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AMERICA WEST HOLDINGS CORPORATION Building a Winning Airline by Taking Care of Our Customers

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AMERICA WEST HOLDINGS CORPORATION Building a Winning Airline by Taking Care of Our Customers AMERICA WEST HOLDINGS CORPORATION Building a winning airline by taking care of our customers. Annual Report 2003 www.americawest.com SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations Data” and “Consolidated Balance Sheet Data” as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 are derived from the audited consolidated financial statements of America West Holdings Corporation. The selected consolidated financial data should be read in conjunction with the consolidated financial statements for the respective periods, the related notes and the related reports of independent auditors. Year Ended December 31, 2003 2002 2001 2000 1999 (in thousands except per share amounts) Consolidated statements of operations data: Operating revenues $2,254,497 $2,047,116 $2,065,913 $2,344,354 $2,210,884 Operating expenses (a) 2,221,616 2,207,196 2,483,784 2,356,991 2,006,333 Operating income (loss) 32,881 (160,080) (417,871) (12,637) 204,551 Income (loss) before income taxes and cumulative effect of change in accounting principle (b) 57,534 (214,757) (324,387) 24,743 206,150 Income taxes (benefit) 114 (35,071) (74,536) 17,064 86,761 Income (loss) before cumulative effect of change in accounting principle 57,420 (179,686) (249,851) 7,679 119,389 Net income (loss) 57,420 (387,909) (249,851) 7,679 119,389 Earnings (loss) per share before cumulative effect of change in accounting principle: Basic 1.66 (5.33) (7.42) 0.22 3.17 Diluted 1.29 (5.33) (7.42) 0.22 3.03 Net income (loss) per share: Basic 1.66 (11.50) (7.42) 0.22 3.17 Diluted 1.29 (11.50) (7.42) 0.22 3.03 Shares used for computation: Basic 34,551 33,723 33,670 35,139 37,679 Diluted 52,675 33,723 33,670 35,688 39,432 Consolidated balance sheet data (at end of period): Total assets $1,626,912 $1,438,953 $1,469,218 $1,568,515 $1,507,154 Long-term debt, less current maturities 688,965 700,983 224,550 145,578 155,168 Total stockholders’ equity 138,516 68,178 420,363 667,073 714,169 (a) Includes $16.0 million of special charges in 2003 resulting from the elimination of America West Airline’s hub operations in Columbus, Ohio ($11.1 million), the reduction-in-force of certain management, professional and administrative employees ($2.3 million), the impairment of certain owned Boeing 737-200 aircraft that have been grounded ($2.6 million) offset by a $1.1 million reduction of special charges due to a revision of the estimated costs related to the early termination of certain aircraft leases and a $0.5 million reduction related to the revision of estimated costs associated with the sale and leaseback of certain aircraft. The 2002 period includes $19.0 million of special charges primarily related to the restructuring completed on January 18, 2002, resulting from the events of September 11, 2001. The 2001 period includes $141.6 million of special charges related to the impairment of reorganization value in excess of amounts allocable to identifiable assets (“ERV”) and owned aircraft and engines, as well as the earlier-than-planned return of seven leased aircraft and severance expenses following a reduction- in-force in 2001. See Note 12, “Special Charges” in Notes to Consolidated Financial Statements. (b Includes federal government assistance of $81.3 million recognized in 2003 as nonoperating income under the Emergency Wartime Supplemental Appropriations Act and $8.5 million and $108.2 million recognized in 2002 and 2001, respectively, as nonoperating income under the Air Transportation Safety and System Stabilization Act. See Note 13, “Nonoperating Income (Expenses) - Other, Net” in Notes to Consolidated Financial Statements. 1 CHAIRMAN’S MESSAGE TO SHAREHOLDERS We are extremely proud of what we’ve accomplished over the past few years, but 2003 was a turning point for America West, marking our transformation from a struggling legacy airline to a nimble, profitable low-cost, low-fare carrier. While most of the aviation industry we are not finished. struggled through yet another challenging year, the combined efforts of our extraordinary people enabled us to end the year by reporting, on a year-over-year basis, our fifth consecutive quarter of improved earnings and our third consecutive quarter of profitability. Our year- end cash position was the highest in our Company’s history. These results placed us among an elite group of airlines, and we enter 2004 with tremendous momentum and great excitement about our future. Comprehensive Transformation Not long ago, we benchmarked our performance against the major legacy carriers. Over the last few years, however, we recognized that the low-cost, low-fare sector was rapidly attracting consumer demand and growing at a very brisk pace. Low-cost carriers, or LCCs, now