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Article by DailyStocks_admin    (06-19-08 07:26 AM)

US Airways Group Inc. CEO DOUGLAS W PARKER bought 197000 shares on 6-16-2008 at $2.8

BUSINESS OVERVIEW

Overview

US Airways Group, a Delaware corporation, is a holding company formed in 1982 and whose origins trace back to the formation of All American Aviation in 1939. US Airways Group’s principal executive offices are located at 111 West Rio Salado Parkway, Tempe, Arizona 85281. US Airways Group’s telephone number is (480) 693-0800, and its internet address is www.usairways.com. US Airways Group is a holding company whose primary business activity is the operation of a major network air carrier through its wholly owned subsidiaries US Airways, Piedmont Airlines, Inc. (“Piedmont”), PSA Airlines, Inc. (“PSA”), Material Services Company, Inc. (“MSC”), and Airways Assurance Limited. On September 12, 2004, US Airways Group and its domestic subsidiaries, US Airways, Piedmont, PSA and MSC (collectively, the “Debtors”), which at the time accounted for substantially all of the operations of US Airways Group, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division (the “Bankruptcy Court”). On May 19, 2005, US Airways Group signed a merger agreement with America West Holdings Corporation (“America West Holdings”) pursuant to which America West Holdings merged with a wholly owned subsidiary of US Airways Group. The merger agreement was amended by a letter of agreement on July 7, 2005. The merger became effective upon US Airways Group’s emergence from bankruptcy on September 27, 2005.

As a result of the merger, we operate the fifth largest airline in the United States as measured by domestic revenue passenger miles (“RPMs”) and available seat miles (“ASMs”). For the years ended December 31, 2007, 2006 and 2005, passenger revenues accounted for approximately 93%, 93% and 92%, respectively, of our operating revenues. Cargo revenues and other sources accounted for 7%, 7% and 8% of our operating revenues in 2007, 2006 and 2005, respectively. We have primary hubs in Charlotte, Philadelphia and Phoenix and secondary hubs/focus cities in Las Vegas, New York, Washington, D.C. and Boston. We are a low-cost carrier offering scheduled passenger service on approximately 3,800 flights daily to 230 communities in the continental United States, Hawaii, Alaska, Canada, the Caribbean, Latin America and Europe, making us the only U.S. based low-cost carrier with a significant international route presence. We are also the only low-cost carrier with an established East Coast route network, including the US Airways Shuttle service, with substantial presence at capacity constrained airports including New York’s LaGuardia Airport and the Washington, D.C. area’s Ronald Reagan Washington National Airport. We had approximately 58 million passengers boarding our mainline flights in 2007. During 2007, we provided regularly scheduled service or seasonal service at 137 airports. During 2007, the US Airways Express network served 201 airports in the United States, Canada, the Caribbean and Latin America, including approximately 82 airports also served by our mainline operation. During 2007, US Airways Express air carriers had approximately 27 million passengers boarding their planes. As of December 31, 2007, we operated 356 mainline jets and are supported by our regional airline subsidiaries and affiliates operating as US Airways Express, which operate approximately 232 regional jets and 104 turboprops.

On September 26, 2007, as part of the integration efforts following the merger of US Airways Group and America West Holdings, America West Airlines, Inc. (“AWA”) surrendered its Federal Aviation Administration (“FAA”) operating certificate. As a result, all mainline airline operations are now being conducted under US Airways’ FAA operating certificate. In connection with the combination of all mainline airline operations under one FAA operating certificate, US Airways Group contributed 100% of its equity interest in America West Holdings, the parent company of AWA, to US Airways. As a result, America West Holdings and AWA are now wholly owned subsidiaries of US Airways. In addition, AWA transferred substantially all of its assets and liabilities to US Airways. All off-balance sheet commitments of AWA were also transferred to US Airways. Pilots, flight attendants, and ground and maintenance employees continue to work under the terms of their respective collective bargaining agreements, including, in some cases, transition agreements reached in connection with the merger.

Our results are seasonal. Operating results are typically highest in the second and third quarters due to greater demand for air and leisure travel during the summer months and US Airways’ combination of business traffic and North-South leisure traffic in the eastern and western United States during those periods. For information regarding operating revenue in US Airways Group’s and US Airways’ principal geographic areas, see Notes 15 and 12 to their respective financial statements included in Items 8A and 8B of this Form 10-K.

Material Services Company and Airways Assurance Limited operate in support of our airline subsidiaries in areas such as the procurement of aviation fuel and insurance.

Available Information

You may read and copy any materials US Airways Group or US Airways files with the Securities and Exchange Commission (“SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. A copy of this Annual Report on Form 10-K, as well as other Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are accessible free of charge at www.usairways.com and at the SEC’s website at www.sec.gov as soon as reasonably possible after the report is filed with or furnished to the SEC.

Airline Industry

A number of structural changes in the industry have taken shape over the past three years, including restructuring through the Chapter 11 process by four legacy carriers, including US Airways. While domestic capacity continues to rationalize through fleet reductions and the redeployment of aircraft to international markets, whether demand can remain at historically high levels in the face of rising fares is unclear.

Despite rising fuel costs throughout the year, the airline industry reported an annual profit in 2007, excluding special items and bankruptcy-related costs. While fares have increased over the prior year absorbing some of the fuel cost increase, they still remain at historically low levels on an inflation-adjusted basis.

As we begin 2008, the airline industry appears to be headed for another challenging period due to extremely high oil prices and a potential economic slowdown. Current fuel prices remain high by historical standards and significant increases in fuel price can materially and adversely affect operating costs within the industry. A softening economy also makes realizing increases in yield within the industry difficult.

Airline Operations

We operate a hub-and-spoke network with major hubs in Charlotte, Philadelphia and Phoenix and secondary hubs/focus cities in Las Vegas, New York, Washington, D.C. and Boston.

In 2007, we were able to increase service in certain markets. We added new transatlantic service from Philadelphia to Athens, Greece; Brussels, Belgium; and Zurich, Switzerland. Beginning in March 2008, we will start new service to London’s Heathrow Airport from Philadelphia. Finally, in 2007, we received approval for the right to fly to Beijing, China from our Philadelphia hub.

We continued to enhance our fleet in 2007. We took delivery of nine Embraer 190 aircraft during 2007 and expect to take delivery of the remaining 14 Embraer 190 aircraft in 2008 under our Amended and Restated Purchase Agreement with Embraer. We announced an agreement with Airbus S.A.S for the firm order of 60 A320 family aircraft, in addition to the 37 aircraft from the previous A319/A320 Purchase Agreement, which we plan to use to replace older Boeing 737 aircraft in the airline’s fleet. In addition, as part of that same order, we announced plans to add 32 widebody aircraft, which includes ten Airbus A330-200 aircraft and 22 Airbus A350 Xtra Wide Body (“XWB”) aircraft. We expect to use these aircraft for both replacements of older widebody aircraft in the fleet and to facilitate international growth. We are scheduled to begin taking delivery of the A320 family and A330 family of aircraft beginning in 2009 and the A350-XWB family of aircraft in 2014. Finally, we subsequently modified our agreement with Airbus to add five additional A330-200 aircraft to our existing order, and also agreed to terms with an aircraft lessor to lease two more A330-200 aircraft, bringing the total number of widebody aircraft we are set to take delivery of to 39.

Express Operations

Certain air carriers have code share arrangements with US Airways to operate under the trade name “US Airways Express.” Typically, under a code share arrangement, one air carrier places its designator code and sells tickets on the flights of another air carrier, which is referred to generically as its code share partner. US Airways Express carriers are an integral component of our operating network. US Airways relies heavily on feeder traffic from its US Airways Express partners, which carry passengers to US Airways’ hubs from low-density markets that are uneconomical for US Airways to serve with large jets. In addition, US Airways Express operators offer complementary service in existing US Airways mainline markets by operating flights during off-peak periods between US Airways mainline flights. During 2007, the US Airways Express network served 201 airports in the continental United States, Canada, the Caribbean and Latin America, including 82 airports also served by US Airways. During 2007, approximately 27 million passengers boarded US Airways Express air carriers’ planes, approximately 40% of whom connected to US Airways’ flights. Of these 27 million passengers, approximately 8 million were enplaned by our wholly owned regional airlines Piedmont and PSA, approximately 18 million were enplaned by third-party carriers operating under capacity purchase agreements and approximately 1 million were enplaned by carriers operating under prorate agreements, as described below.

The US Airways Express code share arrangements are in the form of either capacity purchase or prorate agreements. The capacity purchase agreements provide that all revenues, including passenger, mail and freight revenues, go to US Airways. In return, US Airways agrees to pay predetermined fees to these airlines for operating an agreed-upon number of aircraft, without regard to the number of passengers on board. In addition, these agreements provide that certain variable costs, such as airport landing fees, will be reimbursed 100% by US Airways. US Airways controls marketing, scheduling, ticketing, pricing and seat inventories. Under the prorate agreements, the prorate carriers pay certain service fees to US Airways and receive a prorated share of ticket revenue paid for connecting customers. US Airways is responsible for the pricing and marketing of connecting services to and from the prorate carrier. The prorate carrier is responsible for pricing and marketing the local, point to point markets, and is responsible for all costs incurred operating the aircraft. All US Airways Express carriers use US Airways’ reservation systems and have logos, service marks, aircraft paint schemes and uniforms similar to those of US Airways.

The following table sets forth US Airways Express code share agreements and the number and type of aircraft operated under those agreements at December 31, 2007.

