Table 3: Key Success Factors for Eight U.S. Airlines

Airlines

American Airlines

America West Airlines

Continental Airlines

Delta Air Lines

Northwest Airlines

Southwest Airlines

United Airlines

US Airways

1. Attractiveness – passenger revenue [10, P-12] per revenue passenger mile [10, T-2] – cents/rpm – a normalized measure of ticket price per seat – Lower is better from passenger viewpoint.

2004

11.5

9.4

11.2

11.0

11.5

11.4

10.4

12.5

2005

12.0

10.3

11.6

11.0

11.6

11.8

10.9

12.6

Scale

4

1

3

2

3

3

2

4

2004

81

144

109

81

67

92

75

68

2005

86

134

95

85

71

101

82

69

Scale

3

1

1

3

5

1

4

5

3. Aircraft Utilization – aircraft hours [10, T-2] per aircraft day [10, T-2] – hours/day – Higher is better from airline perspective.

2004

8.9

9.4

8.5

10.4

7.4

9.3

9.0

7.9

2005

8.6

9.3

9.1

10.4

7.5

9.6

9.5

8.1

Scale

4

2

3

1

5

2

2

5

4. Relative Load Factor – revenue passenger miles [10, T-2] per available seat mile [10, T-2] divided by the average load factor of the eight airlines – Higher is better from airline point of view.

2004

0.98

1.01

1.02

0.99

1.05

0.91

1.04

0.98

2005

1.00

1.02

1.02

0.99

1.05

0.90

1.04

0.96

Scale

3

3

3

3

2

4

2

4

5. Employee Productivity – available seat miles [10, T-2] per employee [11] – asms/employee – Higher is better from airline perspective.

2004

556

674

618

563

594

603

624

525

2005

579

658

665

623

641

684

628

589

Scale

4

2

2

3

3

2

3

4

6. Employee Morale – sum of lost bags per 1000 passengers and complaints per 100,000 passengers [12] – Lower is better from both customer and airline perspectives.

2004

5.61

5.00

4.40

5.96

5.11

3.53

4.82

6.54

2005

6.94

5.29

5.04

8.18

5.80

4.43

5.30

11.48

Scale

4

1

1

5

2

1

1

5

7. Operating Revenue – total operating revenue [10, P-12] per available seat mile [10, T-2] – cents/asm – relative to average of these eight airlines – Higher is better from airline perspective.

2004

0.97

0.75

1.06

1.06

1.12

0.77

0.98

1.19

2005

0.98

0.93

1.08

1.00

1.12

0.74

1.03

1.13

Scale

3

5

2

3

1

5

3

1

8. Operating Costs – total operating costs [10, P-12] per available seat mile [10, T-2] – cents/asm – Lower is better from airline perspective.

2004

10.9

8.2

12.0

12.9

12.8

7.8

11.6

13.7

2005

11.9

11.5

13.1

12.9

14.4

7.9

12.5

13.9

Scale

3

2

4

4

5

1

3

5

9. Operating Margin - total operating revenue [10, P-12] per available seat mile [10, T-2] less total operating cost [10, P-12] per available seat mile [10, T-2] – cents/asm – Higher is better from airline perspective; negative margin is poor or scale (5), 0 to 0.3 cents/asm is below average (4), 0.3 to 0.6 cents/asm is average (3), 0.6 to 1.0 cents per asm is above average (2), and greater than 1.0 cent per asm is good (1).

2004

(0.24)

(0.01)

(0.35)

(1.24)

(0.47)

0.72

(0.80)

(0.64)

2005

(0.20)

(0.40)

(0.11)

(0.90)

(0.97)

0.96

(0.17)

(0.40)

Scale

5

5

5

5

5

2

5

5

10. Relative Growth Rate – available seat miles [10, T-2] current period divided by available seat miles comparable period year earlier – Higher is better from an airline perspective up to a point; negative growth is poor (5), 0 to 3% is below average (4), 3% to 6% is average (3), 6% to 8% is above average (2), 8% to 10% is good (5), but over 10% is too aggressive (2 or higher) based on our earlier work [5].

2004

1.05

1.08

1.07

1.08

1.03

1.07

1.06

1.05

2005

1.01

1.01

1.05

1.03

1.00

1.11

0.97

0.99

Scale

4

3

3

3

4

1

4

4

11. Equity Growth – total equity current period [10, B-1] less total equity earlier period – end 2004 less end 2003 and end 2005 less end 2004 – $billions – Higher is better from an investor’s (and therefore an airline’s) perspective – Negative equity is poor, over 10% growth is good. (Southwest’s (WN’s) total equity grew 10.7% in 2004 and nearly 20% in 2005). (US Airways had negative equity at the end of 2005, but less so than for 2004.)

2004

(0.45)

(0.07)

(0.53)

(3.48)

(1.00)

0.54

(2.04)

(0.59)

2005

(1.07)

(0.40)

(0.04)

(7.83)

(2.31)

1.08

(18.05)

0.37

Scale

5

5

5

5

5

1

5

5

12. Debt to Total Assets – long-term debt [10, B-1] divided by total assets [10, B-1] at end of period – A reasonably low ratio is preferred by most investors (and therefore by an airline) – In rank order of the four airlines with valid data, 1 is best.

2004

0.34

0.37

0.47

0.49

0.38

0.15

0.35

0.27

2005

0.34

0.43

0.43

0.36

0.06

0.09

0.40

0.38

Scale

2

3

4

n/c**

n/c**

1

n/c**

n/c**