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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

OR

COMMISSION FILE NUMBER 1-12649

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

COMMISSION FILE NUMBER 0-12337
AMERICA WEST AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
SENIOR UNSECURED NOTES DUE 2005
(TITLE OF CLASS)

     Indicate by check mark whether each of the registrants: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the registrants are accelerated filers (as defined in Exchange Act Rule 12b-2)
      America West Holdings Corporation   Yes þ No o
      America West Airlines   Yes o No þ

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     As of June 30, 2003, there were 32,821,588 shares of America West Holdings Corporation Class B common stock, $.01 par value issued and outstanding. As of such date, based on the closing sales price as quoted by the New York Stock Exchange, 32,628,512 shares of Class B common stock, having an aggregate market value of approximately $221,873,882 were held by non-affiliates. For purposes of the above statement only, all directors and executive officers of the registrants are assumed to be affiliates. As of June 30, 2003, all outstanding equity securities of America West Airlines, Inc. were owned by America West Holdings Corporation.

     As of February 27, 2004, there were 859,117 shares of America West Holdings Corporation Class A common stock and 34,957,056 shares of America West Holdings Corporation Class B common stock outstanding. As of February 27, 2004, all outstanding equity securities of America West Airlines, Inc. were owned by America West Holdings Corporation.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the proxy statement related to America West Holdings Corporation’s 2004 annual meeting of stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of America West Holdings Corporation’s fiscal year ended December 31, 2003, are incorporated by reference into Part III of this Form 10-K.

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     This combined Form 10-K is filed by both America West Holdings Corporation (“Holdings” or the “Company”) and its wholly-owned subsidiary, America West Airlines, Inc. (“AWA” or the “Airline”).

Note Concerning Forward-Looking Information

     This report contains various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended (the “Exchange Act”). These statements are based on management’s beliefs as well as assumptions made by and information currently available to management. When used in this document, the words “anticipate,” “estimate,” “project,” “expect” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, projected or expected. Among the key factors that may have a direct bearing on the Company’s or AWA’s results are:

	•		economic conditions;
	•		the impact of global instability, including the continuing impact of the continued military presence in Iraq and Afghanistan and the terrorist attacks of September 11, 2001, and the potential impact of any future hostilities, terrorist attacks, infectious disease outbreaks, such as severe acute respiratory syndrome, and government responses thereto, or other global events;
	•		limitations on the Company’s or AWA’s ability to obtain additional financing due to high levels of debt and the financial and other covenants in its debt instruments;
	•		changes in federal and state laws and regulations;
	•		changes in prevailing interest rates and the availability of and terms of financing to fund our business;
	•		the ability to attract and retain qualified personnel;
	•		the cyclical nature of the airline industry;
	•		competitive practices in the airline industry;
	•		the impact of changes in fuel prices; and
	•		relations with unionized employees generally and the impact and outcome of labor negotiations.

     For additional discussion of such risks see “Business - Risk Factors Relating to America West and Industry Related Risks” included in Item 1 of this report. Any forward-looking statements speak only as of the date of this report.

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PART I

ITEM 1. BUSINESS

     Holdings is a holding company that owns all of the stock of AWA. AWA accounted for most of the Company’s revenues and expenses in 2003. Based on 2003 operating revenues and available seat miles (“ASMs”), AWA is the eighth largest passenger airline and the second largest low cost carrier in the United States. AWA is the largest low-cost carrier that operates a hub-and-spoke network, with large hubs in both Phoenix, Arizona and Las Vegas, Nevada. In 2003, AWA also began point-to-point service in major transcontinental markets. In addition to being a low cost carrier, AWA also offers full-service amenities similar to the legacy carriers, including a robust frequent flyer program and first class seating. At the end of 2003, AWA operated a fleet of 139 aircraft with an average fleet age of 10.7 years and served 62 destinations in North America, including eight in Mexico, three in Canada and one in Costa Rica. Through regional alliance and code share arrangements with other airlines, AWA served an additional 52 destinations in North America as of December 31, 2003. In 2003, AWA flew approximately 20.1 million passengers and generated revenues of approximately $2.2 billion. Through its America West Vacations division, AWA also sells individual and group travel packages, including air transportation on AWA and Hawaiian Airlines, hotel accommodations, car rentals, cruise packages and other travel products, directly to consumers as well as through retail travel agencies in the United States, Canada and Mexico. As of January 1, 2004, The Leisure Company (“TLC”) has been merged into AWA and will continue to operate as the America West Vacations division of AWA. See Note 18, “Subsequent Event - Merger of America West Vacations Subsidiary into AWA” in Notes to Financial Statements of AWA.

     General information about us can be found at www.americawest.com/aboutawa under the public/investor relations link. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments or exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission (“SEC”).

Overview

     Since September 11, 2001, the U.S. domestic airline industry has experienced an unprecedented financial crisis caused by the combination of the terrorist attacks of September 11, 2001 and soft economic conditions. Although the demand for air travel improved during 2003 as compared to 2002, the airline industry, as a whole, continued to suffer losses in 2003 as a result of reduced demand for air travel, coupled with an increase in costs resulting from enhanced security measures, aviation-related insurance and higher jet fuel prices. In response to these difficult industry conditions, we completed a financial restructuring in 2002 that included a $429 million loan supported by a $380 million government loan guarantee, introduced a business-friendly pricing structure and lowered our cost structure.

