Low Cost Carriers

within an

Evolving Industry -

Growth and Challenge

With special thanks to:

Raymond James and Associates, Inc. (RJ&A) and

GCW Consulting

2

U.S. Airline Industry Earnings History and Projections

Source: RJ&A, SEC Filings, Forms 41, Carrier Reports

3

YearEnd 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E 2006E

LEGACY CARRIERSAMR Corporation* DEC 4.71$ 5.32$ 6.30$ 3.45$ 4.65$ (9.13)$ (12.97)$ (9.68)$ (5.57)$ (4.05)$ (0.43)$

47% 13% 18% -45% 35% NM NM NM NM NM NMContinental Airlines, Inc.* DEC 5.04$ 5.03$ 6.03$ 4.61$ 5.45$ (4.79)$ (4.52)$ (3.21)$ (3.87)$ (2.97)$ 0.97$

85% 0% 20% -24% 18% NM NM NM NM NM NMDelta Air Lines, Inc.* DEC 4.83$ 6.22$ 6.87$ 6.79$ 6.81$ (8.46)$ (7.89)$ (8.58)$ (16.28)$ (8.14)$ (1.89)$

45% 29% 10% -1% 0% NM NM NM NM NM NMNorthwest Airlines * DEC 5.71$ 5.29$ (1.81)$ 2.89$ 3.21$ (6.32)$ (5.71)$ (6.57)$ (8.25)$ (6.45)$ (0.84)$

10% -7% NM NM 11% NM NM NM NM NM NMUAL Corporation* DEC 7.68$ 9.97$ 10.50$ 10.06$ 2.38$ (33.23)$ (34.56)$ (17.64)$ (10.16)$ (6.62)$ (2.15)$

50% 30% 5% -4% -76% NM NM NM NM NM NMUS Airways Group, Inc.* DEC 2.33$ 6.18$ 5.60$ 0.50$ (2.33)$ (17.35)$ (15.56)$ (12.61)$ (10.87)$ (6.25)$ (3.00)$

324% 165% -9% -91% NM NM NM NM NM NM NM

LOW COST CARRIERSAirTran Holdings, Inc. DEC (0.76)$ (1.37)$ (0.13)$ ** 0.28$ ** 0.43$ ** 0.18$ ** 0.08$ ** 0.46$ ** 0.11$ 0.11$ 0.41$

NM NM NM NM 54% -58% -56% 475% -76% 0% 273%Frontier Airlines, Inc. MAR (0.82)$ (1.00)$ (1.30)$ 1.09$ 0.94$ 1.90$ 0.39$ (0.78)$ 0.45$ (0.75)$ 0.02$

NM NM NM NM -14% 102% -79% NM NM NM NMJetBlue Airways Corporation DEC NA NA NA NA (0.25)$ 0.16$ ** 0.56$ 0.86$ 0.43$ 0.18$ 0.30$

NM NM NM NM NM NM 250% 54% -50% -58% 67%Southwest Airlines Co. DEC 0.27$ 0.41$ 0.55$ 0.59$ 0.78$ 0.51$ 0.25$ 0.36$ 0.40$ 0.54$ 0.60$

13% 52% 34% 7% 32% -35% -51% 44% 11% 35% 11%

EVOLVING LOW COST CARRIERSFLYi, Inc.^ DEC 0.53$ 0.40$ 0.75$ 0.68$ 0.72$ 0.93$ 1.18$ 1.29$ (3.01)$ (3.81)$ UR

89% -25% 88% -9% 6% 29% 27% 9% NM UR URMidwest Air Group, Inc. DEC 1.51$ 1.74$ 2.51$ 2.71$ 0.23$ (1.42)$ (1.08)$ (0.88)$ (2.43)$ (1.41)$ UR

23% 15% 44% 8% -92% NM NM NM NM NM NM

* First Call Consensus Estimates^ Effective as of August 4, 2004, Atlantic Coast Airlines Holdings, Inc. announced that its name would be changed to FLYi, Inc.** EPS is on a proforma fully taxed basis.

