Recent Developments

As Of 3/31/06

We now expect our full−year operating capacity to increase approximately 20% to 22% over 2005 due primarily to the addition of 16 new Airbus A320 and 19 new EMBRAER 190 aircraft scheduled for delivery in 2006; however, this increase will be partially offset by a 12% shorter average expected stage length. This decrease in average stage length is a result of our operating the shorter range EMBRAER 190 aircraft, which represents 5% of our total expected 2006 operating capacity, as well as shifting some of our Airbus A320 aircraft away from East−West flying. While the shorter average stage length will result in higher unit costs, we expect the increase in unit revenues to be higher than the increase in unit costs. Our currently projected operating capacity increases for 2006 are also lower than previous projections as they reflect our intention to sell two to five of our existing Airbus A320 aircraft that are currently in revenue service. In managing our long−term capacity growth, we are also deferring 12 Airbus A320 aircraft deliveries from 2007 through 2009 to 2011 through 2012.

Fuel costs continue to rise and may increase further. Although we have hedged 40% of our remaining anticipated fuel requirements for 2006, we expect to incur higher fuel costs as a result of higher underlying fuel prices in addition to less price protection from our hedges. As of March 31, 2006, 25% of our forecasted remaining consumption for the year was hedged with crude oil at an average of $68 per barrel and 15% was hedged with heating oil at an average price of $1.90 per gallon, as compared to having 22% of our 2005 consumption hedged with crude oil at an average of $30 per barrel. Assuming fuel prices of $2.10 per gallon, net of effective hedges, our cost per available seat mile is expected to increase by 13% to 15% over 2005 and our operating margin is expected to be between 3% and 5%.

The U.S. domestic airline environment continues to be extremely challenging primarily due to continued high aircraft fuel prices and sustained price competition. The competitive industry environment, high fuel prices and increased capacity on the routes we fly, including capacity that was added by us, have all continued to affect our ability to increase fares to offset the rising cost of fuel.  We are undertaking several revenue−enhancing initiatives in an effort to return to profitability, including reducing capacity in some of our East−West markets, adding more capacity in short and medium−haul markets, including the addition of several new markets, improving revenue management and focusing more on corporate bookings, all of which should have the effect of increasing our overall average fares. We are also looking at several cost−reduction initiatives, including improving fuel efficiency, maximizing supply chain management and conducting a broad review of expenses throughout the organization.