,628 1.4% (4,770) -2.1%

AMR 1,150 0.1% 93,765 5.2%

Delta 26,262 1.0% 104,592 4.1%

jetBlue (156,650) -10.2% (65,500) -4.3%

Southwest 16,570 1.1% 10,705 0.7%

United (41,067) -6.2% (27,980) -4.1%

US Airways (41,809) -4.2% (42,914) -4.4%

Industry (203,880) -1.2% 58,932 0.4%

*Direct ATL-EWR overlap by AirTran being eliminated. Source: APGDat

schedules data (as of 3/12/10) and Hudson Securities estimates. Source: APGDat schedules data (as of 3/12/10) and Hudson Securities

estimates.Airlines Industry Update

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5 Figure 13: Delta’s Competitive Dynamic – Route Overlap

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 14: Delta’s Competitive Dynamic - Metro Area *

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total DAL (214,020) -1.3% 357,321 2.1%

AirTran (145,321) -7.8% (110,698) -5.9%

Alaska 6,907 8.1% 9,119 11.1%

AMR (75,851) -5.1% (8,261) -0.6%

Continental (28,065) -8.3% (12,084) -3.6%

jetBlue (71,167) -5.7% (6,667) -0.5%

Southwest 55,182 6.2% 89,176 9.8%

United (45,212) -4.6% (57,404) -5.7%

US Airways (93,969) -8.4% (68,980) -6.2%

Virgin Amer 17,420 12.9% 13,712 9.9%

Industry (380,076) -4.7% (152,087) -1.9% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total DAL (214,176) -1.2% 407,097 2.3%

AirTran (107,721) -5.7% (51,322) -2.7%

Alaska 6,907 6.6% 9,119 9.0%

AMR (115,216) -4.7% (24,079) -1.0%

Continental (55,378) -2.1% (33,936) -1.3%

jetBlue (73,200) -3.9% 11,000 0.6%

Southwest 4,061 0.2% 49,965 2.0%

United (67,781) -4.2% (81,902) -4.9%

US Airways (123,726) -7.3% (115,448) -6.9%

Virgin Amer 22,203 15.2% 12,008 7.8%

Industry (509,851) -3.4% (224,594) -1.5%

Note that Delta’s schedules are final th rough May. Source: APGDat schedules

data (as of 3/12/10) and Hudson Securities estimates. Note that Delta’s schedules are final th rough May. Source: APGDat schedules

data (as of 3/12/10) and Hudson Securities estimates.

.

Figure 15: jetBlue’s Competitive Dynamic – Route Overlap

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 16: jetBlue’s Competitive Dynamic - Metro Area

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

Total jetBlue 11,633 0.5% 131,383 5.2%

AirTran 15,351 10.9% 12,964 10.1%

Alaska (26,771) -24.2% (24,243) -21.4%

AMR (32,635) -5.4% 14,083 2.4%

Continental (5,363) -1.7% (6,387) -2.6%

Delta * (62,887) -7.1% (33,846) -3.9%

Southwest 59,382 23.7% 58,104 23.3%

Spirit 5,668 3.2% (575) -0.3%

United (33,348) -7.7% (39,385) -9.2%

US Airways (32,705) -11.3% (12,466) -4.7%

Virgin 13,033 10.0% 7,067 5.0%

Industry (100,276) -3.0% (24,685) -0.8% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total jetBlue 11,633 0.5% 131,383 5.2%

AirTran 6,878 2.5% 14,824 5.9%

Alaska (40,694) -9.0% (30,261) -6.6%

AMR (73,320) -3.7% 26,227 1.4%

Continental (9,066) -0.6% (40,865) -2.8%

Delta (17,777) -1.2% 30,573 2.1%

Southwest 73,385 3.1% 70,946 3.0%

Spirit 8,908 4.3% (1,445) -0.6%

United (99,619) -6.7% (134,143) -8.8%

US Airways (133,492) -9.8% (102,384) -7.9%

Virgin 38,728 15.4% 21,874 8.1%

Industry (246,068) -2.3% (144,655) -1.3%

* Delta’s capacity cuts are primarily at Boston and JFK to FL markets. Source:

APGDat schedules data (as of 3/12/10) and Hudson Securities estimates. Source: APGDat schedules data (as of 3/12/10) and Hudson Securities

estimates.Airlines Industry Update

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6 Figure 17: LUV’s Competitive Dynamic – Route Overlap

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 18: Southwest’s Competitive Dynamic - Metro Area

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total LUV (123,708) -0.9% 516,760 4.0%

AirTran 32,601 7.8% 37,691 9.1%

AMR (161,145) -45.4% (138,333) -40.2%

Alaska (35,938) -5.9% (12,907) -2.1%

Continental (4,306) -5.2% (6,302) -7.9%

Delta / NW (21,753) -2.1% (9,849) -0.9%

Frontier (14,132) -1.7% (19,849) -2.4%

jetBlue 38,250 57.0% 31,933 43.0%

United (109,701) -5.6% (178,554) -8.9%

US Airways (159,155) -8.2% (125,175) -6.6%

Industry (435,279) -6.0% (421,344) -5.7% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total LUV (123,708) -0.9% 516,760 4.0%

AirTran 45,243 9.6% 55,081 12.0%

AMR (167,965) -4.5% (124,237) -3.4%

Alaska (19,882) -2.6% 8,356 1.1%

Continental (45,189) -2.1% (15,965) -0.8%

Delta / NW (122,159) -6.2% (50,279) -2.5%

Frontier (14,132) -1.7% (19,849) -2.4%

jetBlue 27,583 2.5% 87,417 8.5%

United (195,638) -4.0% (381,608) -7.8%

US Airways (187,226) -6.6% (127,613) -4.6%

Industry (679,364) -3.6% (568,696) -3.1%

Source: APGDat schedules data (as of 3/12/10) and Hudson Securities

estimates. UAL cuts include Chicago O’Hare to markets where LUV flies (Washington DC,

DEN, PHL, MSP, MCO, PDX, and BOS) and also at DEN. Source: APGDat

schedules data (as of 3/12/10) and Hudson Securities estimates.

Figure 19: UAL’s Competitive Dynamic – Route Overlap

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 20: UAL’s Competitive Dynamic - Metro Area

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total UAL 2,062 0.0% (226,759) -2.4%

AirTran 3,785 4.6% 1,731 2.0%

Alaska (40,148) -5.7% (2,824) -0.4%

AMR 93,009 2.9% 79,975 2.4%

Continental 31,085 8.5% 38,097 9.6%

Delta 38,425 3.4% 22,976 1.9%

jetBlue 46,817 34.5% 49,800 28.2%

Southwest 36,510 2.2% 130,375 7.9%

US Airways (71,427) -12.0% (59,839) -9.8%

Virgin 11,704 3.2% (11,725) -2.9%

Industry 149,759 1.8% 248,566 2.9% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total UAL 2,062 0.0% (226,759) -2.4%

AirTran 26,165 4.6% 64,076 11.3%

Alaska (44,538) -4.1% 3,264 0.3%

AMR 37,196 0.9% 65,815 1.7%

Continental 34,773 5.4% 34,130 5.0%

Delta (85,971) -4.2% (67,294) -3.1%

jetBlue 48,233 9.0% 68,017 11.7%

Southwest 55,457 0.9% 231,460 3.6%

US Airways (107,614) -5.7% (57,940) -3.1%

Virgin 9,742 3.2% (7,762) -2.3%

Industry (26,557) -0.2% 333,765 1.9%

UAL’s largest competitors include AMR, LUV, and DAL in that order. Delta’s

growth is primarily LAX to Hawaii and Pa cific destinations (NRT & Australia).