U.S. Airline Industry Earnings History and Projections

LEGACY CARRIERS Year End 1996 2000 2002 2004 2005E 2006E

AMR Corporation DEC 4.71$ 4.65$ (12.97)$ (5.57)$ (4.05)$ (0.43)$ 47% 35% NM NM NM NM

Continental Airlines, Inc.* DEC 5.04$ 5.45$ (4.52)$ (3.87)$ (2.97)$ 0.97$ 85% 18% NM NM NM NM

Delta Airlines, Inc.* DEC 4.83$ 6.81$ (7.89)$ (16.28)$ (8.14)$ (1.89)$ 45% 0% NM NM NM NM

Northwest Airlines* DEC 5.71$ 3.21$ (5.71)$ (8.25)$ (6.45)$ (0.84)$ 10% 11% NM NM NM NM

UAL Corporation* DEC 7,368.00$ 2.38$ (34.56)$ (10.16)$ (6.62)$ (2.15)$ 50% -76% NM NM NM NM

US Airways Group, Inc.* DEC 2.33$ (2.33)$ (15.56)$ (10.87)$ (6.25)$ (3.00)$ 324% NM NM NM NM NM

LOW COST CARRIERS

AirTran Holdings, Inc. DEC (0.76)$ $ 0.43 ** $ 0.08 ** 0.11$ 0.11$ 0.41$ NM 54% -56% -76% 0% 273%

Frontier Airlines, Inc. MAR (0.82)$ 0.94 0.39 0.45 -0.75 0.02NM -14% -79% NM NM NM

JetBlue Airways Corporation DEC NA (0.25)$ 0.56$ 0.43$ 0.18$ 0.30$ NM NM 250% -50% -58% 67%

Southwest Airlines Co. DEC 0.27$ 0.78$ 0.25$ 0.40$ 0.54$ 0.60$ 13% 32% -51% 11% 35% 11%

EVOLVING LOW COST CARRIERS

FLYi, Inc. ^ DEC 0.53$ 0.72$ 1.18$ (3.01)$ (3.81)$ UR89% 6% 27% NM UR UR

Midwest Air Group, Inc. DEC 1.51$ 0.23$ (1.08)$ (2.43)$ (1.41)$ UR23% -92% NM NM NM NM

* First Call Consensus Estimates

^ Effective as of August 4, 2004, Atlantic Cost Airlines Holdings, inc. announced that its name would be changed to FLYi, Inc.

** EPS is on a proforma fully taxed basis.

4

Source: RJ&A, SEC Filings, Forms 41, Carrier Reports

-12.00%

-6.00%

0.00%

6.00%

12.00%

18.00%

OP

Ma

rgin

AA CO DL NW UA US Total

International Operations Remain Robust

SysIntlDom

Forms 41, Reported Profit and LossYear Ending 2004 3Q

5

1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3L C C s 1 6 . 8 % 1 7 . 6 % 1 8 . 5 % 2 0 . 3 % 2 1 . 2 % 2 3 . 6 %R e g i o n a l s 1 1 . 9 % 1 2 . 5 % 1 3 . 0 % 1 3 . 7 % 1 6 . 6 % 1 8 . 8 %L e g a c y 6 6 . 7 % 6 5 . 2 % 6 3 . 8 % 6 1 . 4 % 5 7 . 9 % 5 3 . 3 %O t h e r * 4 . 6 % 4 . 7 % 4 . 7 % 4 . 7 % 4 . 3 % 4 . 4 %

T o t a l D o m e s t i c P a x ( M M ) 5 9 8 . 8 6 2 4 . 6 6 4 9 . 3 6 0 6 . 1 5 9 4 . 3 6 0 2 . 5

* A i r l i n e s t h a t a r e n o t d i s t i n c t l y l e g a c y c a r r i e r s , r e g io n a ls a i r l i n e s , o r L C C s i n c l u d eA la s k a , M id w a y , M id w e s t , A l o h a , H a w a i i a n , a n d o t h e r s

U . S . L C C s C a p t u r e D o m e s t i c P a s s e n g e r S h a r e

S o u r c e s : D O T F o r m 4 1 D a t a , E c l a t C o n s u l t i n g , A v S t a t A s s o c i a t e s , a n d R J & A E s t i m a t e s

