the red book of airline unit costs

The Red BookOF AIRLINE UNIT COSTS

Roach & Sbarra Q3-2006

2


This is a sample of

3


This is a sample of

The Editors’ PageWelcome to The Red Book of Airline Unit Costs, the fi rst of a suite of new products and services we are introducing to meet the needs of the global airline community for accurate and timely information about airline costs.

We have spent the better part of the last 35 years studying airline unit costs – how geeky is that? – because, as we have said in many venues, the three most important ingredients for fi nancial success in the airline industry are, in order:

1. Costs!

2. Costs! and

3. Costs!

The Red Book of Airline Unit Costs and its companion products and services in the R&S/Cost Analysis Systems family are the culmination of those efforts.

Answers, Not Data

Over the years we have been struck by the frustrations inherent in using the industry databases and other sources of airline expense information. The material is vast in volume, mined from different and incompatible sources, and wholly lacking in users’ manuals.

Most users seek decision support. An airline manager considering fl ight-attendant staffi ng ratios doesn’t need data, she needs the answers to questions like these:

• What is the average fl ight attendant salary at airlines A, B, and C? Does that include fringe benefi ts, training, uniforms?

• How many ASMs/RPMs does the average fl ight attendant produce?

• What is the airline’s all-in fl ight attendant cost per ASM/RPM?

4


This is a sample of

1 The US Department of Transportation divides the operations of US airlines into four geographic areas: Domestic, Atlantic, Latin America, and Pacifi c. The sum of these we call the System.

Each of our Cost Analysis Systems products and services is designed with the needs of the decision-maker forefront in our minds.

The Red Book of Airline Unit Costs, launched with this issue, is a quarterly sourcebook for airline unit costs and unit cost trends. It is not a book of data but a book of answers.

In this inaugural issue we confi ne ourselves to the largest US passenger airlines, 28 carriers in all. In future issues we will expand coverage to the US cargo carriers and, then, to non-US airlines.

Each issue will include three principal sections.

The fi rst, called Thoughts and Comments, will include timely articles and analysis, industry trends and data, and explanatory material. This issue includes:

• Ownership Costs: Why We Think They Are Important

• Adjusting Unit Costs for Length of Hop: Single-Aisle Aircraft

• About the Data

The second section, Insights, which we will introduce in Insights, which we will introduce in Insightsthe next issue, will cover a specifi c topic in depth. The issue for 4Q – 2006, for example, will analyze employee productivity and costs.

The largest number of pages in each issue will be devoted to the third section, Analysis, containing airline-specifi c Analysis, containing airline-specifi c Analysisunit costs for the latest time period.

Coverage for each airline will include charts and trends and two unit cost sets, the fi rst for the current quarter only, the second for the year ending with the current quarter. We will show unit costs by principal function for each carrier by geographic entity1 and, within each entity, by aircraft type.

Other New Products and Services

In addition to The Red Book of Airline Unit Costs, we areintroducing several other exciting new products and introducing several other exciting new products and services to help you better understand airline costs. services to help you better understand airline costs. They include:They include:

• Our Unit Cost Analyzer, which puts our unit cost analysis algorithms and data sets on your desktop;

• A custom installation of our unit cost analysis systems that interfaces with your internal cost data; and

• Customized decision support to provide one-time or continuing analyses, reports, databases, and interactive programs.

Unit Costs Your Way

In March we introduce our second unit cost product, an interactive online program called Unit Cost Analyzer that allows you, the user:

• to determine unit costs for specifi c functions (at-airport passenger handling expenses, for example) by airline, by aircraft type, by geographic entity;

• to compare unit costs, by function, across carriers;

• to adjust parameters such as stage length (hop), seating density, load factor, and fuel price to permit like-to-like comparisons across carriers and aircraft types; and

• to perform what-if queries to determine the unit cost impact of actual or proposed changes in expenses, operations, and so forth.

This product will open to you an unparalleled ability to get answers without the burden of massaging raw data. It will allow you to see the impact of different decisions in a matter of minutes, performing complex analyses and generating answers that might take days or weeks to prepare manually.

