Reformulating U.S. Aviation John Heimlich VP & Chief Economist, Air Transport Association of America July 30, 2008

Reformulating U.S. Aviation John Heimlich VP & Chief Economist, Air Transport Association of America July 30, 2008

The Air Transport Association of America, Inc. Combination Services (12) AirTran Airways Alaska Airlines American Airlines Continental Airlines Delta Air Lines Hawaiian Airlines JetBlue Airways Midwest Airlines Northwest Airlines Southwest Airlines United Airlines US Airways All-Cargo Services (6) ABX Air ASTAR Air Cargo Atlas Air / Polar Air Cargo Evergreen Int l Airlines FedEx Corporation UPS Airlines Associate Members (3) Air Canada Air Jamaica Mexicana ATA 2008 -- 2

The L.A. Metro Area is Not Immune from Service Cuts Los Angeles (LAX) Dec-07 Dec-08 Change Airlines 55 56 1 Weekly Flights 5,914 4,989 (925) Destinations 153 144 (9) Ontario (ONT) Dec-07 Dec-08 Change Airlines 11 9 (2) Weekly Flights 867 575 (292) Destinations 34 17 (17) Sources: Seabury APGDat airline schedules (July 25, 2008) ATA 2008 -- 3

For Whom the Bell Tolls U.S. Airline Bankruptcies Since End of 2007 Include Numerous Shutdowns Out of Business MAXjet Big Sky Aloha ATA Skybus Eos Champion Air Midwest Vintage Props & Jets 1 ExpressJet 2 Last Day of Ops 25-Dec-07 7-Jan-08 31-Mar-08 2-Apr-08 5-Apr-08 27-Apr-08 31-May-08 30-Jun-08 18-Jul-08 2-Sep-08 1. Intends to re-launch operations should market conditions permit 2. Ceasing branded commercial operations only; will continue to fly as Continental Express Continuing Operations Frontier Gemini Air Cargo Ch. 11 Filing 11-Apr-08 18-Jun-08 Note: Oasis Hong Kong Airlines and Silverjet are among the non-u.s. airlines that have ceased operations ATA 2008 -- 4

EIA Sees Jet Fuel Prices Soaring in 2008 and 2009 Average Price of U.S. Jet Fuel per Barrel $160 $140 Jet Fuel Crack Spread Crude Oil (West Texas Intermediate) 25.28 24.93 Source: Energy Information Administration (www.eia.doe.gov/steo) $120 $100 The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil. (Sheikh Zaki Yamani, former oil minister of Saudi Arabia, Oct. 23, 2003) $80 16.69 18.59 $60 15.91 127.39 132.75 $40 $20 7.45 30.38 5.39 3.61 25.98 26.18 4.93 31.08 9.24 41.51 56.64 66.05 72.34 $0 2000 01 02 03 04 05 06 07 08F 09F ATA 2008 -- 6

Jet Fuel Prices Maintaining Premium to Soaring Crude Oil Average Refining Crack Spread Fluctuating Around $30 per Barrel $200 Crack Spread Jet: NY Harbor Jet: Gulf Coast Jet: Los Angeles Crude Oil (WTI) $175 $150 $125 $100 Dollars per Barrel Sources: Energy Information Administration and ATA $75 $50 2-Jan-07 31-Jan-07 1-Mar-07 29-Mar-07 27-Apr-07 25-May-07 25-Jun-07 24-Jul-07 21-Aug-07 19-Sep-07 17-Oct-07 14-Nov-07 13-Dec-07 14-Jan-08 12-Feb-08 12-Mar-08 10-Apr-08 8-May-08 6-Jun-08 7-Jul-08 4-Aug-08 2-Sep-08 22-Sep-08 12-Oct-08 1-Nov-08 21-Nov-08 11-Dec-08 31-Dec-08 ATA 2008 -- 7