6

U.S. Dom estic Airline Industry – 2003 ($$)By M arket Segm ent

Dom estic Industry=$71.7 B illion

64.5%Legacy Carriers

$46.3 billion

17.0%

Low Cost

Carriers

$12.2 billion

17.1%

Regional

A irlines

$12.3 billion

1.4%

Charter A irlines$1.0 billion

Sources: SEC Filings, U.S. Department of Transportation, Companies,and RJ&A Estimates

PAX MARKET SHARE CAN OVERSTATE LCC PENETRATION

7

8

LCC Growth did not happen entirely by Accident

The American Express AirfareIndex

$0

$100

$200

$300

$400

$500

$600

$700

Jan-96

May-96

Sep-96

Jan-97

May-97

Sep-97

Jan-98

May-98

Sep-98

Jan-99

May-99

Sep-99

Jan-00

May-00

Sep-00

Jan-01

May-01

Sep-01

Jan-02

May-02

Sep-02

Jan-03

May-03

Sep-03

Jan-04

May-04

Sep-04

Lowest Discount Fare

- 27% from YTD October 1996 to YTDOctober 2004

- 4% from YTD October 2003 to YTDOctober 2004

$129 YTD October 1996

$324 in 1Q96

$509 in 1Q04

$579 in 1Q01

$94 YTD DEC 2004

Sources: American Express Business Travel Monitor and Harrell & Associates.

Non-Fuel Costs Have Stayed More Stable Than You Think

Total Operating Cost less Fuel Per ASM Domestic

0.00000

0.02000

0.04000

0.06000

0.08000

0.10000

0.12000

0.14000

0.16000

0.18000

0.20000

2001 1 2001 2 2001 3 2001 4 2002 1 2002 2 2002 3 2002 4 2003 1 2003 2 2003 3 2003 4 2004 1 2004 2 2004 3

Ce

nts

Pe

r A

SM

AAD

B6D

COD

DLD

F9D

FLD

HPD

NKD

NWD

TZD

UAD

USD

WND

9

Source: Forms 41, GCW Consulting

Highest Cost Carrier Twice as Expensive as Best LCC in Adjusted Stage Length Analysis

10

2Q04 CASM at 1000 mile Stage Length

6.2 6.8 7.48.1 8.2 8.8 9.1

10.3 10.9 11.0 11.612.2 12.6 13.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Co

st p

er A

SM

(ce

nts

)

Source: Unisys’ R2A Cost Calculator.

S ta g e L e n g th A d ju s te d U n it C o s t G a p E v e n L a rg e r F o r L C C s(C o m p a ra b le N a rro w b o d y A irc ra ft a t 1 0 0 0 -m ile S ta g e L e n g th )

1 1 .5 1 1 .8

6 .76 .1

0 .0

2 .0

4 .0

6 .0

8 .0

1 0 .0

1 2 .0

1 4 .0

2 Q 0 3 2 Q 0 4

Co

st

pe

r A

SM

(c

en

ts)

*C o s t p e r A S M is a w e ig h te d a ve ra g e b a s e d o n c a p a c ity

L e g a c y

C a rrie rs

L e g a c y

C a rrie rs L C C sL C C s

+ 7 5 %+ 8 8 %

S o u rc e s : U n is ys ’ R 2 A C o s t C a lc u la to r a n d F o rm 4 1 D a ta , R J & A

11

The GAP is closing very slowly.

PILOT AND OTHER LABOR COSTS AREIMPORTANT BUT NO PANACEA

YE 2Q 2004 LABOURCASM

INDEX-HP TOTALCASM

INDEX-HP

Legacy actual avg. 3.99 165 11.10 135Legacy with cuts 3.29 126 10.41 127WN 3.32 137 8.5 103LCC (avg.) 3.01 124 8.58 104FL 2.44 101 9.03 109HP 2.44 100 8.22 100B6 2.04 84 7.01 85

Source: GCW analysis based on DOT Form 41 data (year ending June 2004), Bankruptcycourt documents describing proposed US Airways and United labor costs proposals andpress releases describing the cost cutting program’s of other Legacy carriers.

12

Recently Legacy Carriers have tried to keep up with LCC capacity.