Marketing and Alliance Agreements with Other Airlines

US Airways maintains alliance agreements with several leading domestic and international carriers to give customers a greater choice of destinations. Airline alliance agreements provide an array of benefits that vary by partner. By code sharing, each airline is able to offer additional destinations to its customers under its flight designator code without materially increasing operating expenses and capital expenditures. Frequent flyer arrangements provide members with extended networks for earning and redeeming miles on partner carriers. Our US Airways Club members also have access to certain partner carriers’ airport lounges. We also benefit from the distribution strengths of each of the partner carriers.

In May 2004, US Airways joined the Star Alliance, the world’s largest airline alliance, with 19 member airlines serving approximately 897 destinations in 160 countries. Two additional international carriers based in Egypt and Turkey, respectively, are scheduled to join in 2008. Membership in the Star Alliance further enhances the value of US Airways’ domestic and international route network by allowing customers wide access to the global marketplace. Expanded benefits for customers include network expansion through code share service, frequent flyer program benefits, airport lounge access, convenient single-ticket pricing, one-stop check-in and coordinated baggage handling. US Airways also has bilateral marketing/code sharing agreements with Star Alliance members Lufthansa, Spanair, bmi, TAP Portugal, Asiana, Air New Zealand, and Singapore Airlines. Other international code sharing partners include Italy’s Air One, Royal Jordanian Airlines, EVA Airways and Virgin Atlantic Airways. Marketing/code sharing agreements are maintained with two smaller regional carriers in the Caribbean that operate collectively as the “GoCaribbean” network. Each of these code share agreements funnel international traffic onto US Airways’ domestic flights or support specific markets operated by US Airways in Europe and the Caribbean. Domestically, US Airways code shares with Hawaiian Airlines on intra-Hawaii flights.

In addition, US Airways has comprehensive marketing and code sharing agreements with United Airlines, a member of the Star Alliance, which began in July 2002. United, as well as its parent company, UAL Corporation, and certain of its affiliates, filed for protection under Chapter 11 of the Bankruptcy Code on December 9, 2002 and emerged on February 1, 2006. United assumed these marketing agreements in its bankruptcy proceedings. In February 2008, US Airways and United reached final agreement on amendments to the contracts governing their relationship, and approval of these agreements by the Bankruptcy Court is expected by the end of February.

Competition in the Airline Industry

Most of the markets in which we operate are highly competitive. Price competition occurs on a market-by-market basis through price discounts, changes in pricing structures, fare matching, target promotions and frequent flyer initiatives. Airlines typically use discount fares and other promotions to stimulate traffic during normally slack travel periods to generate cash flow and to maximize revenue per ASM. Discount and promotional fares are generally non-refundable and may be subject to various restrictions such as minimum stay requirements, advance ticketing, limited seating and change fees. We have often elected to match discount or promotional fares initiated by other air carriers in certain markets in order to compete in those markets. Most airlines will quickly match price reductions in a particular market. Our ability to compete on the basis of price is limited by our fixed costs and depends on our ability to maintain our operating costs.

We also compete on the basis of scheduling (frequency and flight times), availability of nonstop flights, on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyer programs, the automation of travel agent reservation systems, on-board products, markets served and other services. We compete with both major full service airlines and low-cost airlines throughout our network of hubs and focus cities.

We believe the growth of low-fare low-cost competition will continue. Recent years have seen the entrance and growth of low-fare low-cost competitors in many of the markets in which we operate. These competitors include Southwest Airlines Co., AirTran Airways, Inc., Frontier Airlines, Inc. and JetBlue Airways. Some of these low cost carriers have lower operating cost structures than we have.

In addition, because we operate a significant number of flights in the eastern United States, our average trip distance, or stage length, is shorter than those of other major airlines. This makes us more susceptible than other major airlines to competition from surface transportation such as automobiles and trains.

Industry Regulation and Airport Access

Our airline subsidiaries operate under certificates of public convenience and necessity or certificates of commuter authority, both of which are issued by the Department of Transportation (the “DOT”). These certificates may be altered, amended, modified or suspended by the DOT if the public convenience and necessity so require, or may be revoked for failure to comply with the terms and conditions of the certificates. As of September 26, 2007, US Airways and AWA are operating under a single certificate of public convenience and necessity in the name of US Airways.

Airlines are also regulated by the FAA, primarily in the areas of flight operations, maintenance, ground facilities and other operational and safety areas. Pursuant to these regulations, our airline subsidiaries have FAA-approved maintenance programs for each type of aircraft they operate. The programs provide for the ongoing maintenance of such aircraft, ranging from periodic routine inspections to major overhauls. From time to time, the FAA issues airworthiness directives and other regulations affecting our airline subsidiaries or one or more of the aircraft types they operate. In recent years, for example, the FAA has issued or proposed mandates relating to, among other things, enhanced ground proximity warning systems, fuselage pressure bulkhead reinforcement, fuselage lap joint inspection rework, increased inspections and maintenance procedures to be conducted on certain aircraft, increased cockpit security, fuel tank flammability reductions and domestic reduced vertical separation. Regulations of this sort tend to enhance safety and increase operating costs.

The DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate or foreign commerce or the national transportation system. Certain locales, including Boston, Washington, D.C., Chicago, San Diego and San Francisco, among others, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of these operations. In some instances these restrictions have caused curtailments in services or increases in operating costs, and these restrictions could limit the ability of our airline subsidiaries to expand their operations at the affected airports. Authorities at other airports may consider adopting similar noise regulations.

The airline industry is also subject to increasingly stringent federal, state and local laws aimed at protecting the environment. Future regulatory developments and actions could affect operations and increase operating costs for the airline industry, including our airline subsidiaries.

Our airline subsidiaries are obligated to collect a federal excise tax, commonly referred to as the “ticket tax,” on domestic and international air transportation. Our airline subsidiaries collect the ticket tax, along with certain other U.S. and foreign taxes and user fees on air transportation, and pass along the collected amounts to the appropriate governmental agencies. Although these taxes are not operating expenses of the Company, they represent an additional cost to our customers. There are a number of efforts in Congress to raise different portions of the various taxes imposed on airlines and their passengers.

The Aviation and Transportation Security Act (the “Aviation Security Act”) was enacted in November 2001. Under the Aviation Security Act, substantially all aspects of civil aviation security screening were federalized, and a new Transportation Security Administration (the “TSA”) under the DOT was created. TSA was then transferred to the Department of Homeland Security pursuant to the Homeland Security Act of 2002. The Aviation Security Act, among other matters, mandates improved flight deck security; carriage at no charge of federal air marshals; enhanced security screening of passengers, baggage, cargo, mail, employees and vendors; enhanced security training; fingerprint-based background checks of all employees and vendor employees with access to secure areas of airports pursuant to regulations issued in connection with the Aviation Security Act; and the provision of passenger data to U.S. Customs and Border Protection.

Funding for TSA is provided by a combination of air-carrier fees, passenger fees and taxpayer monies. The air-carrier fee, or Aviation Security Infrastructure Fee (“ASIF”), has an annual cap equivalent to the amount that an individual air carrier paid in calendar year 2000 for the screening of passengers and property. TSA may lift this cap at any time and set a new higher fee for air carriers. In 2005, TSA assessed additional ASIF liability on 43 air carriers, including US Airways, Piedmont, PSA and non-owned affiliates for whom US Airways pay ASIF. The passenger fee, which is collected by air carriers from their passengers, is currently set at $2.50 per flight segment but not more than $10.00 per round trip.

In 2007, we incurred expenses of $52 million for the ASIF, including amounts paid by US Airways Group’s wholly owned regional subsidiaries and amounts attributable to regional carriers. Implementation of the requirements of the Aviation Security Act have resulted and will continue to result in increased costs for us and our passengers and has and will likely continue to result in service disruptions and delays. As a result of competitive pressure, US Airways and other airlines may be unable to recover all of these additional security costs from passengers through increased fares. In addition, we cannot forecast what new security and safety requirements may be imposed in the future or the costs or financial impact of complying with any such requirements.

Most major U.S. airports impose passenger facility charges. The ability of airlines to contest increases in these charges is restricted by federal legislation, DOT regulations and judicial decisions. With certain exceptions, air carriers pass these charges on to passengers. However, our ability to pass through passenger facility charges to our customers is subject to various factors, including market conditions and competitive factors. The current cap on passenger facility charges is $4.50; however, there is legislation in Congress to raise the cap on passenger facility charges to $7.00 per passenger.

At John F. Kennedy International Airport, LaGuardia, Newark Liberty International and Reagan National, which are designated “High Density Airports” by the FAA, there are restrictions that limit the number of departure and arrival slots available to air carriers during peak hours. In April 2000, legislation was enacted that eliminated slot restrictions in January 2007 at LaGuardia and Kennedy. On December 20, 2006, the FAA implemented an interim rule to maintain the number of hourly operations at LaGuardia until a final rule is adopted. The FAA proposed a comprehensive final rule for LaGuardia in August 2006. The proposed rule would require a minimum number of seats on certain operations to/from LaGuardia. Failure to comply with the minimum seat requirement would lead to the withdrawal of operating authority until compliance is achieved. The proposed rule also introduces a finite lifespan for “operating authorizations” of no more than ten years. The FAA intends to seek Congressional approval for the introduction of market based mechanisms for allocating expiring operating authorizations. We filed extensive comments with the FAA in December 2006 detailing the numerous concerns we have with the proposed rule. Other than making some technical corrections to the current operating restrictions at LaGuardia, no other action concerning the level of operations at LaGuardia was taken by the federal government in 2007. The DOT and FAA convened an Aviation Rulemaking Committee (“ARC”) to address congestion and delays in the New York region. While the short-term changes associated with the ARC relate to technical improvements to increase air space efficiency, we anticipate that the DOT will issue a proposed rulemaking addressing other issues discussed in the ARC, including technical operations issues and competition issues.