account for nearly 25 percent of domestic marketshare. This trend caused us to take a hard look at our business model, carefully analyze our core customer base and candidly assess our strengths and weaknesses as well as industry opportunities and threats. We concluded that transforming America West to be strategically positioned more like a low-cost carrier and less like the legacy carriers would best serve our customers, and ultimately, our employees and stockholders. Our success in 2003 reflects this transformation. While 2003 was a breakthrough year, the America West transformation began more than three years ago when we started looking at every aspect of our airline. This included considering new ways of running our business and making changes that made sense to our customers. With a company-wide self-improvement program that began in the summer of 2000, America West employees have achieved widespread progress throughout our airline operations while maintaining an excellent safety record. We’ve steadily improved our industry rankings for on-time performance, schedule completion, 2 $57.4 million or $1.29 diluted earnings per share vs. a net loss of $387.9 million or $11.50 per share for the prior year. These results included nonoperating gains of $81.3 million related to federal government assistance and $13.1 from the sale of two investments, but even without these and other nonoperating gains and expenses, the Company reported operating income of $32.9 million. • For the full year 2003, operating revenues increased 10.1 percent to $2.3 billion. Revenue Passenger Miles (RPMs) increased 7.1 percent to 21.3 billion on increased capacity of 3.3 percent. This resulted in an increase in passenger load factor of 2.8 points to a record 76.4 percent. • On a unit basis, revenue per available seat mile (RASM) increased 6.2 percent year-over- year versus the industry RASM, W. Douglas Parker which only grew 2.8 percent from Chairman, President and Chief Executive Officer, America West Holdings Corporation the prior year. The increase in RASM was generated despite a 5.9 baggage handling and customer and overhauled our pricing structure, percent increase in average stage complaints. In January 2002, we also we’ve widened our strategic cost length. Revenue per passenger completed a financial restructuring advantage. America West has always mile, or yield, increased 2.3 that laid the foundation for our return been a cost-conscious airline and 2003 percent during 2003. to profitability. was no exception. We reduced our unit Our liquidity benefited from On the marketing front, the costs by over two percent by making improved operating cash flow and a groundbreaking, business-friendly fare difficult, but necessary decisions such successful $86 million public structure that America West introduced as closing an unprofitable hub in convertible debt offering and the $81 in the spring of 2002 has proven to be a Columbus, Ohio and aggressively million federal government security major competitive advantage. Consumer eliminating overhead throughout rebate. At year-end, the Company had response has been overwhelmingly our system. record total cash and investments of favorable to our simplified fare $629.5 million, of which $516.7 million structure, which reduces business fares Return to Profitability was unrestricted. 50 to 75 percent below some of our While commercial aviation was competitors’ fares while eliminating the mired in a third consecutive year of The Right Airport at the Right Price Saturday night stay requirements that multi-billion dollar losses, America Because consumer response was so have frustrated customers for years. By West engineered a return to operating favorable to our simplified fare attracting more business passengers, this profitability in 2003. Highlights of our structure, we began to study other fare structure has also allowed us to 2003 earnings and revenue performance markets where the expansion of reduce our reliance on very low- include: America West’s full service, low-fare yielding, off-tariff distribution channels. • For the full year 2003, the product could create value. Nonstop As we’ve improved our operations Company reported net income of transcontinental flights represented one 3 of the last bastions of high-fare, the right product provides us with an Finder search engine, which helps high-density, point-to-point markets. advantage over our low-fare travelers find the best possible deal We chose to enter these markets in competitors and will continue to when booking a flight online. Also, we October 2003. attract new customers to America West. made a series of enhancements to We initiated nonstop flights that Other growth during 2003 focused our cargo operation, including a new link two of the most popular airports primarily on our Phoenix hub, where second-day delivery product with on the West Coast with two on the service was added between Phoenix restructured rates.
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