Jet Fuel Maintaining Premium to Gasoline and Diesel Key Factors Include U.S. Ethanol Mandates and Global Demand for Middle Distillates $45 Jet Diesel Gasoline $40 $35 $30 $25-$30 Premium $25 $20 $15 $10 $5 $0 Product Crack Spread (Dollars per Barrel) Sources: Energy Information Administration Weekly Petroleum Status Report ($5) 2-Jan-07 14-Feb-07 29-Mar-07 11-May-07 25-Jun-07 7-Aug-07 19-Sep-07 31-Oct-07 13-Dec-07 29-Jan-08 12-Mar-08 24-Apr-08 6-Jun-08 21-Jul-08 2-Sep-08 2-Oct-08 1-Nov-08 1-Dec-08 31-Dec-08 ATA 2008 -- 8

2008 Jet Fuel Expense 1 Will Break 2007 Record Total Expense (Excluding Taxes and Into-Plane Fees) Could Exceed $61 Billion 70 60 50 Expense ($ Billions) Consumption (Billion Gals.) 1. U.S. passenger and cargo airlines 2. Based on $75K to employ one FTE 3. Based on approx. $70M per aircraft Equivalent of 267,000 Airline Jobs 2 or 286 New Narrow-body Jets 3 $61.2 40 $38.5 $41.2 $33.1 30 20 $16.8 $15.0 $12.8 $15.5 $22.7 10 2000 ($0.81) 2001 ($0.78) 2002 ($0.71) 2003 ($0.85) 2004 ($1.16) 2005 ($1.66) 2006 ($1.97) 2007 ($2.10) 2008F ($3.40) Note: Value in parentheses below year is average price paid per gallon excluding taxes, into-plane fees, pipeline tariffs and hedging costs Sources: ATA, Energy Information Administration, Department of Transportation ATA 2008 -- 9

Surging Fuel Expense Offsetting Labor Restructuring For Passenger Airlines, Fuel CASM Has Overtaken Labor CASM 4.25 Unit Operating Cost ( per Available Seat Mile) 4.00 3.75 3.50 3.25 3.00 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 Labor Fuel 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 Source: ATA Passenger Airline Cost Index ATA 2008 -- 10

Airlines Effectively Managing Controllable Costs Carrier Cost Hikes Overwhelmingly a Function of Higher Fuel Prices 14 Operating Cost ( ) per Available Seat Mile 13 12 11 10 9 8 7 Total Excl. Fuel Excl. Fuel and Transport-Related* Source: ATA Passenger Airline Cost Index (4-Week Moving Average) 4Q00 2Q01 4Q01 2Q02 4Q02 2Q03 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 * Expenses incurred for providing air transportation facilities associated with the performance of service which emanate from and are incidental to air transportation services performed by the carrier ATA 2008 -- 11

Relative to 2000, Jet Fuel Prices Overwhelming Fares Since 2000, Average U.S. Jet Fuel Price Up 265%, Domestic Fares Up 1% 370 Average U.S. Jet Fuel Price (Cents per Gallon) Avg. Fare to Fly 1,000 Miles Domestically (U.S. Dollars, Excluding Govt. Taxes) $160 310 $155 Up 1.0% $150 250 190 Up 265.3% $145 $140 $135 130 $130 70 $125 2000 2001 2002 2003 2004 2005 2006 2007 1H08 2000 2001 2002 2003 2004 2005 2006 2007 1H08 Source: U.S. Energy Information Administration Source: ATA passenger revenue report (mainline + regionals) ATA 2008 -- 12

Ticket Prices* Lagging Fuel Prices in 2008 80 % Change Year-over-Year (January-June) 70 60 50 40 30 20 10 69.4 It s very difficult for airlines to simply raise prices to levels that cover their higher fuel costs. Raising prices chokes demand: If tickets get too expensive, business travelers make alternate plans, pick cheaper airlines or buy discounted tickets further in advance. For vacationers, if prices get too high, they don t buy or they switch to cheaper destinations. Airlines can price themselves right out of a sale. Scott McCartney, What to Expect as Airlines Cope With Soaring Fuel Costs, Wall Street Journal (May 22, 2008) 7.0 7.5 0 Jet Fuel Price Domestic Airfares* International Airfares* Source: EIA and ATA passenger revenue report * Fares per mile flown, also known as passenger yield ATA 2008 -- 13