In addition, the government intends to cap operations at both Kennedy and Newark starting later in the first quarter of 2008. Thus, airlines will not be able to add flights at LaGuardia, Kennedy or Newark without acquiring operating rights from another carrier. In the future, takeoff and landing time 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 our airline subsidiaries, particularly in light of the increase in the number of airlines operating at these airports.

The availability of international routes to domestic air carriers is regulated by agreements between the U.S. and foreign governments. Changes in U.S. or foreign government aviation policy could result in the alteration or termination of these agreements and affect our international operations. We could see significant changes in terms of air service between the United States and Europe as a result of the implementation of the U.S. and the EU Air Transport Agreement, generally referred to as Open Skies Agreement, which takes effect in March 2008. The Open Skies Agreement removes bilateral restrictions on the number of flights between the U.S. and EU.

The DOT has proposed several new initiatives concerning airline obligations toward passengers. These regulations involve increases in the denied boarding compensation that airlines must pay for passengers involuntarily denied travel. In addition, new regulations addressing how airlines handle irregular operations also are under consideration.

The industry also faces increased state government activity such as the recently implemented New York State Passenger Bill of Rights law that requires airlines to provide certain services to passengers on flights within the state that undergo extended on-board ground delays. Several other states have indicated a desire to move ahead with similar legislation.

Employees and Labor Relations

Our businesses are labor intensive. In 2007, wages, salaries and benefits represented approximately 23% of our operating expenses. As of December 31, 2007, we employed approximately 39,600 active full-time equivalent employees. Of this amount, US Airways employed approximately 34,400 active full-time equivalent employees including approximately 4,200 pilots, 7,300 flight attendants, 7,100 passenger service personnel, 7,500 fleet service personnel, 2,900 maintenance personnel and 5,400 personnel in administrative and various other job categories. US Airways Group’s remaining subsidiaries employed approximately 5,200 active full-time equivalent employees including approximately 900 pilots, 500 flight attendants, 2,400 passenger service personnel, 400 maintenance personnel and 1,000 personnel in administrative and various other job categories.

A large majority of the employees of the major airlines in the United States are represented by labor unions. As of December 31, 2007, approximately 85% of our active employees were represented by various labor unions.

Since the merger, we have been in the process of integrating the labor agreements of US Airways and AWA. Listed below are the integrated labor agreements and the status of the US Airways and AWA labor agreements that remain separate with their major domestic employee groups.

On November 14, 2007, the National Mediation Board notified the Company that an application for representation of the pilots of US Airways had been filed by the US Airline Pilots Association (“USAPA”). An investigation by the Board is now underway to determine whether USAPA, ALPA or neither union should be the certified representative of the pilots. We cannot predict the outcome of the investigation by the National Mediation Board or the effect, if any, on US Airways’ operational or financial performance.

There are few remaining unrepresented employee groups that could engage in organization efforts. We cannot predict the outcome of any future efforts to organize those remaining employees or the terms of any future labor agreements or the effect, if any, on US Airways’ operations or financial performance. For more discussion, see Item 1A. “Risk Factors, Risk Factors Relating to the Company and Industry Related Risks — Union disputes, employee strikes and other labor-related disruptions may adversely affect our operations. ”

Aviation Fuel

In 2007 and 2006, aviation fuel was our largest expense. The average cost of a gallon of aviation fuel for our mainline operations increased 6% from 2006 to 2007 after increasing 8% from 2005 to 2006. Because the operations of our airline are dependent upon aviation fuel, increases in aviation fuel costs could materially and adversely affect liquidity, results of operations and financial condition.

We maintain an active fuel hedging program. As part of our fuel hedging program, we have periodically entered into certain fixed price swaps, collar structures and other similar derivative contracts. As of December 31, 2007, we had entered into hedging transactions using costless collars, which establish an upper and lower limit on heating oil futures prices. These transactions are in place with respect to approximately 22% of our 2008 fuel consumption requirements. During 2007, 2006 and 2005, we recognized a net gain of $245 million, a net loss of $79 million and a net gain of $75 million, respectively, related to hedging activities.

CEO BACKGROUND

J. Scott Kirby, Age 40. Mr. Kirby joined America West Airlines, Inc. (“AWA”) as Senior Director — Schedules and Planning in October 1995. In October 1997, Mr. Kirby was elected to the position of Vice President — Planning and in May 1998, he was elected to the position of Vice President — Revenue Management. In January 2000, he was elected to the position of Senior Vice President — E-Business and Technology of AWA. He was elected as Executive Vice President — Sales and Marketing of AWA in September 2001. Mr. Kirby served as Executive Vice President — Sales and Marketing of US Airways Group and US Airways from the effective date of the merger with America West Holdings on September 27, 2005 until his promotion to President of each entity on October 1, 2006.

Robert D. Isom, Age 44. Mr. Isom joined AWA as Senior Director — Financial Planning and Analysis in 1995. He was elected to Vice President — Operations Planning for AWA in 1997. In 2000, Mr. Isom was elected to the position of Vice President — Revenue Management. Mr. Isom left AWA in 2000 to serve as Vice President — Finance for Northwest Airlines, Inc. In 2001, he was appointed Vice President — International for Northwest Airlines, and in 2003 he was appointed Senior Vice President — Ground Operations and Customer Service. Mr. Isom left Northwest Airlines in 2005 to serve as Chief Operating Officer for GMAC, Residential Finance Group, GMAC ResCap. He was appointed Chief Restructuring Officer of GMAC in 2006. On September 10, 2007, Mr. Isom was elected Executive Vice President and Chief Operating Officer for US Airways Group and US Airways.

Janet Dhillon, Age 46. Ms. Dhillon joined US Airways in August 2004 as Managing Director and Associate General Counsel. In January 2005, she was promoted to Vice President and Deputy General Counsel of US Airways Group and US Airways. In September 2006, Ms. Dhillon was promoted to Senior Vice President and General Counsel of US Airways Group and US Airways. Prior to joining US Airways in 2004, Ms. Dhillon was counsel at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, which she joined as an associate in 1991.

Elise R. Eberwein, Age 42. Ms. Eberwein joined AWA in September 2003 as Vice President — Corporate Communications. Prior to joining AWA, Ms. Eberwein held various communications positions for three other airlines, including Denver-based Frontier Airlines where she served as Vice President, Communications from 2000 until she joined AWA. From September 27, 2005, the effective date of the merger, through October 2005, Ms. Eberwein served as Vice President — Corporate Communications of US Airways Group and US Airways. She served as Senior Vice President — Corporate Communications of US Airways Group and US Airways from November 2005 to September 2006, when she was appointed as Senior Vice President — People, Communication and Culture of each entity.

C.A. Howlett, Age 64. Mr. Howlett joined AWA as Vice President — Public Affairs in January 1995. On January 1, 1997, he was elected Vice President — Public Affairs of America West Holdings. He was elected as Senior Vice President — Public Affairs of AWA and America West Holdings in February 1999. Mr. Howlett has served as Senior Vice President — Public Affairs of US Airways Group and US Airways since the effective date of the merger with America West Holdings on September 27, 2005.

Derek J. Kerr, Age 43. Mr. Kerr joined AWA as Senior Director — Financial Planning in April 1996. He was elected to the position of Vice President — Financial Planning and Analysis in May 1998. In February 2002, Mr. Kerr was elected Senior Vice President — Financial Planning and Analysis. He was elected as Senior Vice President and Chief Financial Officer of AWA and America West Holdings in September 2002, and has served as Senior Vice President and Chief Financial Officer of US Airways Group and US Airways since the effective date of the merger with America West Holdings on September 27, 2005.

MANAGEMENT DISCUSSION FROM LATEST 10K

Background

US Airways Group is a holding company whose primary business activity is the operation of a major network air carrier, through its wholly owned subsidiaries US Airways, Piedmont, PSA, MSC and Airways Assurance Limited. On September 12, 2004, US Airways Group and its domestic subsidiaries, US Airways, Piedmont, PSA and MSC, which at the time accounted for substantially all of the operations of US Airways Group, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division. On May 19, 2005, US Airways Group signed a merger agreement with America West Holdings pursuant to which America West Holdings merged with a wholly owned subsidiary of US Airways Group. The merger agreement was amended by a letter of agreement on July 7, 2005. The merger became effective upon US Airways Group’s emergence from bankruptcy on September 27, 2005.

As a result of the merger, we operate the fifth largest airline in the United States as measured by domestic RPMs and ASMs. We have primary hubs in Charlotte, Philadelphia and Phoenix and secondary hubs/focus cities in Las Vegas, New York, Washington, D.C. and Boston. We are a low-cost carrier offering scheduled passenger service on approximately 3,800 flights daily to 230 communities in the U.S., Canada, the Caribbean, Latin America and Europe, making us the only U.S. based low-cost carrier with a significant international route presence. We are also the only low-cost carrier with an established East Coast route network, including the US Airways Shuttle service, with substantial presence at capacity constrained airports including New York’s LaGuardia Airport and the Washington, D.C. area’s Ronald Reagan Washington National Airport. As of December 31, 2007, we operated 356 mainline jets and are supported by our regional airline subsidiaries and affiliates operating as US Airways Express, which operate approximately 232 regional jets and 104 turboprops. In 2007, we generated passenger revenues of $10.83 billion.