Your Unit Costs Our Way

Our most exciting new product, currently in beta test at a new-generation airline, is a custom installation of your costs in the format of our proprietary data sets so that you can use our carefully researched unit cost

5


This is a sample of

Audited Data

No data set is perfect; in fact, it is often thought that airline cost data is of such poor and inconsistent quality that analysis is impossible. That’s where our 35 years of experience comes in. We have created our own proprietary data sets, drawn from multiple sources including the US DOT Form 41 reports and the reports fi led to satisfy the public disclosure requirements of the US Securities and Exchange Commission (US SEC).

We supplement these with information and data, from whatever sources we deem reliable, including, for example, manufacturer’s aircraft specifi cations and fuel burn tables, Great Circle mileage charts, regulatory rulings (including US GAAP), articles and texts.

Most importantly, we audit the data, checking every one of the millions of cells in our data sets for accuracy and consistency. For more see About the Data, later.

Feedback

Finally, let us know what you think – your likes, dislikes, and suggestions – about The Red Book of Airline Unit Costs or any of our family of unit cost products and services.

Michael Roach Alan Sbarra Chairman President & CEO

algorithms and methodologies to generate your own unit costs employing common standards. You can adjust other airlines’ parameters to your actual and proposed operations, benchmark your costs, like-to-like, against those of other airlines, perform scenario analyses, etc. This product lets you keep your internal data private, while allowing you to make benchmark comparisons against the airlines included in our data sets.

Customized Decision Support

If none of the above precisely fi ts your needs, we can produce one-time or continuing analyses, reports, databases, and interactive programs to enable you to query your data or the public data of any other carrier. And, of course, the R&S professionals are available for consulting assignments.

Contact us with your needs; we will respond with a proposal just for you.

The Roach and Sbarra Unit Cost Algorithms

In all of our unit cost products we employ newly-developed algorithms for every aspect of the unit cost development process. We began product development without preconceptions as to the algorithms for developing unit costs; we have been developing and refi ning the algorithms for more than a decade.

6


This is a sample of

7


This is a sample of

By accounting convention1 interest expense, even though it is ordinarily incurred in the normal course of business, is treated as a non-operating expense. For example, interest on loans incurred by airlines to acquire aircraft are recorded as non-operating expenses. On the other hand, airlines that acquire aircraft on operating leases report the rental payments as an operating expense, notwithstanding the fact that the largest portion of the rental payment is ordinarily, albeit indirectly, the interest on the loan used by the lessor to fi nance the purchase of the aircraft.

As a result, unit costs, such as CASM, when constructed on the basis of what GAAP classifi es as operating expenses, omit a signifi cant part of an airline’s “costs.” Airlines that are fi nancially able to acquire most of their fl eets through traditional forms of fi nancing such as secured loans (mortgages) and fi nance leases report a major portion of their costs of ownership below-the-line as non-operating interest expense. Conversely, airlines that, typically because of weaker balance sheets, acquire most of their aircraft with operating leases report most of their ownership costs above-the-line as operating expenses, that is, as rentals.

Ownership Costs:Why We Think They Are Important

One cannot really compare the “economics” of one airline’s operations with another’s without taking account of the ownership costs of the assets employed in the business. For that reason, we believe that relying solely on unit operating costs (based on above-the-line operating expenses) without regard to fi nancing costs produces an incomplete picture.

The EBITDAR Approach

The acronym (EBITDAR) means Earnings Before Interest, Taxes, Depreciation, Amortization, and Rentals. In recent years, some airlines have included EBITDAR computations in their SEC/GAAP reports, primarily to show their operating profi t and expenses net of fi nancing costs. This makes like-to-like comparisons with other airlines possible but also tends to show the accounts of those airlines that rely most heavily on operating lease fi nancing – typically airlines with the weakest balance sheets – in a better light than otherwise.

An EBITDAR analysis simply involves removing the items named in the acronym (ITDAR) from a company’s income statement so that the resulting EBITDAR profi t or loss can be compared with another company’s or the same company’s for another time period.

A comparison between the profi t and loss statements of America West and Southwest for 2004 illustrates the difference. See Figure 1.


1 “Accounting convention” means the body of standards referred to as US Generally Accepted Accounting Principles (GAAP).

8


This is a sample of

Income Statements Under SEC/GAAP vs. EBITDAR

Figure 1. Comparison of 2004 Income Statements (through the operating income/loss level), Southwest and America West, under GAAP and pursuant to an EBITDAR analysis.