ASM Domestic Capacity Big 6 and 7 Low Cost Carriers

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2001 1 2001 2 2001 3 2001 4 2002 1 2002 2 2002 3 2002 4 2003 1 2003 2 2003 3 2003 4 2004 1 2004 2 2004 3

Millio

ns o

f A

SM

s

BIG 6 7 LCCs

13

Source: Form 41s, GCW Consulting

Thesis: They Have Not Done it in a Cost Minimizing WayLegacy Carrier Airplane Size Chart

Average Seats in U.S. Domestic Service The Big Six and Their Feeders

3rd Quarter 1995 to 2004

115

120

125

130

135

140

145

150

1995 3 1996 3 1997 3 1998 3 1999 3 2000 3 2001 3 2002 3 2003 3 2004 3

Source: Form 41s; GCW Consulting

14

Breathtaking Negative Impact on Infrastructure Financing from Reduced Aircraft Size

• Government Failure: Executive, Legislative, and Judicial.

• Market Failure: Fighting the Last War.

15

A typical Regional Jet imposes the same infrastructure costs but contributes $60 per passenger less than a typical mainline narrow-body.

XX RJ (LGA) vs. Spirit MD-80

Landing Fees 42,549 X $6.45 = $277.44 130,000 X $6.45 = $838.50

Excise Tax (7.5%) 4,411* X .075 = 330.85 11,800**X .075 = 885.00

PFC/Segment/($6.10) 27.4 X $6.10 = 167.14 118 X $6.10 = 719.80

$775.43 $2,443.30

RJ ShortFall = 1,667.87

Per RJ Pax = 60.87

*27.4 avg. onboard pax X 2003 avg. fare. Overstates contribution to the extent lower yielding connectionsare carried.

** Assumes 118 pax @ 100 per pax.

16

2 0 0 4 A 2 0 0 7 E * % C h a n g e

A i r T r a n 8 7 1 4 4 6 6 %F r o n t i e r 4 7 6 2 3 2 %J e t B l u e 6 9 1 6 1 1 3 3 %S o u t h w e s t 4 1 7 5 3 4 2 8 %T o t a l 6 2 0 9 0 1 4 5 %

* I n c lu d e s t h e e x e r c is e o f o p t io n s f o r a l l b u t F r o n t ie r

S o u r c e s : S E C F i l i n g s a n d C o m p a n y P r e s s R e l e a s e s ;

R J & A .

LCCs - Sharp Growth In Aircraft

17

123135 139

4

923

73

87

106

0102030405060708090

100110120130140150160170

2003 2004 2005E 2006E 2007E 2008ENu

mb

er

of

Air

cra

ft (

inc

lud

ing

op

tio

ns

)

Options

Firm

ASM Growth y/y: 22% 20% 28% 20%-30% 15%-25% 10%-25%

162

144

127

Source: Company presentation and RJ&A Forecast.

AirTran’s Fleet To Almost Double Over Next Four Years(Includes the exercise of options)

18

61 5

3 5

7

2 5

4 3

6 1

7 9

9 7

1 0 0

1 0 0

3 3

1 8 31 8 31 7 1

5 33 7

2 1

6 9 1 1 81 3 5

1 5 3

1 0 18 4

42

0

1 5

03 06 09 0

1 2 01 5 01 8 02 1 02 4 02 7 03 0 03 3 03 6 0

2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 E 2 0 0 6 E 2 0 0 7 E 2 0 0 8 E 2 0 0 9 E 2 0 1 0 E 2 0 1 1 E 2 0 1 2 E

E M B -1 9 0 O p tio n s

E M B -1 9 0

A 3 2 0 O p tio n s

A 3 2 0 F ir m O rd e r s

1 2 6

2 3 6

1 9 8

1 6 1

3 1 3

2 7 4

3 5 1

9 1

A S M G r o w th : 9 6 % 6 6 % 3 9 % 2 6 % 2 9 % 2 7 % 2 2 % 1 9 % 1 6 % 1 4 % 1 2 %

S o u r c e s : J e tB lu e A irw a y s C o rp o ra t io n v ia R J & A

JetBlue - Strong Growth in Aircraft to Drive Strong Capacity GrowthEnd of Year Cumulative Total Fleet

19

Southwest's Planned Fleet Growth

(Including Options)

435 457 482 488

1123

5297

417387375

0

100

200

300

400

500

600

700

2002A 2003A 2004A 2005E 2006E 2007E 2008E

# o

f A

ircr

aft

Options

Firm

446480

534

585

% Change: 3% 8% 7% 8% 11% 10%

Source: Company Press Release via RJ&A

20

Southwest Growth Moderate in Relative Terms

Southwest- Lowest CASM on a Stage Length Adjusted Basis(Ba sded on 2Q04 CASM Adjuste d for a 500-mile Stage Length )

7.69.1

10.2 10.311.4 11.7 11.8

14.2 14.8 14.9 15.1 15.3 15.316.3

0.0

2.0

4.06.0

8.0

10.0

12.014.0

16.0

18.0

Co

st p

er

AS

M (c

ents

)

Source: Unisys’ R2A Cost Calculator.

