0. A New Operating Paradigm
Booz Allen Hamilton Standard Colors
Colors should be used in the color pairs whenever possible. Do not mix and match colors, use pairs together as shown.
Black, White and Gray can be used with any of the other colors.
Purple Pantone 2765
R 12
G 4
B 79
Green Pantone 357
R 15
G 67
B 24
Blue Pantone 2 88
R 11
G 31
B 101
Pantone Cool Gray 6
R 158
G 158
B 158
Black
Red Pantone 485
R 252
G 5
B 14
Yellow Pantone 3965
R 232
G 244
B 4
Aqua Pantone 319
R 126
G 204
B 189
White

1. Booz Allen Hamilton Leading strategy and technology consulting firm
11,000 employees, $2.2B
Founded in 1914
Our clients in air transportation:
Governments, airports, air navigation providers
Airlines, logistics, GDSs, travel agencies, equipment and service providers
A global team: USA, Europe, Asia, Latin America, Africa
Breadth:
Strategy, operational restructuring, organizational design
Systems design and implementation support
Policy and regulatory advice
RPUS v1.ppt

2. Unit Revenue and Cost Trend Cents Per Available Seat Mile(c/ASM)
Airline crisis is unprecedented – current price levels appear consistent with long term trends
Unit Revenue and Cost Trend
(U.S. Industry)
Unprecedented cost-revenue gap, started before 9-11
Unit Revenue (RASM)
Unit Cost (CASM)
Cents Per Available Seat Mile(c/ASM)
(Adjusted To 2001 Dollars)
CASM decline:
RASM decline:
1979–1992: 1.5%pa
1979–1992: 1.8%pa
CASM increase:
RASM increase:
1993–1998: -1.0%pa
1993–1998: +0.6%pa
Risk that revenues will revert to “old” trend line
Note: CASM reduction Q somewhat overstated due to accounting effects
Source: Company Financial Statements, Back Associates, BAH Analysis
RPUS v1.ppt

3. The paradigm shift between point-to-point and network business models is far from over
U.S. Domestic Market Structure
(O&D Passenger Trips Y2000)
Low Cost Carrier Potential
Low Cost Carriers (LCCs) can conservatively participate in 70% of the US market
LCCs now participate in 43% of O&D market
Significant growth potential remains
Eastern U.S.
Increased breadth in existing strongholds
Increased depth in O&Ds currently served
Non-Stop Service Available
Non-Stop Service Not Available
Total
Major Hub Cities
44% 6%
50%
Minor Hub Cities 7% 2% 9%
Large Non-Hub
10% 3%
13%
SWA Connection 6% 2% 8%
Other 9% 7%
16%
Total
78%
22%
100%
~ 10% Over 2,000 Miles
~ 16-18% Small City Markets
RPUS v1.ppt

4. Average Yield(1) in Hub Markets
The fundamental threat to hub and spoke carriers lies in price realization
Average Yield(1) in Hub Markets 60
OA Yield No SWA preserve 50
OA Yield SWA conn
SWA non-stop competition reduces OA yields 25%-35%
SWA one-stop competition reduces OA yields 15-20% 40
OA Yield SWA direct competition
C/ASM 30
SWA Yield connect 20
SWA Yield non-stop 10
500
1000
1500
2000
2500
RANGE
Note: (1) Revenue per revenue passenger mile, including PFC and taxes
(2) OA: Other Airline
Source: DOT Y.2000 data, BAH Analysis
RPUS v1.ppt

5. The situation is complicated by an excess of hub capacity
Current Travel Structure
(Passenger Trips, Y2000)
Connect In USA 30%
~110 M
O&D PAX
International
~70% Do Not Connect in US
~60% of Domestic Trips Are Non-Stop
~410 M
O&D PAX
Domestic
Other Connections 9%
Inadequate Non-Stop Service 10%
Current Domestic Connections
~40%
No Non-Stop Service Available 22%
Source: U.S. DOT, BAH analysis
RPUS v1.ppt

6. …resulting in an unsustainable revenue positions at hub-and-spoke carriers
Competitive Composition: Typical Mainline Carrier, Pre-Crash
Degree Of Price Sensitivity
Non-Stop Passenger Flight
Connecting Passenger Flight
Low: Individual chooses airline, travels on business or rich personal travel
20% - 30% revenue
20% - 25% of revenue
Medium: Corporation is principal decision maker, drives bargain
10% - 15% revenue
10% - 15% revenue
High: Mostly leisure travel and price sensitive business
15% revenue
10% - 15% revenue
Generally Product Advantage
Significantly Higher Yields (Without LCC Price Impact)
Moderately Vulnerable
Product Parity Or Disadvantage
Vulnerable
RPUS v1.ppt

7. Network carriers have a huge cost gap vs LCCs
CASM Versus Stage Length 2000 SK AZ AF US LH BA KL
Cents / ASM
EasyJet IB AS AA UA NW TW
AirT CO
Ryanair DL
AWA
SWA
ATA
Britannia
Average Stage Length (miles)
Source: BAH Analysis
RPUS v1.ppt

8. Note: Average Airline based on Delta, United, and US Airways
Much of this cost differential is a result of production model choices, not frills
Drivers Of Unit Cost Differences U.S. Network Carriers and SWA ( : Stage Length, Seat Density and Factor Cost Adjusted, Y2000)
7.2
12%
c/ASM
Other
15%
G&A
Sales and Res
70%
Schedule
Pax, Bag, Cargo Handling
-50%
Process & Pace
Ownership Costs
Onboard Costs
Distribution
Maintenance Costs
Fuel Costs
Frills 3%
Other
Pilot Costs
Baseline (SWA)
Note: Average Airline based on Delta, United, and US Airways
RPUS v1.ppt

9. A new business model may emerge that closes 70-80% of the cost gap and re-establishes product differentiation
Random hubbing
Improved asset productivity
Reduce TAT and handling complexity
Alter trade-off between efficient operation and optimum connectivity
Restructure Network / Hub Operations to Remove Scheduling Constraints (“Below the Wing Processes”)
Separate simple from complicated tasks; apply tailored process streams
Reduce low-value interactions with staff
Simplify reservation, ticketing, check-in
Simplify Customer Interface at the Airport and in Distribution (“Above the Wing Processes”)
Reduce complexity, increase pace
Lower Cost
Differentiated Services
Viability
Provide specialized services and appropriate schedule qualities
Achieve pure business streams
High service levels where needed or expected (local vs. connectivity)
Low-cost service levels where possible (high-value vs. low-value customers)
Create Separate Business Systems for Distinct Customer Segments (“Product Differentiation”)
RPUS v1.ppt

10. Incremental Evolution
A new industry structure may emerge – or the next crisis will be a repeat on steroids
New Business Model
Incremental Evolution
2-3 new network based carriers emerge by continent
1 or 2 random hubs each
Many centers of mass a la SWA
Greater focus on non-stop services
1-2 low costs carriers by continent
Regional carriers that perform two missions
Feed for limited number of random hubs
Point to point flying in business and smaller markets
Network carriers stick to current business model
Continued share loss to LCCs
Low cost subs fail again
Regional operators take over larger proportions of network
1-2 low cost carriers succeed by continent
Regional carriers pick up failing routes, remain more focused on feed
Next crisis is an amplification of current one
RPUS v1.ppt