The merger was accounted for as a reverse acquisition using the purchase method of accounting. As a result, although the merger was structured such that America West Holdings became a wholly owned subsidiary of US Airways Group, America West Holdings was treated as the acquiring company for accounting purposes due to the following factors: (1) America West Holdings’ stockholders received the largest share of US Airways Group’s common stock in the merger in comparison to unsecured creditors of US Airways Group; (2) America West Holdings received a larger number of designees to the board of directors; and (3) America West Holdings’ Chairman and Chief Executive Officer prior to the merger became the Chairman and Chief Executive Officer of the combined company. As a result of the reverse acquisition, the 2005 consolidated statement of operations for the new US Airways Group presented in this report is comprised of the results of America West Holdings for the 269 days through September 27, 2005 and consolidated results of US Airways Group for the 96 days from September 27, 2005 through December 31, 2005.

On September 26, 2007, as part of the integration efforts following the merger, AWA surrendered its FAA operating certificate. As a result, all mainline airline operations are now being conducted under US Airways’ FAA operating certificate. In connection with the combination of all mainline airline operations under one FAA operating certificate, US Airways Group contributed 100% of its equity interest in America West Holdings, the parent company of AWA, to US Airways. As a result, America West Holdings and AWA are now wholly owned subsidiaries of US Airways. In addition, AWA transferred substantially all of its assets and liabilities to US Airways.

All off-balance sheet commitments of AWA were also transferred to US Airways. This transaction constituted a transfer of assets between entities under common control and was accounted for at historical cost. The contribution had no effect on the US Airways Group consolidated financial statements. Pilots, flight attendants, and ground and maintenance employees continue to work under the terms of their respective collective bargaining agreements, including, in some cases, transition agreements reached in connection with the merger.

As part of the transfer of assets and liabilities to US Airways, all of AWA’s obligations with respect to certain pass through trusts and the leases of related aircraft and engines were transferred to US Airways. The pass through trusts had issued pass through trust certificates (also known as “Enhanced Equipment Trust Certificates” or “EETCs”), of which AWA was the deemed issuer for SEC reporting purposes. Because US Airways has assumed all of AWA’s obligations with respect to the pass through trusts, US Airways is now the deemed issuer of these EETCs. As a result, AWA no longer has an obligation to file separate financial statements or reports with the SEC and has filed a Form 15 with the SEC terminating its reporting obligations.

2007 Overview

Solid Financial Results

In 2007, we earned net income of $427 million, the second profitable year since our merger in 2005 and the fourth highest level of annual earnings in our combined history. Diluted earnings per share for the year was $4.52, compared to $3.33 in 2006. These financial results were achieved during a year that saw record fuel prices and higher costs driven by implementation of our operational improvement plan to increase reliability as well as the rationalization of our capacity.

Merger Integration Update

For 2007, our operational accomplishments included the following:


• Merged two reservations systems onto one platform, which provides a single system for reservation and airport customer service agents that enables us to simplify ticketing processes, remove redundant systems and provide a consistent product to our passengers.

• Marked a significant milestone by moving all of our mainline operations to a single operating certificate from the FAA, as described above. The single certificate allows us to operate as one US Airways with one set of policies, procedures, computer systems, maintenance and flight control systems.

• Broke ground for our new 72,000 square foot state-of-the-art operations control center near Pittsburgh International Airport. The new facility will house 600 employees, with completion slated for early 2009.

• Completed the consolidation of operations at Chicago O’Hare, the last of 38 cities where both US Airways and AWA had operated at the time of the merger.

• Reached final single labor agreements covering the flight crew training instructors and the flight simulator engineers, each represented by the Transport Workers Union (“TWU”). Additionally, we are continuing to negotiate with the pilot, flight attendant, fleet service and mechanic labor groups in hopes of reaching final agreements with these unions.

Maintained Liquidity Position and Reduced Near-term Debt Amortizations

As of December 31, 2007, we had cash, cash equivalents and investments totaling $3 billion, of which $2.53 billion was unrestricted. Investments include $353 million of auction rate securities that are classified as noncurrent assets on our balance sheet.

In March 2007, we completed a $1.6 billion debt refinancing, which we used to extinguish three separate debt obligations: a $1.25 billion senior secured credit facility, $325 million of unsecured debt in the form of pre-paid miles and a $19 million secured credit facility. The refinancing improves liquidity by reducing debt amortization payments until 2014 and lowering near-term interest expense.

Fleet

In October 2007, US Airways entered into an agreement with Airbus S.A.S for the firm order of 60 A320 family aircraft, which will be used to replace older Boeing 737 aircraft in our fleet. In addition, as part of that same order, we announced plans to add 32 widebody aircraft to our fleet, which include ten Airbus A330-200 aircraft and 22 Airbus A350-XWB aircraft. We plan to use these aircraft for both replacements of older widebody aircraft in the fleet and to facilitate international growth. We subsequently modified our agreement with Airbus to add five additional A330-200 aircraft to our existing order, and also agreed to terms with an aircraft lessor to lease two more A330-200 aircraft, bringing the total number of widebody aircraft we are set to take delivery of to 39.

During 2007, we also committed capital to invest in our product. We have a $50 million aircraft appearance initiative currently underway to refurbish the interiors of nearly 300 mainline aircraft, including common interior branding and all leather seats through out our coach cabins. To enhance the onboard experience we plan to upgrade domestic meals and beverage selections, as well as our transatlantic Envoy product.

Revenue Pricing Environment

The revenue environment remained strong during 2007, as our mainline passenger revenue per available seat mile (“PRASM”) was 10.73 cents, a 3.7% improvement as compared to PRASM in 2006 of 10.35 cents. This improvement in mainline PRASM was driven by: (1) reductions in industry capacity and continued capacity discipline, which has better matched supply with passenger demand; (2) a rational industry pricing environment; (3) industry-wide fare increases; and (4) continued rationalization of our route network that eliminated capacity on our weakest routes.

Cost Control

During 2007, our mainline cost per available seat mile (“CASM”) increased 3.1% to 11.30 cents from 10.96 cents in 2006. The increase was largely due to higher costs associated with the implementation of our operational improvement plan to improve reliability and the impact on costs of our continued reduction in capacity, which decreased 1.5% year over year. See “US Airways Group’s Results of Operations” below for analysis related to CASM. While up year over year, we believe our mainline CASM will remain competitive with the low cost carriers and among the lowest of the traditional legacy carriers.

We remain committed to maintaining a low cost structure, which we believe is necessary to compete effectively with other airlines and in an industry whose economic prospects are heavily dependent upon two variables it cannot control: the health of the economy and the price of fuel. We will continue to exercise tight cost controls and minimize unnecessary capital expenditures to drive down expenses.

First Quarter 2008 Outlook

As we begin 2008, the airline industry appears to be headed for another challenging period due to extremely high fuel prices and a potential economic slowdown. Current fuel prices remain high by historical standards. Significant increases in fuel price can materially and adversely affect our operating costs. We estimate that a one cent per gallon increase in fuel prices results in a $16 million increase in annual expense. A softening economy makes realizing increases in yield difficult.

In this environment, we currently expect to post a loss for the first quarter of 2008. In the event this environment continues through 2008, we believe we are well positioned due to our current cash position and the debt restructurings completed over the past two years.

Customer Service

We are committed to building a successful combined airline by taking care of our customers. We believe that our focus on excellent customer service in every aspect of our operations, including personnel, flight equipment, inflight and ancillary amenities, on-time performance, flight completion ratios and baggage handling, will strengthen customer loyalty and attract new customers.

We faced major operational challenges during the first half of 2007 resulting from adverse weather conditions in the northeast, heavy air traffic congestion in many of our hubs and difficulties associated with the migration to a single reservation system in early March 2007. All of these factors contributed to a difficult operating environment. During 2007, we implemented several initiatives to improve operational performance as follows:


• We hired approximately 1,000 new employees system-wide to boost airport customer service.

• Starting with the June 1, 2007 schedule, we lengthened the operating day at our hubs, lowered utilization, and increased the number of designated spare aircraft in order to ensure operational reliability.

• We established Passenger Operations Control (POC) centers at our Philadelphia and Charlotte hubs and at Reagan National airport. These POC centers monitor all inbound flight activity and identify customers who are on flights that for whatever reason (weather, air traffic congestion, etc.) might miss their connecting flights. The POC center professionals interact closely with the airline’s System Support Center to rebook passengers who may misconnect even before the inbound flight lands.

• We announced in the third quarter of 2007 the appointment of Robert Isom as the new Chief Operating Officer to head up the airline’s operations including flight operations, inflight services, maintenance and engineering, airport customer service, reservations, and cargo. Mr. Isom has over ten years of airline experience at Northwest Airlines, Inc. and AWA.

The implementation of our initiatives resulted in an improved trend in operational performance since the second quarter of 2007. In the fourth quarter of 2007, our on-time performance improved to 76.9% as compared to 64.3% in the second quarter of 2007. In the month of December 2007, our on-time performance was ranked first amongst the ten largest U.S. airlines. Our rate of customer complaints filed with the DOT per 100,000 passengers improved, decreasing to 2.27 in the fourth quarter of 2007 from 3.64 in the second quarter of 2007. Our rate of mishandled baggage reports per 1,000 passengers was 7.28 in the fourth quarter of 2007, an improvement from 8.57 in the second quarter of 2007.

US Airways Group’s Results of Operations

The full years 2007 and 2006 include the consolidated results of US Airways Group and its subsidiaries. As noted above, the 2005 statement of operations presented includes the consolidated results of America West Holdings for the 269 days through September 27, 2005, the effective date of the merger, and the consolidated results of the new US Airways Group for the 96 days from September 27, 2005 to December 31, 2005.