U.S. Consumer Sentiment at Lowest Level Since May 1980 U. Mich. Consumer Sentiment Index (Dec-64=100) 100 95 90 85 80 75 70 65 60 55 [This] level of confidence is not only consistent with a recession; it is suggestive of a severe recession. Scott Hoyt, Director of Consumer Economics, Moody s Economy.com (June 27, 2008) Key Factors: Household debt Declining stock prices Declining U.S. dollar Rising food prices Rising energy prices Rising unemployment Jan-07 Apr Jul Oct Jan-08 Apr Jul Oct Jan-09 Source: University of Michigan via https://customers.reuters.com/community/university ATA 2008 -- 14

Portion of Ticket Needed to Buy Fuel Exceeds 40% Airline Fuel Expense per Passenger-Mile Will Exceed 7 Cents in 3Q08 8.0 7.0 6.0 5.0 4.0 3.0 2.0 Fuel Cost ( ) per Passenger Mile Fuel Cost as % of Passenger Revenue 45% 40% 35% 30% 25% 20% 15% 1.0 10% 2000 2001 2002 2003 2004 2005 2006 2007 1Q08 2Q08 2000 2001 2002 2003 2004 2005 2006 2007 1Q08 Source: ATA quarterly airline cost index, reflecting systemwide (domestic and international) operations ATA 2008 -- 15

Special Aviation Taxes/Fees* Add $18B Burden Estimated Collections Shown in $Millions Sources: Department of Homeland Security Federal Aviation Administration Office of Management and Budget Transportation Security Administration $8,197 $2,136 $574 $512 $18,005 DHS Collections = $3.8B $1,960 $573 $554 $265 $428 $2,806 AATF + LUST = $11.4B PFC Sept. 11th Fee ASIF INS Fee Customs Fee * Some taxes and fees shown include collections from non-u.s. carriers APHIS Fees Passenger Taxes Int'l Dep./Arr. Taxes Waybill Tax Jet Fuel + LUST Taxes TOTAL ATA 2008 -- 16

It s Only a Few Bucks per Passenger In Deregulated Era, ATA Member Airlines Average $1.76 Net Loss per Passenger $4 Airline Net Profit per Passenger Enplaned* $2 $0 ($2) ($4) ($6) ($8) ($10) ($12) $0.53 $1.49 1979-2007 Average = ($1.76) per pax ($9.12) ($10.89) ($14) 1979-1989 1990-2000 2001-2007 1Q08 * Based on ATA-member passenger airlines only for each respective year Sources: ATA Annual Reports of the U.S. Airline Industry and carrier reports and www.acte.org/resources/press_release.php?id=307 ATA 2008 -- 17

Soaring Fuel Prices Forcing Industry Contraction Reduction in Domestic Route Frequency and Seating Capacity Reverses 2007 Trend % Change in Dom. Service vs. 2007 0 (2) (4) (6) (8) (10) (12) 1q08 2q08 3q08 4q08 1q09 Flights (2.3) (1.6) (5.0) (8.5) (8.7) Seats (1.0) (1.3) (4.5) (8.4) (8.1) ASMs* (0.1) (1.3) (5.4) (10.0) (9.4) * An available seat mile (ASM) is one seat flown one mile and is the standard unit of capacity in the passenger airline sector Source: ATA analysis of Seabury APGDat airline schedules as of July 25, 2008 ATA 2008 -- 18

Dozens of U.S. Station Closings Announced or Implemented by Individual U.S. Airlines in 2008 BFL CLD MCE MRY EUG MFR OAK ONT PSP BLI ELY RNO SAN SBP VIS ANC CDC CNY VEL IGM PRC TUS YUM DRO FMN FAR GRI MCK ABI CRP MFE MHK SLN OKC SAT SJT COU IRK JLN STL TXK AOO BFD DUJ GRB STE BMI MDW RFD FKL JST MDT SCE TUP STT AZO LAN MKG SDF BNA/CHA MGM ALB ART ISP JFK JHW CMH TOL AHN MSS OGS PBG SLK SHD BWI RDU PSM BDL PVD ACY TTN APF DAB FLL GNV PBI PFN RSW SRQ UST CEF BKW CKB LWB MGW PKB ATA 2008 -- 19