Note fi rst in the table in Figure 1 that Southwest’s total for the items omitted from the profi t and loss statement by the EBITDAR analysis equals 16% of total operating expenses under EBITDAR while America West’s total equals 25%, a signifi cant difference.

Equally interesting is the difference in composition of the items. Southwest records the equal of 3% of its non-EBITDAR operating expenses as aircraft rentals, America West 16%. On the other hand, Southwest’s depreciation and amortization account sums to 8%, America West’s only 3%.

We can illustrate the differences more clearly by turning the carriers’ operating expenses into unit costs. Again, we will use Southwest and America West as our examples; we focus on one aircraft type for each, the roughly comparable B 737-700 for Southwest, the A320 for America West.

In Figure 2 we show their domestic-entity unit costs Figure 2 we show their domestic-entity unit costs Figure 2for Q3 2006 at various mileage blocks under a GAAP approach and according to EBITDAR. In Figure 3 we Figure 3 we Figure 3plot the data on a graph. We describe our methodology below.

GAAP EBITDAR GAAP EBITDAROperating revenues: Operating revenues:Passenger $2,196,627 $2,196,627 Passenger $6,280,000 $6,280,000Cargo $28,233 $28,233 Freight $117,000 $117,000Other $113,417 $113,417 Other $133,000 $133,000Total operating revenues $2,338,277 $2,338,277 Total operating revenues $6,530,000 $6,530,000

Operating expenses: Operating expenses:Salaries and related costs $655,185 $655,185 Salaries, wages, and benefits $2,443,000 $2,443,000Aircraft rents $304,343 Fuel and oil $1,000,000 $1,000,000Other rents $116,780 Maintenance materials and repairs $458,000 $458,000Landing fees $50,992 $50,992 Agency commissions $2,000 $2,000Aircraft fuel $557,098 $557,098 Aircraft rentals $179,000Agency commissions $25,191 $25,191 Landing fees $183,940 $183,940Aircraft maintenance materials and repairs $205,580 $205,580 Other rentals $224,060Depreciation and amortization $54,354 Depreciation and amortization $431,000Special charges (credits), net ($15,432) ($15,432) Other operating expenses $1,055,000 $1,055,000Other $423,890 $423,890Total operating expenses $2,377,981 $1,902,504 Total operating expenses $5,976,000 $5,141,940

Operating income (loss) ($39,704) $435,773 Operating Income $554,000 $1,388,060

Items omitted for EBITDAR amount percent† Items omitted for EBITDAR amount percent†

Aircraft rents $304,343 16% Aircraft rentals $179,000 3%Other rents $116,780 6% Other rentals $224,060 4%Depreciation and amortization $54,354 3% Depreciation and amortization $431,000 8%Total omitted items $475,477 25% Total omitted items $834,060 16%

† Percent of EBITDAR operating expenses.

Southwest (000)America West (000)

9


This is a sample of

Unit Costs Under SEC/GAAP vs. EBITDAR (Q3 2006)

HopGAAPCASM

EBITDARCASM % change

GAAPCASM

EBITDARCASM % change

GAAPCASM

EBITDARCASM

250 13.37¢ 12.58¢ -5.9% 22.28¢ 21.04¢ -5.6% 166.6% 167.2%500 8.88¢ 8.29¢ -6.7% 14.96¢ 13.66¢ -8.7% 168.4% 164.7%750 7.39¢ 6.86¢ -7.1% 12.51¢ 11.20¢ -10.5% 169.4% 163.2%

1,000 6.64¢ 6.14¢ -7.5% 11.29¢ 9.97¢ -11.8% 170.1% 162.3%1,250 6.19¢ 5.71¢ -7.7% 10.56¢ 9.23¢ -12.6% 170.6% 161.6%1,500 5.89¢ 5.42¢ -8.0% 10.07¢ 8.74¢ -13.3% 171.0% 161.2%1,750 5.67¢ 5.22¢ -8.0% 9.72¢ 8.38¢ -13.8% 171.3% 160.6%2,000 5.51¢ 5.07¢ -8.1% 9.46¢ 8.12¢ -14.2% 171.6% 160.2%2,250 5.39¢ 4.95¢ -8.2% 9.26¢ 7.92¢ -14.5% 171.8% 159.9%2,500 5.29¢ 4.85¢ -8.3% 9.09¢ 7.75¢ -14.8% 171.9% 159.8%

America West CASMas % of SouthwestAmerica West A320Southwest B 737-700

Figure 2. Comparison of domestic CASM at various mileage blocks based on total operating expense versus CASM constructed under EBITDAR, Southwest B 737-700 and America West A320, Q3 2006.