Cost advantage particularly compelling for Southwest.

21

Profile of Fuel Hedges Pro Forma Comparison Ex-Fuel Hedges Southwest utilizes financial derivative

instruments for both short-term and long-term time frames when it appears the Company can take advantage of market conditions

LUV’s average fuel price during 2004 was $26.00/ barrel while market average was $ 41.51 / barrel

Has a mixture of purchased call options, collar structures, and fixed price swap agreements in place to hedge against rising fuel prices

25%30%45%

65%

85%80%83%

60%

0%

20%

40%

60%

80%

100%

2002 2003 2004 2005 2006 2007 2008 2009

Southwest’s Average % Fuel Hedged

2004 PF 2004

Revenues $6,530 $6,530.0

Operating Expenses:

Aircraft Fuel $1,000 $1,597

Non-Fuel Operating Expenses 4,976 4,976

Total Operating Expenses $5,976 $6,572.5

Operating Income $554 ($42.5)

% Margin 8.5% (0.7%)

Net Income $313 ($107.5)

% Margin 4.8% (1.6%)

EBITDAR $1,164 $567.5

% Margin 17.8% 8.7%

Southwest’s ambitious fuel hedging program has enabled them to remain profitable while while holding fares to historically low levels.

22

American 72.0%Continental 86.6%Delta 81.0%Northwest 87.8%United* 95.9%US Airways* 98.7%AVERAGE 87.0%

Southwest 32.6%

*Includes liabilities subject to compromise

Long-Term DebtPlus Off-Balance Sheet Operating LeasesAs A Percentage Of Total Capitalization

(As of September 30, 2004)

Sources: SEC Filings and RJ&A Forecast.

23

Surviving Hubs PossibleSurvivors

Very Marginal Closed

DL ATL CVG, JFK*, SLC DFW, MCOAA ORD, DFW, MIA*UA ORD SFO*, IAD, LAXNW MEMCO CLEUS PHL, CLT PIT

Note: * = only viable as international gateway - not competitive as a domestic hub.

Source: Horan, GCW Consulting

THE FATE OF THE HUBS - One Man’s Opinion

24

THE OTHER APPROACH

25

Concentration at National Level Not DangerousNational Herfindahl-Hirschman (HH1) Index Since Deregulation

0

200

400

600

800

1000

1200

1980 1985 1990 1995 2000 2001 2002 2003 2004

Paxhhi

Miles HHI

Source: US DOT OD1A DatabaseNotes: Domestic O&D Passengers

26

The Seven Phases of Airline Deregulation - Thus Far

Phase 1 (1978 - 1980) INITIAL SHOCK

• Entry of former charter carriers; UA goes Point-to-Point; Two Tier Pricing Approved.

Phase 2 (1980 - 1984) BIG ADJUSTMENTS

• Frequent flyer programs; information technology and yield management; Hubs develop including international; new entrants fail (all but one).

Phase 3 (1984 - 1988) MERGER MANIA

• An historic shift in competition policy. WN moves onto the radar screen.

Phase 4 (1989 - 1993) RETRENCHMENT AND HUB DOMINANCE

• Recession, war, oil prices, too much for the unprotected middle tier except for one.

27

The Seven Phases of Airline Deregulation (continued)

Phase 5 (1994 - 2000) RECOVERY, BOOM, AND DOMINANCE

• Demand soars; price discrimination accelerates; new entrants fair poorly; profits approach records but labor costs keep pace.

Phase 6 (2000 - Present) TRAGEDY AND RESTRUCTURING

• LLCs emerge; Swissair and United in the Tank; Do you believe in the “great (wo)man” theory or in the market?

Phase 7 - BE OPTIMISTIC

28