In 2007, we realized operating income of $533 million and income before income taxes of $434 million. Included in these results is $245 million of net gains associated with fuel hedging transactions. This includes $187 million of unrealized gains resulting from the application of mark-to-market accounting for changes in the fair value of fuel hedging instruments as well as $58 million of net realized gains on settled hedge transactions. We are required to use mark-to-market accounting as our existing fuel hedging instruments do not meet the requirements for hedge accounting established by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” If these instruments had qualified for hedge accounting treatment, any unrealized gains or losses, including the $187 million discussed above, would have been deferred in other comprehensive income, a component of stockholders’ equity, until the jet fuel is purchased and the underlying fuel hedging instrument is settled. Given the market volatility of jet fuel, the fair value of these fuel hedging instruments is expected to change until settled. Operating results in the 2007 period also include $99 million of net special charges due to merger related transition expenses, as well as a $99 million charge for an increase to long-term disability obligations for US Airways’ pilots as a result of a change in the FAA mandated retirement age for pilots from 60 to 65 and $5 million in charges related to our plans to reduce flying from Pittsburgh. These charges were offset by $7 million in tax credits due to an IRS rule change allowing the Company to recover certain fuel usage tax amounts for years 2003-2006, $9 million of insurance settlement proceeds related to business interruption and property damages incurred as a result of Hurricane Katrina and a $5 million Piedmont pilot pension curtailment gain related to the FAA mandated pilot retirement age change discussed above.

Nonoperating expense in the 2007 period includes an $18 million write-off of debt issuance costs in connection with the refinancing of the $1.25 billion GE loan in March 2007 and $10 million in impairment losses on certain available for sale auction rate securities considered to be other than temporary, offset by a $17 million gain recognized on the sale of stock in ARINC Incorporated. The refinancing of the GE loan is discussed in more detail under “Liquidity and Capital Resources — Commitments.”

In 2006, we realized operating income of $558 million and income before income taxes and cumulative effect of change in accounting principle of $404 million. Included in these results is $79 million of net losses associated with fuel hedging transactions. This includes $70 million of unrealized losses resulting from the application of mark-to-market accounting for changes in the fair value of fuel hedging instruments as well as $9 million of net realized losses on settled hedge transactions. Operating results in the 2006 period also include $27 million of net special charges, consisting of $131 million of merger related transition expenses, offset by a $90 million credit related to the restructuring of the then existing Airbus aircraft order and $14 million of credits related to the settlement of certain bankruptcy-related claims.

Nonoperating expense in the 2006 period includes $6 million of expense related to prepayment penalties and $5 million in accelerated amortization of debt issuance costs in connection with the refinancing of the loan previously guaranteed by the ATSB and two loans previously provided to AWA by GECC, as well as $17 million in payments in connection with the inducement to convert $70 million of the 7% Senior Convertible Notes to common stock, a $2 million write off of debt issuance costs associated with those converted notes and $8 million of interest income earned by AWA on certain prior year federal income tax refunds.

In 2005, we realized operating losses of $217 million and a loss before income taxes and cumulative effect of change in accounting principle of $335 million. In 2005, America West Holdings changed its accounting policy for certain maintenance costs from the deferral method to the direct expense method as if that change occurred January 1, 2005. This resulted in a $202 million loss from the cumulative effect of a change in accounting principle, or $6.41 per common share. See Note 3, “Change in Accounting Policy for Maintenance Costs,” to the consolidated financial statements in Item 8A of this report.

Included in the 2005 results is $75 million of net gains associated with fuel hedging transactions. This includes $71 million of net realized gains on settled hedge transactions as well as $4 million of unrealized gains resulting from the application of mark-to-market accounting for changes in the fair value of fuel hedging instruments. Operating results in the 2005 period also include $121 million of special charges, including $28 million of merger related transition expenses, a $27 million loss on the sale-leaseback of six Boeing 737-300 aircraft and two Boeing 757 aircraft, $7 million of power by the hour program penalties associated with the return of certain leased aircraft, $1 million of severance payments for terminated employees resulting from the merger, a $1 million charge related to certain aircraft removed from service and a $50 million charge related to an amended Airbus purchase agreement, along with the write off of $7 million in capitalized interest. The Airbus restructuring fee was paid by means of set-off against existing equipment purchase deposits held by Airbus.

Nonoperating expense in the 2005 period includes $8 million of expenses related to the write-off of the unamortized value of the ATSB warrants upon their repurchase in October 2005 and an aggregate $2 million write off of debt issuance costs associated with the exchange of the 7.25% Senior Exchangeable Notes due 2023 and retirement of a portion of the loan formerly guaranteed by the ATSB.

As of December 31, 2007, we have approximately $761 million of gross net operating loss carryforwards (“NOL”) to reduce future federal taxable income. Of this amount, approximately $649 million is available to reduce federal taxable income in the calendar year 2008. Our deferred tax asset, which includes the $649 million of NOL discussed above, has been subject to a full valuation allowance.

For the year ended December 31, 2007, we utilized NOL to reduce our income tax obligation. Utilization of this NOL results in a corresponding decrease in the valuation allowance. In accordance with SFAS No. 109, “Accounting for Income Taxes,” as this valuation allowance was established through the recognition of tax expense, the decrease in valuation allowance offsets our tax provision dollar for dollar. We recognized $7 million of non-cash state income tax expense for the year ended December 31, 2007, as we used NOL that was generated by US Airways prior to the merger. In accordance with SFAS No. 109, as this was acquired NOL, the decrease in the valuation allowance associated with this NOL reduced goodwill instead of the provision for income taxes. At December 31, 2007, the remaining federal valuation allowance is $32 million, all of which was established through the recognition of tax expense. In addition, we have $37 million and $4 million, respectively, of unrealized federal and state tax benefit related to amounts recorded in other comprehensive income. At December 31, 2007, the remaining state valuation allowance is $45 million, of which $21 million was established through the recognition of tax expense and $24 million is associated with acquired NOL.

For the year ended December 31, 2006, we recognized $85 million of non-cash income tax expense, as we utilized NOL that was generated by US Airways prior to the merger. In accordance with SFAS No. 109, as this valuation allowance was established through the recognition of tax expense, the decrease in valuation allowance offsets our tax provision dollar for dollar. We also recorded Alternative Minimum Tax liability (“AMT”) tax expense of $10 million. In most cases, the recognition of AMT does not result in tax expense. However, as discussed above, since our NOL was subject to a full valuation allowance, any liability for AMT is recorded as tax expense. We also recorded $2 million of state income tax provision in 2006 related to certain states where NOL was not available to be used.

For the year ended December 31, 2005, we did not record an income tax benefit and recorded a full valuation allowance on any future tax benefits generated during that period as we had yet to achieve several consecutive quarters of profitable results coupled with an expectation of continued profitability.

The table below sets forth our selected mainline operating data. The 2005 full year operating statistics, which consist of 269 days of AWA results and 96 days of consolidated US Airways Group results, do not provide a meaningful comparison and have been omitted.

2007 Compared With 2006

Total operating revenues for 2007 were $11.7 billion as compared to $11.56 billion in 2006. Mainline passenger revenues were $8.14 billion in 2007, as compared to $7.97 billion in 2006. RPMs increased 0.9% as mainline capacity, as measured by ASMs, decreased 1.5%, resulting in a 2.0 point increase in load factor to 80.8%. Passenger yield increased 1.2% to 13.28 cents in 2007 from 13.13 cents in 2006. PRASM increased 3.7% to 10.73 cents in 2007 from 10.35 cents in 2006. The increases in yield and PRASM are due principally to the strong revenue environment in 2007 resulting from reductions in industry capacity and continued capacity and pricing discipline, industry wide fare increases during the 2007 period and higher passenger demand.

Express passenger revenues were $2.7 billion for 2007, a decrease of $46 million from the 2006 period. Express capacity, as measured by ASMs, decreased 5.0% in the 2007 period, due primarily to planned reductions in Express flying during 2007. Express RPMs decreased by 2.6% on lower capacity resulting in a 1.8 point increase in load factor to 73.0%. Passenger yield increased by 1% to 26.12 cents in 2007 from 25.86 cents in 2006.

Cargo revenues were $138 million in 2007, a decrease of $15 million from the 2006 period due to decreases in domestic mail and freight volumes. Other revenues were $729 million in 2007, an increase of $35 million from the 2006 period. The increase in other revenues was primarily driven by an increase in revenue associated with higher fuel sales to pro-rate carriers through MSC.

Total operating expenses were $11.17 billion in 2007, an increase of $168 million or 1.5% compared to the 2006 period. Mainline operating expenses were $8.57 billion in the 2007 period, an increase of $133 million from the 2006 period, while ASMs decreased 1.5%. The 2007 period included net charges from special items of $99 million, primarily due to merger related transition expenses. This compares to net charges from special items of $27 million in 2006, which included $131 million of merger related transition expenses, offset by a $90 million credit related to the restructuring of the then existing Airbus aircraft order and $14 million of credits related to the settlement of certain bankruptcy-related claims. Mainline CASM increased 3.1% to 11.30 cents in 2007 from 10.96 cents in 2006. The period over period increase in CASM was driven principally by higher salaries and related costs ($212 million), due primarily to increased headcount associated with our operational improvement plan and a $99 million charge to increase our obligation for long-term disability as a result of a change in the FAA mandated retirement age for certain pilots, and aircraft fuel costs ($112 million), due to a 5.8% increase in the average price per gallon of fuel in 2007. These increases were offset in part by gains on fuel hedging instruments ($245 million) in the 2007 period as compared to losses in the 2006 period ($79 million).