Consistent with our earlier observations (Figure 1), the unit cost analysis shows a much larger impact on America West than on Southwest from the elimination of the EBITDAR-related items. For Southwest the decline in unit costs ranged from about 6% at shorter hops to a little more than 8% at longer ones; for America West the change ranges from about 6% to nearly 15%. See Figure 2.

Accordingly, employing an EBITDAR analysis America West goes some distance towards closing its CASM-gap with Southwest. Under traditional CASM analysis, America West’s unit costs range from 167% to 172% of Southwest’s, with Southwest relatively more effi cient at longer hops. Under the EBITDAR CASM analysis, America West’s costs are slightly closer to Southwest’s ranging from 160% to 167%. You can see this effect most clearly from the chart in Figure 3.

10


This is a sample of

Under an EBITDAR Analysis, the Unit Operating Expense Gap Between Southwest and America West Is Narrower

4¢

6¢

8¢

10¢

12¢

14¢

16¢

500 1,000 1,500 2,000 2,500 Length of Hop in Miles

Cos

t per

Ava

ilabl

e Se

at M

ile (C

ASM

)

Southwest, GAAP CASM EBITDAR CASMAmerica West, GAAP CASM EBITDAR CASM

Figure 3. Data from Figure 2, plotted.

The Total-Cost Approach

Total Ownership Costs

We tend to fi nd the EBITDAR approach not very useful because, in effect, it involves ignoring some very real costs. You can see this in Figure 4 where we show system Figure 4 where we show system Figure 4ownership costs per ASM, composed of net interest expense, rentals, and depreciation and amortization for the legacy carriers, Southwest, America West, and jetBlue for Q3 2006.

US Airways has the lowest ownership costs at 0.58¢/ASM, presumably as a result of its recent bankruptcy. Note that this is US Airways the separate airline of that name owned by US Airways, Inc. which also owns America West. Southwest is in second place with costs of 0.83¢/ASM.

Unit Ownership Costs

Another and, in our view, superior way to approach the problem is to add those ownership costs which are below the line non-operating expenses (i.e., net interest expense) to the other unit operating costs to obtain a total expense number that includes all ownership costs.

For want of a more clever acronym we call this simply Total CASM.

All of the “ownership” costs included in Figure 4, except net interest expense, are already included in CASM as normally constructed. Accordingly, it would seem that in order to develop our Total CASM we need only create a unit cost for net interest expense and add it to the operating CASMs. On a system or entity basis that works just fi ne; for carriers that have multiple aircraft types fi nanced under different arrangements, this will result in a misallocation of interest.2

For example, if all of America West’s A320s are fi nanced with operating leases and all of its A319s with debt fi nancing, the back-of-the-envelope method described above would assign interest to the A320s when, in fact, they incur none, and under-assign interest to the A319s.

Ownership Costs per ASM

0.0¢

0.2¢

0.4¢

0.6¢

0.8¢

1.0¢

1.2¢

1.4¢

1.6¢

1.8¢

Alaska

America

Wes

t

America

n

Contin

ental

Delta

jetBlue

Northw

est

Southw

est

United

US Airw

ays

Figure 4. Net interest, rental, and depreciation & amortization expenses per ASM, selected carriers, Q3 2006, systems. The two carriers currently in bankruptcy, Delta and Northwest, are highlighted in the chart.

2 In the same way, if a signifi cant amount of capital is invested in businesses other than air transport, all of the interest expense should not be assigned to the airline.