Continental’s growth is alliance related; jetBlue’s growth is primarily BOS to

UAL’s 5 hubs; while Southwest’s growth is primarily at DEN. Source: APGDat

schedules data (as of 3/12/10) and Hudson Securities estimates. Delta capacity cuts include WAS to Detr oit; Indianapolis; Me mphis; Cincinnati;

Boston Metro as well as SEA to HNL and DTW to Chicago O’Hare; Source:

APGDat schedules data (as of 3/12/10) and Hudson Securities estimates.Airlines Industry Update

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7 Figure 21: US Airway’s Competitive Dynamic – by Route

Based on avg monthly nonstop seats 1- way; Direct Overlap by Airport Figure 22: US Airways’ Competitive Dynamic - Metro Area

Based on avg monthly nonstop seats 1-way; Overlap by Metro Area

2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total US Air (23,016) -0.3% 212,023 2.4%

AirTran (11,084) -6.7% 10,040 7.0%

Alaska 10,220 6.2% 18,607 11.9%

AMR (3,820) -0.5% 11,009 1.6%

Continental 2,369 1.1% 5,446 2.4%

Delta/NW 54,095 4.9% 70,842 6.3%

jetBlue 5,850 3.6% 18,200 11.1%

Southwest (171,017) -7.6% (37,897) -1.7%

United (23,525) -4.9% (65,995) -13.2%

Industry (136,912) -2.6% 30,252 0.6% 2Q10 vs 2Q09 3Q10 vs 3Q09

Diff % Chng Diff % Chng

Total US Air (23,016) -0.3% 212,023 2.4%

AirTran 11,263 2.7% 45,744 11.1%

Alaska 10,220 6.2% 18,607 11.9%

AMR 11,714 1.2% 41,468 4.2%

Continental (21,777) -2.8% (3,467) -0.5%

Delta/NW (54,309) -3.8% 7,531 0.5%

jetBlue (77,150) -11.3% (13,133) -1.9%

Southwest (160,427) -4.3% 24,956 0.7%

United (32,233) -2.9% (83,619) -7.4%

Industry (312,698) -3.3% 38,086 0.4%

Source: APGDat schedules data (as of 3/12/10) and Hudson Securities

estimates. Source: APGDat schedules data (as of 3/12/10) and Hudson Securities

estimates.