• Aircraft fuel and related taxes per ASM increased 6% due primarily to a 5.8% increase in the average price per gallon of fuel to $2.20 in 2007 from $2.08 in 2006.

• Loss (gain) on fuel hedging instruments, net per ASM fluctuated from a loss of 0.10 cents in 2006 to a gain of 0.32 cents in 2007 as a result of a period over period increase in the volume of barrels hedged during a period in which the fair market value of the costless collar transactions increased.

• Salaries and related costs per ASM increased 11.8% due to a $99 million charge for an increase to long-term disability obligations for US Airways’ pilots as a result of a change in the FAA mandated retirement age for pilots from 60 to 65 as well as a period over period increase in headcount, principally in fleet and passenger service employees as part of our initiative to improve operational performance, and increases in employee benefits as a result of higher medical claims due to general inflationary cost increases.

• Aircraft maintenance expense per ASM increased 10.8% due principally to an increase in the number of overhauls performed on engines not subject to power by the hour maintenance agreements as well as an increase in the volume of seat overhauls and thrust reverser repairs in the 2007 period compared to the 2006 period.

• Depreciation and amortization per ASM increased 9.9% due to an increase in capital expenditures in 2007, specifically the acquisition of Embraer 190 aircraft and equipment to support flight operations.

Total Express expenses increased 1.4% in the 2007 period to $2.59 billion from $2.56 billion in the 2006 period, as other Express operating expenses increased $34 million. Fuel costs remained consistent period over period as the average fuel price per gallon increased 4.2% from $2.14 in the 2006 period to $2.23 in the 2007 period, which was offset by a 4% decrease in gallons consumed as block hours were down 6.2% in the 2007 period due to planned reductions in Express flying. The increase in other Express operating expenses is a result of higher rates paid under certain capacity purchase agreements due to contractually scheduled rate changes.

We had net nonoperating expense of $99 million in 2007 as compared to $154 million in 2006. Interest income increased $19 million to $172 million in 2007 due to higher average cash balances and higher average rates of return on investments. Interest expense decreased $22 million to $273 million due to the full year effect in 2007 of refinancing the loan formerly guaranteed by the ATSB at lower average interest rates in March 2006, as well as the refinancing of the GE loan at lower average interest rates and the repayment of the Barclays Bank of Delaware prepaid miles loan in March 2007.

The 2007 period includes other nonoperating income of $2 million primarily related to the $18 million write off of debt issuance costs in connection with the refinancing of the GE loan in March 2007 as well as a $10 million impairment on auction rate securities considered to be other than temporary, offset by a $17 million gain on the sale of stock in ARINC Incorporated and $7 million in foreign currency gains related to sales transactions denominated in foreign currencies. The 2006 period includes $6 million of nonoperating expense related to prepayment penalties and $5 million in accelerated amortization of debt issuance costs in connection with the refinancing of the loan formerly guaranteed by the ATSB and two loans previously provided to AWA by GECC as well as $17 million in payments in connection with the inducement to convert $70 million of the 7% Senior Convertible Notes to common stock and a $2 million write off of debt issuance costs associated with those converted notes, offset by $11 million of derivative gains attributable to stock options in Sabre and warrants in a number of companies.
MANAGEMENT DISCUSSION FOR LATEST QUARTER

Total operating revenues for the three months ended March 31, 2008 were $2.84 billion as compared to $2.73 billion for the 2007 period. Mainline passenger revenues were $1.95 billion in the first quarter of 2008, as compared to $1.91 billion for the 2007 period.

RPMs increased 0.5% as mainline capacity, as measured by ASMs, decreased 1.2%, resulting in a 1.3 point increase in load factor to 79%. Passenger yield increased 2% to 13.48 cents in the first quarter of 2008 from 13.22 cents in the first quarter of 2007. PRASM increased 3.7% to 10.65 cents in the first quarter of 2008 from 10.27 cents in the first quarter of 2007. Despite reports of a softening economy, yield and PRASM increased in the first quarter of 2008 due principally to continued strong passenger demand, continued capacity and pricing discipline and fare increases in certain markets during the 2008 period.
Express passenger revenues were $657 million for the first quarter of 2008, an increase of $48 million from the 2007 period. Express capacity, as measured by ASMs, increased 4.4% in the first quarter of 2008. Express RPMs increased by 4.3% on higher capacity resulting in a 0.1 point decrease in load factor to 69%. Passenger yield increased by 3.5% to 26.46 cents in the first quarter of 2008 from 25.57 cents in the first quarter of 2007. PRASM increased 3.4% to 18.27 cents in the first quarter of 2008 from 17.66 cents in the first quarter of 2007. Increases in Express yield and PRASM are a result of the same industry conditions impacting our mainline operations discussed above.
Cargo revenues were $36 million for the first quarter of 2008, consistent with the first quarter of 2007. Other revenues were $194 million for the first quarter of 2008, an increase of $14 million from the 2007 period due to an increase in revenues associated with our frequent traveler program.

Total operating expenses were $3.04 billion in the first quarter of 2008, an increase of $420 million or 16% compared to the 2007 period. Mainline operating expenses were $2.3 billion in the first quarter of 2008, an increase of $306 million or 15.3% from the 2007 period, while ASMs decreased 1.2%. Mainline CASM increased 16.7% to 12.56 cents in the first quarter of 2008 from 10.76 cents in the first quarter of 2007. The period over period increase in CASM was driven principally by increases in aircraft fuel costs ($273 million), aircraft maintenance ($48 million) and salaries and related costs ($36 million). These increases were offset in part by an increase in the net gain on fuel hedging instruments ($63 million).

• Aircraft fuel and related taxes per ASM increased 51.3% due primarily to a 52.9% increase in the average price per gallon of fuel to $2.88 in 2008 from $1.88 in 2007.

• Gain on fuel hedging instruments, net per ASM increased from a gain of 0.29 cents in the first quarter of 2007 to a gain of 0.64 cents in the first quarter of 2008 as a result of a period over period increase in the fair market value of costless collar transactions.

• Salaries and related costs per ASM increased 8% due principally to an increase in employee benefit expenses as a result of higher medical claim costs due to general inflationary increases, and contractual rate increases among certain unionized employee groups as well as expenses associated with our operational improvement plan that commenced in the second quarter of 2007.

• Aircraft maintenance expense per ASM increased 30.2% due principally to increases in the number of engine and landing gear overhauls performed in the 2008 period as compared to the 2007 period.

• Other rent and landing fees expense per ASM increased 14.7% due primarily to reductions in annually determined rent credits received at certain airport stations as well as increases in rental rates at certain airport stations in the 2008 period as compared to the 2007 period.

• Depreciation and amortization expense per ASM increased 15.1% due primarily to an increase in depreciation of owned aircraft as a result of the acquisition of eight Embraer 190 aircraft subsequent to the first quarter of 2007 and three Embraer 190 aircraft in the first quarter of 2008.
Total Express expenses increased 18.3% in the first quarter of 2008 to $734 million from $620 million in the 2007 period, as Express fuel costs increased $96 million and other Express expenses increased $18 million. The average fuel price per gallon increased 59.4% from $1.82 in the 2007 period to $2.90 in the 2008 period. Other Express operating expenses increased as a result of a 4.4% increase in Express capacity.

We had net nonoperating expense of $40 million in the first quarter of 2008 as compared to $47 million in the first quarter of 2007. Interest income decreased $11 million in the 2008 period due to lower average investment balances and lower rates of return. Interest expense, net decreased $11 million due primarily the repayment of the Barclays Bank of Delaware prepaid miles loan in March 2007 as well as reductions in average interest rates associated with variable rate debt as compared to the 2007 period. The 2008 period includes net other nonoperating expense of $9 million primarily related to $13 million in impairment losses on certain available for sale auction rate securities considered to be other than temporary as well as a $2 million write-off of debt discount and debt issuance costs in connection with the refinancing of certain aircraft equipment notes, offset in part by $8 million in gains on forgiveness of debt. Net other nonoperating expense in the 2007 period includes an $18 million write off of debt issuance costs in connection with the refinancing of the GE loan in March 2007.
US Airways’ Results of Operations
On September 26, 2007, as part of the integration efforts following the merger of US Airways Group and America West Holdings in September 2005, AWA surrendered its FAA operating certificate. As a result, all mainline airline operations are now being conducted under US Airways’ FAA operating certificate. In connection with the combination of all mainline airline operations under one FAA operating certificate, US Airways Group contributed one hundred percent of its equity interest in America West Holdings to US Airways. As a result, America West Holdings and its wholly owned subsidiary AWA are now wholly owned subsidiaries of US Airways. In addition, AWA transferred substantially all of its assets and liabilities to US Airways. All off-balance sheet commitments of AWA were also transferred to US Airways. This transaction constituted a transfer of assets between entities under common control.
Transfers of assets between entities under common control are accounted for in a manner similar to the pooling of interests method of accounting. Under this method, the carrying amount of net assets recognized in the balance sheets of each combining entity are carried forward to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the contribution of shares. The accompanying management’s discussion and analysis of financial condition and results of operations in this quarterly report on Form 10-Q is presented as though the transfer had occurred at the beginning of the earliest period presented.
In the three months ended March 31, 2008, US Airways realized an operating loss of $193 million and a loss before income taxes of $224 million. Included in these results is $117 million of net gains associated with fuel hedging transactions. This includes $81 million of net realized gains on settled hedge transactions as well as $36 million of net unrealized gains resulting from the application of mark-to-market accounting for changes in the fair value of fuel hedging instruments. US Airways is required to use mark-to-market accounting as its existing fuel hedging instruments do not meet the requirements for hedge accounting established by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” If these instruments had qualified for hedge accounting treatment, any unrealized gains or losses, including the $36 million discussed above, would have been deferred in other comprehensive income, a component of stockholder’s equity, until the jet fuel is purchased and the underlying fuel hedging instrument is settled. Given the market volatility of jet fuel, the fair value of these fuel hedging instruments is expected to change until settled. The first quarter of 2008 operating results also include $26 million of net special charges due to merger related transition expenses. Nonoperating expense in the 2008 period includes $13 million in impairment losses on certain available for sale auction rate securities considered to be other than temporary as well as a $2 million write-off of debt discount and debt issuance costs in connection with the refinancing of certain aircraft equipment notes, offset by $8 million in gains on forgiveness of debt.
In the three months ended March 31, 2007, US Airways realized operating income of $130 million and income before income taxes of $107 million. Included in these results is $54 million of net gains associated with fuel hedging transactions. This includes $90 million of net unrealized gains resulting from the application of mark-to-market accounting for changes in the fair value of fuel hedging instruments, offset by $36 million of net realized losses on settled hedge transactions. The first quarter of 2007 operating results also include $39 million of net special charges due to merger related transition expenses.
At December 31, 2007, US Airways had approximately $761 million of gross net operating loss carryforwards (“NOL”) to reduce future federal taxable income. Of this amount, approximately $649 million was available to reduce federal taxable income in the calendar year 2008. The NOL expires during the years 2022 through 2025. US Airways’ net deferred tax asset, which includes the $649 million of NOL discussed above, has been subject to a full valuation allowance. US Airways also had approximately $60 million of tax affected state NOL at December 31, 2007.
US Airways would expect to post a loss for the full year 2008, presuming the present industry environment continues, including the current fuel curve and current industry capacity levels, and accordingly, has not recorded a tax provision in the first quarter of 2008.