11


This is a sample of

HopCASM Before

OwnershipOwnershipExpense

TotalCASM

%difference

CASM Before Ownership

OwnershipExpense

TotalCASM

%difference

CASM Before Ownership Total CASM

250 12.58¢ 1.84¢ 14.43¢ 14.7% 21.04¢ 6.53¢ 27.57¢ 31.1% 167.2% 191.1%500 8.29¢ 0.92¢ 9.21¢ 11.1% 13.66¢ 3.27¢ 16.92¢ 23.9% 164.8% 183.8%750 6.86¢ 0.61¢ 7.47¢ 9.0% 11.20¢ 2.18¢ 13.37¢ 19.5% 163.3% 179.0%

1,000 6.14¢ 0.46¢ 6.60¢ 7.5% 9.97¢ 1.63¢ 11.60¢ 16.4% 162.3% 175.7%1,250 5.71¢ 0.37¢ 6.08¢ 6.5% 9.23¢ 1.31¢ 10.53¢ 14.2% 161.6% 173.3%1,500 5.42¢ 0.31¢ 5.73¢ 5.7% 8.74¢ 1.09¢ 9.82¢ 12.5% 161.0% 171.4%1,750 5.22¢ 0.26¢ 5.48¢ 5.0% 8.38¢ 0.93¢ 9.32¢ 11.1% 160.6% 169.9%2,000 5.07¢ 0.23¢ 5.30¢ 4.5% 8.12¢ 0.82¢ 8.94¢ 10.1% 160.3% 168.7%2,250 4.95¢ 0.20¢ 5.15¢ 4.1% 7.92¢ 0.73¢ 8.64¢ 9.2% 160.0% 167.7%2,500 4.85¢ 0.18¢ 5.04¢ 3.8% 7.75¢ 0.65¢ 8.40¢ 8.4% 159.7% 166.9%

America West CASMas % of SouthwestSouthwest B 737-700 America West A320

Unit Costs Plus Net Interest Expense (Q3 2006)

4¢

6¢

8¢

10¢

12¢

14¢

16¢

500 1,000 1,500 2,000 2,500 Length of Hop in Miles

Cos

t per

Ava

ilabl

e Se

at M

ile (C

ASM

)

Southwest, CASM before ownership Total CASMAmerica West, CASM before ownership Total CASM

Figure 5. Comparison of domestic CASM at various mileage blocks with and without net interest expense, Southwest B 737-700 and America West A320, Q3 2006.

Adding Net Interest Expense to CASM Widens the Unit-Cost Gap

Between Southwest and America West

Figure 6. Data from Figure 5 plotted.

A better approach is to sum all ownership costs – rentals, depreciation, amortization, and interest – at the entity or corporate level and then to develop unit ownership costs. This is the method we follow.

Explicit in our approach is a decoupling of the costs associated with fi nancing a particular asset from the Total CASM generated by the use of that asset. At fi rst blush this might seem strange; in fact, however, the method used to fi nance the ownership of a particular asset need have no direct relation to the use or usefulness of that asset.

Consider a chief fi nancial offi cer faced with the following projected asset acquisitions for a given period – six each of two new aircraft types, a pool of spare parts for a third aircraft type, progress payments on yet another group of aircraft, a new hangar, computers and software for a new revenue management system, and leasehold improvements for facilities at two new stations.

Our CFO might select from a menu of fi nancing options that includes: using cash fl ow from current operations, raising cash from the sale or re-fi nancing of existing owned assets, traditional asset-based debt fi nancings such as capital leases and equipment trust certifi cates, operating leases, manufacturer-supplied fi nancing, municipal revenue bonds, and even the sale of equity.

The selection of specifi c fi nancing choices is dictated by fi nancial market conditions, of course, and by the balance sheet and cash fl ow expectations of the company, its stock of assets that can be sold and/or refi nanced, and fi nancing offers available in the fi nancial markets and from vendors for the particular assets to be fi nanced. Those offers of fi nancing generally do not turn on the precise use of the assets.

For example, it might be possible to fi nance the new hangar with municipal revenue bonds because of the type of asset it is (real estate) and where it is located (a specifi c municipality) and not because of its use (for example, maintenance of the yet-to-be delivered aircraft for which progress payments are required). The revenue management hardware and software might be fi nanced by the system vendor because the offering of fi nancing helps

12


This is a sample of

it to make the sale, not because of a particular revenue stream that the airline might be expected to generate employing the new system. And it might be possible to sell euro-denominated equipment trust certifi cates for some of the new aircraft because of conditions in the European markets at the time of aircraft delivery and the desirability of new aircraft as asset backing for such securities and not because of the particular revenue streams the aircraft are expected to produce.