Figure 23: All of U.S. to All of Europe by Airline

Schedules data as of 3/15/10; YoY % Change based on monthly

seats one way Figure 24: All of U.S. To Asia and Australia

YoY % Change; based on international avg weekly seats one way

2Q10 vs 2Q09 3Q10 vs 3Q09 A s a % of

Airline Diff % Chng Diff % Chng Total

Aer Lingus (15,841) -11.4% (14,583) -10.5% 2%

-- Air France 20,385 5.8% 23,187 6.0% 7%

-- KLM 9,473 6.1% 7,667 4.7% 3%

Air France / KLM 29,858 5.9% 30,854 5.7% 9%

American Airlines 2,915 0.6% 21,472 4.2% 9%

British Airways (10,606) -1.6% (24,561) -3.6% 11%

Continental Airlines (7,742) -1.6% 19,758 4.1% 8%

-- Delta Air Lines 258,869 41.9% 294,657 41.7% 16%

-- Northwest Airlines (293,275) -100.0% (289,558) -100.0% 0%

Delta / Northwest Combined (34,406) -3.8% 5,099 0.5% 16%

Iberia (1,752) -1.7% 4,323 4.1% 2%

Lufthansa 22,025 4.4% 8,963 1.7% 9%

SWISS (10,061) -8.9% 2,311 2.1% 2%

United Airlines 12,245 2.8% 24,451 5.6% 8%

US Airways (1,107) -0.4% (23,432) -6.7% 5%

Virgin Atlantic Airways (13,378) -3.9% (12,616) -3.6% 6%

Grand Total (72,875) -1.3% 48,874 0.8% 100% 2Q10 vs 2Q09 3Q10 vs 3Q09 As a % of

Airline Diff % Chng Diff % Chng Total

Air New Zealand 112 0.2% 739 1.2% 2.2%

All Nippon Airways 3,073 3.0% 783 0.7% 3.8%

American Airlines 10,786 10.3% 17,372 16.7% 4.2%

Asiana Airlines 7,786 6.8% 263 0.2% 4.4%

Cathay Pacific Airways 10,167 7.5% 17,283 12.9% 5.3%

China Airlines (12,082) -10.7% (3,841) -3.5% 3.6%

Continental Airlines 13,325 5.7% (7,182) -2.8% 8.9%

-- Delta Air Lines 341,365 600.3% 391,515 589.6% 14.4%

-- Northwest Airlines (304,755) -100.0% (351,182) -100.0% 0.0%

Delta / Northwest Combined 36,610 10.1% 40,333 9.7% 14.4%

EVA Air (5,928) -5.8% 4,665 4.7% 3.5%

JALways (7,412) -4.2% (11,757) -6.5% 6.1%

Japan Airlines (9,551) -11.1% (9,623) -11.0% 2.8%

Korean Air Lines 3,460 1.3% 2,961 1.0% 9.5%

Singapore Airlines 1,733 2.7% 1,867 2.8% 2.4%

United Airlines (4,420) -1.3% 2,530 0.7% 12.3%

US to Asia/Australia Total 63,452 2.4% 79,492 2.8% 100.0%

The above carriers account for about 97% of total US to Europe

capacity, so the total includes other carriers not listed. We found US

Airways cutting service from PHL to Shannon, Milan, Stockholm,

Birmingham, and London Gatwick. Source: APGData and Hudson

Securities ests Note, the above carriers comprise 84% of total Pacific capacity and

the total includes other carriers not listed. AMR growth incl ORDBeijing; Cathay’s growth incl Hong Kong to Los Angeles; Delta’s

growth incl DTW-Hong Kong; SEA-Beijing; SLC to Tokyo and SEAOsaka (Japan). Source: APGData and Hudson Securities estimates



### Caveats

Given that airlines sell seats, not ASM s, we believe assessing seats across t he industry is a more intuitive measure

of capacity (vs ASMs), or more specifically, of each air line’s inventory. ASMs, on the other hand, can be misleading

given the ease with which longer stage-length flights (such as international) can distort ov erall results. Nonetheless,

there are several ways to look at capacity including AS Ms and even the frequency of flights which if evaluated,

could provide greater insight into the quality of an air line’s schedule, thus shedding light on the competitive

backdrop.Airlines Industry Update

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8 Separately, the quality of our data is limit ed to the quality of the data that each ai rline files. In cases where a carrier

has more than one configuration of the same aircraft c ode, a weighted average of the equipment code’s seat count

is used. However, when an airline is replacing a fleet type, the database keeps track of one seat count number for

that equipment code per month. So for example, AMR is in the process of converting existing 737-800s having 148

seats to a 160 seat configuration, and in addition, is in the midst of adding new 737-800s with 160 seats (31 in

2009, 45 in 2010, and 8 firm orders in 2011). Despite the various seating configuratio ns, AMR files its schedules

data using the same code “738” for all of its 737-800 routes . Thus, we’re unable to track which routes are flown by

737s having 148 seats and which are flow n by 737s having 160 seats. Conseq uently, our capacity figures for AMR

may be slightly understated.

Also, schedules data for this summer continues to move ar ound. For example, Delta’s schedules are final through

May, while UAL’s are final through June 8 th and US Airways are nearly final through June. Continental schedules

are generally final about 90 days prior to departure, bu t the carrier monitors demand to react to changing

conditions. AMR approach to scheduling on the other hand is to publish its schedules data 11 months in advance

and then make major adjustments at least 4-5 months in advance. That said, AMR mgmt reports that it is difficult to

say that schedules are final as of a certain date as the ca rrier will make tactical changes on a shorter timeframe

Finally, we look at nonstop schedules data. However, diffe rent hubs can compete for the same connecting traffic

which represents another compet itive dynamic phenomenon which this study does not fully capture. In particular,

airlines that are more dominant and reliant on local traffi c generally have greater revenu e / competitive stability than

airlines that are less dominant and more reliant on connecting traffic. While we address airline dominance in a

separate market share study, a study on local vs connecting traffic could shed light on the quality of the airlines

traffic.



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DisclaimersAirlines Industry Update

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