US Airways recognized $3 million of income tax expense for the three months ended March 31, 2007. This included $1 million of non-cash tax expense as US Airways utilized NOL that was generated prior to the merger. In accordance with SFAS No. 109, as this was acquired NOL, the decrease in the valuation allowance associated with this NOL reduced goodwill instead of the provision for income taxes. US Airways recorded AMT expense of $1 million for the three months ended March 31, 2007. In most cases the recognition of AMT does not result in tax expense. However, because US Airways’ net deferred tax asset is subject to a full valuation allowance, any liability for AMT is recorded as tax expense. For the three months ended March 31, 2007, US Airways also recorded $1 million of state income tax expense related to certain states where NOL was not available or limited.

CONF CALL

Elise Eberwein

Thank you, Peter and good morning, everyone. Thanks for joining us for our first quarter 2008 earnings call. With us in the room today in Tempe is Doug Parker, our Chairman and CEO; Scott Kirby, our President; Robert Isom, our Chief Operating Officer; Derek Kerr, our Chief Financial Officer; Janet Dillon, General Counsel; and our manager of -- excuse me, Director of Investor Relations, Dan Cravens.

As we usually do, we are going to start this morning’s call with Doug. He’ll provide general comments on our results today and provide an industry overview. Derek will then take us through detail on the quarter, including our cost structure and current liquidity. Scott then will follow with commentary on the revenue environment, performance in the quarter, and also provide an update on our integration. And then after we hear from those comments, we’ll open the call for questions and lastly, we’ll have questions from the media after we take questions from the analyst community.

Before we begin, we must state that today’s call contains forward-looking statements, including statements concerning future fuel prices and our future financial performance. These statements represent our predictions and expectations as to future events but numerous risks and uncertainties could cause actual results to differ materially from those projected. Information about some of these risks and uncertainties can be found in our earnings press release, which we issued this morning, our Form 10-Q for the quarter ended March 31, 2008, and other SEC filings on the company.

In addition, we will be discussing certain non-GAAP financial measures this morning, such as net loss and CASM excluding unusual items. A reconciliation of those numbers to GAAP financial measures is included in the earnings release and that can be found on our website at usairways.com under the investor relations tab.

Lastly, a webcast of this call is available on our website, usairways.com, and that will be archived on the website for one month and the information that we are giving you on the call is as of today’s date and we undertake no obligation to update the information subsequently.

That’s it. At this point, I will turn it over to Doug. Thanks again for joining us this morning.

W. Douglas Parker

Thanks, Elise. Thanks to all of you for being on. As you have now read, we have reported a first quarter loss of $236 million. That was driven by higher oil prices. If jet fuel had just stayed constant at where it was in the first quarter of 2007, our fuel expenses would have been $260 million lower.

Oil is causing significant financial turmoil and the need for action in our industry and we’ll talk a good bit about that, both in our comments and I am sure in the questions. But I want to begin by pointing out the incredible operational turnaround that our team has accomplished, which is evidenced in this quarter’s performance.

For the quarter, US Airways had on-time performance of over 73%. That’s about 16 points higher than our performance in the same quarter of ’07 and that performance is not just improved versus our own last year but it is industry leading. Our first quarter on-time performance is about seven or eight points higher than the industry average and we are highly confident that we’ll be number one among the big six airlines in on-time performance when the DOT releases the industry’s first quarter results next week.

Those of you who have been following US Airways know how an important an accomplishment that is, to go from last in on-time performance last spring and summer to first so far in 2008 is a phenomenal achievement and I want to thank Scott Kirby, Robert Isom and the rest of the operations leadership team, along with our 35,000 hard-working employees who really made this happen.

Based on the feedback I’ve received from our customers lately, I know they appreciate it as well so thanks to all of you so much.

On the financial results, again our results are indicative of the financial turmoil that is affecting the industry. Oil prices have risen so high so quickly, the shockwaves have been dramatic. We’ve seen large losses at almost all carriers, bankruptcies and bankruptcies that have quickly become liquidations, in many cases, and liquidity concerns about larger airlines as we look forward.

Fortunately, US Airways is prepared for this environment and we have significant cash on hand. We recently improved our credit card agreement. We have debt agreements that have minimal debt payments through 2013 and no financial covenants other than a minimum cash balance to us. We’ve done a nice job of keeping capacity in check and we are running a great operation for our customers.

As we go forward, we plan to do more. We are going to further reduce capacity. We’ll accelerate our a la carte pricing program. We are looking to modify our pricing structure and reducing our capital expenditures, and Derek and Scott will talk more about all those things.

One of the things we also do is investigate consolidation opportunities. I obviously can’t comment much on specific consolidation speculation so I will say what I can say now, and that is we’ve been a long-time proponent of industry consolidation. We believe the industry is far too fragmented and we also believe that a healthier, less fragmented industry would be in the best interest of our industry shareholders, customers, and employees.

To that end, we are supportive of the consolidation efforts that have begun and we will continue as always to investigate any opportunities that might be in the best interest of US Airways employees, customers, and shareholder.

In some way all this -- we think the financial turmoil that we are in, while none of us like to see this level of losses, the turmoil that we are in actually provides an opportunity for our industry and particularly for US Airways. We have been encouraged by some of the comments and actions of our competitors recently and we are hopeful this has been a wake-up call that was needed to finally force all of us to treat this industry as a business that much generate adequate returns on capital. The capital markets seem to be enforcing that discipline upon us and we think that’s good.

One of our competitors was quoted recently as rightfully noting that there is no playbook for this environment. To that we think thank goodness. Those old plays never worked. We keep running them anyway just to stay in the game. This is an opportunity for a new set of plays that focuses on doing what’s right for the long-term in our business. We at US Airways welcome that environment. It’s an environment that we perform well in and one that we believe we are well-positioned to manage through.

So with that said, I will turn it over to Derek and then Scott, and we’ll take questions after.

Derek J. Kerr

Thanks, Doug. We filed our first quarter 10-Q this morning and in that Q, as Doug said, we reported a net loss of $236 million, or a loss of $2.50 per diluted share, which compares to a net profit of $66 million, or $0.70 per share a year ago. When you exclude the special items, our net loss for the first quarter was $239 million, or a loss of $2.60 per diluted share versus a net profit of $34 million, or $0.37 per diluted share in the first quarter of last year.

The company’s first quarter 2008 results include special items which net to an expense of $3 million. The major items on the expense side are $26 million of merger related transition expenses, a $13 million impairment loss considered to be other than temporary on available for sale auction rate securities, which I’ll talk a little bit about later, and a $2 million write-off of debt discount and debt issuance costs in connection with the refinancing of certain aircraft equipment notes.

These expenses were offset in part by a $36 million non-cash credit for unrealized net gains related to airlines outstanding fuel hedge contracts and an $8 million gain on forgiveness of debt.

For the quarter, total capacity was 21.9 billion ASMs, down 0.3% from 2007. On the main line side, it was 18.3 billion ASMs, down 1.2%. Express capacity was up 4.4% to 3.6 billion ASMs.

As a result of the record high fuel prices, we have once again taken steps to reduce our capacity in the second half of the year. Reductions were made through a combination of lower utilization flying and returning three more aircraft to leasers as leases expire in the fourth quarter. There’s now a total of six aircraft, three more than what we had previously announced and most of this will have a bigger impact on 2009; since it will come out in the fourth quarter, it will have an impact on the fourth quarter ASMs when I give out the guidance here in a little bit.

We now plan on ending the year with 355 aircraft. Throughout the year, we will continue to replace older aircraft with new fuel-efficient aircraft. This will continue over the next few years as we complete our fleet modernization.

In 2008, we now plan to return 22 aircraft during the year, four 757s and 18 737s, while adding 14 Embraer 190s and five A321 aircraft.