In the largest sense, from the company’s viewpoint all fi nancings are fi nancings of the enterprise in totalof the enterprise in total. Accordingly, the particular assets used to pledge in support of a given fi nancing are fi nancial choices that should have no bearing on the relative unit costs of the company’s several enterprises.

Hence our approach, which is:

decouple the specifi c fi nancing costs associated with individual assets;

sum those costs (along with depreciation and amortization) at the entity or corporate level in a total “ownership expenses” account;

convert these to unit ownership costs;

reallocate these expenses to the various revenue-generating activities of the company; and, fi nally,

sum these along with all other unit costs to develop a “Total CASM”.

In our view, this approach creates a more realistic picture of the cost of doing business than does a traditional operating CASM or an EBITDAR CASM.

We describe in more specifi city the details of our methodology in About the Data.

The reader should not confuse the accounting costs we are here discussing with economic costs. A comparison of the former with the latter will be the subject of a feature in a forthcoming issue of The Red Book of Airline Unit Costs.

Consider then the comparison between Southwest’s B 737-700 Total CASM and those for America West’s A320 operations. The data is set out in the table in Figure 5 and plotted on a graph in Figure 6. Including ownership costs Figure 6. Including ownership costs Figure 6as described shows a widening cost gap between the two carriers. Compare Figure 2 with Figure 2 with Figure 2 Figure 5. Figure 5. Figure 5

In our opinion the Total CASMs shown in Figures 5 and Figures 5 and Figures 56 come closer to refl ecting the true differences between 6 come closer to refl ecting the true differences between 6these two carriers than do the operating CASM numbers with which we are all familiar. We use this total CASM approach throughout The Red Book of Airline Unit Costs.

13


ContinentalCharts and Trends

This is a sample of

Total CASM by Quarter, 1993 through 2006 Q3

Operating Profit by Quarter, 1993 through 2006 Q3

Continental

0%

2%

4%

6%

8%

10%

12%

14%

-2%

-4%

-6%

-8%

-10%

-12%

-14%

-16%

-18%

-20%

-22%

Q2-

1993

Q4-

1993

Q2-

1994

Q4-

1994

Q2-

1995

Q4-

1995

Q2-

1996

Q4-

1996

Q2-

1997

Q4-

1997

Q2-

1998

Q4-

1998

Q2-

1999

Q4-

1999

Q2-

2000

Q4-

2000

Q2-

2001

Q4-

2001

Q2-

2002

Q4-

2002

Q2-

2003

Q4-

2003

Q2-

2004

Q4-

2004

Q2-

2005

Q4-

2005

Q2-

2006

Grafica 2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0U

S ce

nts

1993

2

1993

4

1994

2

1994

4

1995

2

1995

4

1996

2

1996

4

1997

2

1997

4

1998

2

1998

4

1999

2

1999

4

2000

2

2000

4

2001

2

2001

4

2002

2

2002

4

2003

2

2003

4

2004

2

2004

4

2005

2

2005

4

2006

2

Charts and Trends

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS


14


This is a sample of

System Load Factor by Quarter, 1993 through 2006 Q3

Carrier’s Inflation Adjusted Yield vs. Industry Long-Term Yieldby Quarter, 1993 through 2006 Q3