Few FAA Large Hub Airports Have Escaped Flight Cuts % Change in Scheduled Domestic Departures: 4Q08 vs. 4Q07 4 0 (4) (8) (12) (16) (20) (24) Sources: Seabury APGDat airline schedules (July 25, 2008) and Federal Aviation Administration CVG HNL MCO LAX LAS MDW SAN SLC IAH TPA PHX ORD LGA BWI FLL DFW IAD MIA ATL BOS SEA JFK EWR DEN MSP SFO DTW PHL DCA CLT (28) ATA 2008 -- 20

Few FAA Medium Hub Airports Have Escaped Flight Cuts % Change in Scheduled Domestic Departures: 4Q08 vs. 4Q07 15 10 Sources: Seabury APGDat airline schedules (July 25, 2008) and Federal Aviation Administration PVD 5 0 (5) (10) (15) (20) (25) (30) (35) (40) ONT MCI MKE OAK TUS OGG SMF RNO PIT RDU SJU CMH JAX AUS OMA CLE SJC BDL ABQ SNA BUR MHT PDX ORF BNA STL DAL SAT MSY PBI IND HOU MEM ANC BUF RSW ATA 2008 -- 21

Soaring Fuel Prices Taking Heavy Toll on Airline Workers U.S. Passenger Airline Jobs Will Fall Below 400,000 Before 2009 470 460 450 440 430 420 FORECAST 410 400 390 2003 May Sep 2004 May Sep 2005 May Sep 2006 May Sep 2007 May Sep 2008 May Sep 2009 May Sep Source: U.S. Bureau of Transportation Statistics ATA 2008 -- 22 Thousands of Full-Time Equivalents (FTEs)

U.S. Airlines Paying Transatlantic Premium for Jet Fuel USD-Euro Exchange Rate Has Boosted Fuel Price Differential to Nearly 60% USD Jet Fuel Spot Price Euro Jet Fuel Spot Price $55-65 Differential Sources: Energy Information Administration (NYH/USGC/LA) and http://www.oanda.com/convert/fxhistory 200 180 160 140 120 100 80 60 40 20 1/2/2001 6/21/2001 12/8/2001 5/27/2002 11/13/2002 5/2/2003 10/19/2003 4/6/2004 9/23/2004 3/12/2005 8/29/2005 2/15/2006 8/4/2006 1/21/2007 7/10/2007 12/27/2007 6/14/2008 12/1/2008 ATA 2008 -- 23 U.S. Dollar (USD) Equivalents per Barrel

The Transatlantic Blues Equity Market Capitalization (Millions USD) on July 16, 2008 $9,933 $6,611 American Continental Delta Northwest United US Airways Lufthansa AMR+CAL+DAL+NWA+UAUA+LCC LHA:GR Sources: Bloomberg (for Deutsche Lufthansa AG LHA:GR) and MSN ATA 2008 -- 24

A- U.S. Carriers Suffer From Comparatively Weak Credit Standard & Poor s (S&P) Corporate Credit Ratings as of July 25, 2008 BBB+ BBB BB- BBB- BB+ BB BB B+ B+ B B B Investment Grade Speculative B B- B- B- B- B- Southwest QANTAS Lufthansa BA ANA ANZ TAM SAS Alaska JAL Air Canada Continental Delta Northwest AirTran American JetBlue United US Airways ATA 2008 -- 25

U.S. Airlines* Greener Than Ever Fuel Efficiency Up 24% from 2000 to 2007 and 110% from 1978 to 2007 Revenue Ton Miles (RTMs) per Gallon 6.5 5.5 4.5 3.5 [On]ce government creates an artificial scarcity of carbon, how the credits are allocated creates a huge new venue for political rent-seeking and more subsidies for favored industries. Some businesses will benefit more than others Congress itself will probably take the largest revenue grab, offering itself a few more bites out of the economy and soaking politically unpopular businesses. McCain s Climate Market, WSJ (May 13, 2008) 2.92 3.06 3.84 4.94 5.76 6.11 2.5 1978 1980 1990 2000 2005 2007 * U.S. passenger and cargo airlines operating worldwide passenger and cargo revenue ton miles (RTMs) in all services Source: ATA analysis of DOT Form 41 traffic data (T2-Z240) and gallons (T2-Z921) ATA 2008 -- 26