ASMs are now projected to be 74.4 billion for the year, which is down approximately 2% versus 2007. This breaks down by quarter at 19.4 billion in the second quarter, 19.5 billion in the third, and 17.4 billion in the fourth, which is 4% down in the fourth quarter versus 2007.

Our operating revenues for the quarter were $2.8 billion, up 3.9% from the same period in 2007. Main line passenger revenues were $2 billion, up 2.5%. Main line revenue passenger miles were 14.5 billion, resulting in a load factor for the first quarter of 79%, which is 1.3 points higher than the same period last year.

Total RASM -- total passenger RASM was up 4.1% in 2008 to $0.119. For the same period, combined yields increased 2.7%, and Scott will go into the revenue environment a little bit more after I am done.

On the expense side, the airline’s operating expenses for the fourth quarter were $3 billion, up 16% compared to year-ago. Main line costs per ASM were $0.1256, up 16.7% versus last year. Record high fuel costs continue to be the story for us in the industry, including related taxes and realized gains in 2008 and realized losses in 2007 associated with our fuel hedging program. Our average main line fuel price for the quarter, excluding tax, was $2.60 per gallon versus $2.01 per gallon in the first quarter 2007.

As Doug said, if fuel prices remained constant at $2 per gallon, that first quarter fuel expense would have been $260 million lower.

For the first quarter, we had 50% of our fuel consumption hedged, which resulted in a realized gain of $81 million, or $0.28 per gallon. Fuel conservation continues to be a top priority for us in 2008. As I said previously, we are in the midst of an aircraft renewal program and we continue to implement where feasible, fuel conservation strategies such as arrival fuel, APU burn, and adding wing lifts to our 757 fleet.

For the full year, we are forecasting fuel price to remain high in the range of $3.00 or $3.05, and this is based on the April 15 forward curve. Our forecast breaks down by quarters as follows: $2.95 to $3.00 in the second quarter; $3.15 to $3.20 in the third; and $3.29 to $3.34 in the fourth.

In terms of fuel hedging, we continue to actively increase our hedge positions, even in this environment. We have 56% hedged in the second quarter, 41% in the third, and 26% in the fourth, for 44% overall for the year. The second quarter fuel hedges are capped at $28 per barrel, or $2.62 per gallon. The caps increase throughout the year and top out at $85 per barrel in the fourth quarter. The value of our unrealized fuel hedges in place at the end of the quarter was $157 million.

Excluding special items, fuel, unrealized gains and losses on fuel hedged instruments, our cost per ASM was $0.0857 in the quarter, an increase of 8.8% versus 2007.

Express operating cost per ASM ex fuel was $0.1347 for the quarter, down 0.5% versus 2007. As we have discussed previously, the increase in costs excluding fuel in the first quarter was driven by higher maintenance costs due to more engine overhauls performed in 2008 period versus 2007 and the continued implementation of our operational improvement plan.

We continue to take necessary steps to improve our operational reliability and have seen significant improvement, as evidenced by our on-time rankings during the quarter.

Moving forward, we expect non-fuel unit costs to increase at a much slower rate, despite the reduction in capacity.

In terms of CASM ex fuel guidance for the remainder of 2008, we are forecasting main line CASM ex fuel to be up 3% to 5% versus 2007. As we said on the last call, a big portion of that increase is due to the higher year-over-year engine overhaul volume throughout the year, as we project 72 overhauls versus 41 we had last year. This breaks down by quarter as follows: the second quarter should be up 1% to 3%, while the third and fourth quarters should be up 2% to 4%.

Express CASM for the full year should be down 1% to 3% in 2008.

The slight increase in the second quarter main line CASM from that previously announced is due to the increase in maintenance costs for returning the six aircraft in the fourth quarter. The increased cost of returning the aircraft is a short-term P&L hit but a positive long-term benefit for the company.

Now I’ll talk about the balance sheet. We finished the quarter with $2.8 billion of total cash and investments, of which $2.4 billion was unrestricted. The unrestricted balance does include $295 million of auction rate securities that currently are reflected as non-current assets on our balance sheet.

At current value, we have $411 million of auction rate securities. Of this, we have written down approximately $23 million as other than temporary and another $93 million as temporary. We do believe over time we will substantially recover the par value of these securities.

In April, we amended an agreement with Chase Bank, our credit card processor, to extend the term of the agreement, reduce pricing, and provide for the reduction of collateral requirements for the reserve account required to be maintained by the company. We have now capped in holdback in a percentage no greater than where we are today and have certain financial triggers that enable us to reduce it further.

As a result of the amendment, we expect $67 million to be released from our reserve account by the end of the month due to the reduced reserve requirements.

During the quarter, we were successful in accessing the difficult financial markets, completing three transactions. We entered into an agreement to finance 13 A321 aircraft. This means that all our single aisle aircraft deliveries are financed through mid 2009. We also completed a PDP financing for $80 million for our A320 family deliveries that are on firm order and we refinanced certain [inaudible] debt.

Our debt payments for the first quarter were approximately $45 million. For the remainder of the year, we only have $85 million of scheduled debt payments with most of our significant payments pushed out until 2014. Also, as you may recall, the only restrictive financial covenant in our bank loan is a minimum cash balance requirement of $1.25 billion of unrestricted cash. We have no fixed charge covenant to comply with.

Looking at CapEx, we have put in new restrictions on capital spending and are revising our outlook for 2008. We have reviewed all capital items, giving priority to projects that are mandatory and are in line with our operational and product improvement plan. And we have reduced our discretionary spending in 2008 by $75 million. We are currently forecasting total CapEx to be $360 million in 2008. This includes non-aircraft CapEx of $240 million and net aircraft CapEx including deliveries and pre-delivery payments of $120 million.

So in summary, high fuel prices continue to be a major concern for us and the industry going forward. Fortunately we have taken the steps to prepare for this environment. We have a strong balance sheet with significant cash on hand, minimal debt payments through 2013, and we have made significant progress on our operational improvement plan.

We still have work to do to drive down our unit costs and maintain our liquidity position. We know that watching capacity, reducing unnecessary capital spending, increasing our focus on cost discipline, and wisely investing in our airline is the way to do that.

With that, I will turn it over to Scott to go through the operation and revenue picture.

J. Scott Kirby

Thanks, Derek. The first quarter was a busy one for us. I’ll take a minute to talk briefly about our operational results and some labor highlights for the quarter, and then turn to the revenue environment.

Operationally we had our best quarter since the merger in 2005, with top three in on-time performance in all three months and overall we believe number one performance for the quarter across the industry.

I would like to thank all of our 35,000 employees for the truly remarkable operational turnaround that we have seen since just last summer. Additionally, we have made huge operational progress in Philadelphia, thanks to our new headquarters regional management team led by Susanne [Boda] and Bob [Siminelli]. Our Philadelphia employees had significantly great cooperation and help from the Mayor’s office and the Philadelphia Department of Aviation in Philadelphia.

For some specific statistics, our on-time arrival performance in Philadelphia improved by 16 points year over year. Our on-time departures improved 23 points year over year, and our mishandled baggage ratio declined by 30%.

In addition to the very strong operational results, we also had a very productive quarter with labor agreements, including signing a new ratified agreement with our mechanics, reaching a tentative agreement with our fleet service employees, and reaching a tentative agreement with our maintenance training instructors.

Turning to the revenue environment, during the first quarter we saw revenue similar to the fourth quarter with consolidated RASM up 4.1%. Despite the well-publicized concerns about the U.S. economy entering a recession, demand remained strong throughout the quarter.

Going forward, the demand environment continues to look robust and we see very little if any evidence of a macroeconomic slowdown impacting airline revenues. We expect April RASM to be roughly flat year over year due largely to the shift of Easter but currently expect May and June RASM to each be up in the 4% to 6% range.

Despite a still robust demand environment, however, 4% to 6% increases in RASM are simply not large enough to keep up with the stratospheric cost of fuel. While we are aggressively controlling all costs, there is simply not enough cost reduction opportunities to counteract the dramatic increase in fuel prices. Therefore, revenues have to go up for US Airways and all other airlines. The most straightforward approach for that is through capacity reductions and we are encouraged to see all airlines, including US Airways, pulling back their capacity plans.

But minor reductions in capacity alone can’t compensate for the dramatic increases in fuel prices and so we have begun implementing a la carte pricing initiatives that lets customers pay for the services that they desire, such as the new fee for a second bag and charging for premium seats. We expect the initiatives announced to date to generate over $100 million in annualized revenues and we are working to further expand and significantly increase the a la carte revenue streams over the coming months.

In addition to the a la carte initiative, fares simply must go up to cover the cost of jet fuel. Now the numerous fare increases that make headlines on legacy carrier structure fares are helpful in that regard, they only apply to a small percentage of the tickets purchased by customers since there usually lower fares available in the market that aren’t impacted by the structural fare increases.

To try to address the low-end of the fare structure where many more tickets are actually sold on a day-to-day basis, US Airways has cancelled all non-sale fares below certain price points based on length of haul. As pointed out in the press release as an example, in short-haul markets that are less than 500 miles, US Airways is no longer offering non-sale fares that are less than $69 one way. This is an effort on our part to not sell tickets at prices that can’t cover the costs of operating a flight and purchasing the fuel needed for the flight.

In conclusion, we are extremely pleased and grateful for the fantastic job our employees have done turning around the operation. Industry capacity discipline is encouraging. We will have to do more as an industry to generate revenues as long as fuel stays at these levels. US Airways is moving aggressively in that regard to raise fares commensurate with the increased cost of fuel and pursuing a la carte pricing initiatives.

With that, I’ll turn it back to Doug.

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