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

US

cent

s pe

r m

ile

Q2-

1993

Q4-

1993

Q2-

1994

Q4-

1994

Q2-

1995

Q4-

1995

Q2-

1996

Q4-

1996

Q2-

1997

Q4-

1997

Q2-

1998

Q4-

1998

Q2-

1999

Q4-

1999

Q2-

2000

Q4-

2000

Q2-

2001

Q4-

2001

Q2-

2002

Q4-

2002

Q2-

2003

Q4-

2003

Q2-

2004

Q4-

2004

Q2-

2005

Q4-

2005

Q2-

2006

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

Q2-

1993

Q4-

1993

Q2-

1994

Q4-

1994

Q2-

1995

Q4-

1995

Q2-

1996

Q4-

1996

Q2-

1997

Q4-

1997

Q2-

1998

Q4-

1998

Q2-

1999

Q4-

1999

Q2-

2000

Q4-

2000

Q2-

2001

Q4-

2001

Q2-

2002

Q4-

2002

Q2-

2003

Q4-

2003

Q2-

2004

Q4-

2004

Q2-

2005

Q4-

2005

Q2-

2006

Grafica 3

This Carrier Industry

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS

15



This is a sample of

Total Operating Expense by Principal Objective Account 2006 Q3

Total Operating Expense by Principal Function 2006 Q3Continental

Airport Operations: 11.5%

All Other: 13.1%

Commissions: 1.1%

Crews: 12.9%

Ownership Expense: 6.1%

Other Aircraft Operating Expense: 15.6%

Maintenance: 9.6%

Fuel: 30.1%

Continental

Salaries and Wages: 19.0%

Fringe Benefits: 9.3%

Other: 0.8%Depreciation and Amortization: 3.8%

Rentals: 10.6%

Other Services: 17.6%

Landing Fees: 2.6%

Commisions: 1.2%

Other Materials: 3.6%

Fuel: 31.6%

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFThe Red BookThe Red BookThe Red BookThe Red BookFringe Benefits: 9.3%The Red BookFringe Benefits: 9.3%The Red BookThe Red BookOther Services: 17.6%The Red BookOther Services: 17.6%The Red BookOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFAll Other: 13.1%

THIS IS A SAMPLE OFAll Other: 13.1%

THIS IS A SAMPLE OFThe Red BookThe Red BookThe Red BookThe Red BookCommissions: 1.1%The Red BookCommissions: 1.1%The Red BookThe Red BookThe Red BookThe Red BookMaintenance: 9.6%The Red BookMaintenance: 9.6%

OF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS

ContinentalQ3-2006

16


This is a sample of

Summary Results Q3-2006

Continental

Revenue

Statistics

All Other Expense per ASM

Aircraft Operating Expense per ASM

Total Expense per ASM

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF THIS IS A SAMPLE OF

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF THIS IS A SAMPLE OF

The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book The Red Book

The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book The Red Book


OF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSAircraft Operating Expense per ASM

OF AIRLINE UNIT COSTSAircraft Operating Expense per ASM

ContinentalQ3-2006

17


This is a sample of

Statistics

THIS IS A SAMPLE OFTHIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF THIS IS A SAMPLE OF



The Red BookThe Red BookThe Red BookThe Red BookThe Red Book The Red Book

OF AIRLINE UNIT COSTS


ContinentalQ3-2006

18


This is a sample of


THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF

The Red BookThe Red BookThe Red Book The Red Book The Red Book The Red Book The Red Book The Red BookThe Red BookThe Red Book The Red BookThe Red Book The Red BookThe Red Book The Red BookThe Red Book The Red BookThe Red Book The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book

OF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS

ContinentalQ3-2006

19


This is a sample of



THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF

The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book

The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book

OF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS

ContinentalYE Q3-2006

20


This is a sample of

Summary Results Year Ended

Continental

Revenue

Statistics





THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF THIS IS A SAMPLE OF

The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book The Red Book







21


This is a sample of

Statistics



The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book The Red Book

The Red BookThe Red BookThe Red BookThe Red BookThe Red Book The Red Book

The Red Book

The Red Book

The Red Book

The Red Book

The Red Book

The Red Book



22


This is a sample of


THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF

The Red BookThe Red BookThe Red Book The Red Book The Red Book The Red Book The Red Book The Red BookThe Red BookThe Red Book The Red BookThe Red Book The Red BookThe Red Book The Red BookThe Red Book The Red BookThe Red Book The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book

OF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS OF AIRLINE UNIT COSTS


23


This is a sample of



THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OF

THIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OFTHIS IS A SAMPLE OF

The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book

The Red BookThe Red BookThe Red BookThe Red BookThe Red BookThe Red Book

OF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTSOF AIRLINE UNIT COSTS


24


This is a sample of


www.roachandsbarra.com

This is a sample of

The Red Book of Airline Unit CostsTM is published quarterly by Roach and Sbarra llc.

Copyright © 2007 by Roach and Sbarra llc. All rights reserved.

the red book of airline unit costs

Documents

airline costs

red book of airline

airline industry

airline manager

important adjusting

unit cost trends

ownership costs

global airline community