     In 2003, we continued to focus on lowering our cost structure and providing outstanding customer service. We also began positioning our airline as a low cost carrier; unlike most other low cost carriers, we continued, and will continue, to offer many of the full service amenities, such as first class seating, an award winning frequent flyer program, FlightFund, and assigned seating, that the major airlines offer. We believe that leisure and business customers will continue to prefer to travel on low cost carriers and that our full service amenities give us a competitive advantage over other low cost carriers. During 2003, we benefited from the following:

	•		More rational capacity in the markets served by AWA as a result of industry capacity declines over the past year;
	•		Aggressive yield management during the peak summer travel period;
	•		Continued favorable customer response and growth in business traffic as a result of our business-friendly fare structure; and
	•		Continued strong operational performance.

     As a result, we reported dramatically improved financial results for 2003. Our reported net income was $57.4 million in 2003 compared to a loss before the cumulative effect of a change in accounting principle of $179.7 million in 2002.

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     In addition, our liquidity improved due to the improvement in operating cash flow, the receipt of $81.3 million from the federal government for reimbursement of security fees and through the private placements in July and August of 2003 of approximately $86.8 million issue price of senior exchangeable notes. AWA ended 2003 with the highest cash balances in Company history. Finally, after extensive negotiations, we signed a three-year agreement with the Air Line Pilots Association (“ALPA”) on December 30, 2003.

     While we are optimistic that recent operational and financial improvements will continue, we continue to face considerable challenges in 2004, including continued cost pressures and managing the transition to being a low cost carrier. We will also need to make loan repayments of approximately $85.8 million on the government guaranteed loan and payments of approximately $188.0 million in respect of our off-balance sheet aircraft financing vehicles. See “Risk Factors Relating to America West and Industry Related Risks” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

Airline Operations

     Our operations and business strategy have traditionally been focused around our Phoenix, Arizona and Las Vegas, Nevada based route-network (supplemented by regional airline alliances and strategic relationships with other carriers), our low cost structure and our emphasis on customer service. During 2003, we continued to optimize our schedule in our hubs to maximize profitability. Additionally, we announced and started new point-to-point service from Los Angeles to both Boston and New York and from San Francisco to New York. We also announced San Francisco to Boston nonstop service beginning in March 2004.

     Our Route Network

     We operate our route system through a hub-and-spoke network centered around our hubs in Phoenix, Arizona and Las Vegas, Nevada. As of December 31, 2003, we were the leading airline serving Phoenix based on available seat miles, or ASMs, and takeoffs and landings and ranked second in Las Vegas based on the same measures. Our operations have focused on the Phoenix and Las Vegas markets and expanding our reach beyond those markets through strategic relationships with other carriers, including a regional alliance with Mesa Airlines (“Mesa”) and code-sharing arrangements with other carriers. See “– Regional Airline Alliance” and “– Alliances with Other Airlines” below. In October 2003, we initiated our first non-stop transcontinental service between Los Angeles International Airport and both New York City’s John F. Kennedy International Airport (“JFK”) and Boston Logan International Airport (“Boston”). In December 2003, we initiated non-stop service between San Francisco International Airport (“San Francisco”) and JFK. As part of our 2004 growth plan, we will initiate new non-stop service between San Francisco and Boston. We expect to be in a position to continue the prudent growth of the Airline and its Phoenix and Las Vegas centered networks as the economic environment improves.

     Cost Control

     We are committed to maintaining a low cost structure, which we believe offers a significant competitive advantage over other major hub-and-spoke airlines in the United States. In 2003, our operating cost per available seat mile, or CASM, of 7.86 cents was the lowest of all the other major hub-and-spoke airlines in the United States and remained competitive with the major point-to-point airline, Southwest Airlines. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – 2003 in Review – Cost Control.”

     In light of the current industry environment, we continue to focus on minimizing capital expenditures and prudent spending for discretionary expenses.

     Revised Pricing Structure

     In an effort to maximize revenue and increase business traffic, we eliminated our historic pricing structure in March 2002 and replaced it with a simplified structure, the primary components of which include reduced business fares (typically 40-75% below the walkup prices on major network carriers), elimination of Saturday night stay requirements and more fares available on a one-way basis. At the same time, we significantly reduced the number and level of highly discounted fares available through off-tariff channels. Immediately following the introduction of the new fare structure, higher-cost competitors placed extremely low prices in our nonstop markets and Continental Airlines cancelled its long-standing code share and frequent flyer agreements with us. Despite these actions, we believe our year-over-year domestic unit revenue performance has been significantly better than the industry average since the new structure was introduced and the net effect on revenue of our revised pricing structure has been significantly positive.

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     In February 2004, we announced another change in our pricing structure to make flying first class more affordable for both business and leisure travelers. This new first class fare structure features nonrefundable first class fares that are up to 70% lower than the industry’s traditional first class fares. We believe that the revised first class fare structure will exploit our competitive advantages over both the major airlines, as their higher cost structures may prevent them from reducing their first class fares to match ours in a profitable manner, and the other low cost carriers, as many of them do not have first class cabins.

     Customer Service

     We believe that an emphasis on customer service is essential to growing our business and leisure traffic. Therefore, we are committed to building a successful airline by taking care of our customers. During 2003, we continued to build on the customer service and reliability initiatives that we first implemented in 2000. Largely as a result of our continued focus on providing safe, reliable and convenient customer service, we continued to see positive trends in our key operating statistics as reported to the U.S. Department of Transportation (“DOT”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – 2003 in Review – Customer Service.”

     In 2003, we continued to find ways to provide customers with choices and make it easier to travel:

	•		After extensive testing in 2003, our “Buy on Board” meal program was rolled out on long-haul flights during the first quarter of 2004.
	•		Our day of departure first class upgrade program provided a simple and affordable way to upgrade to first class just prior to departure.
	•		We introduced our “Low Fare Finder” application on our website, making it easy for customers with flexible travel plans to get the best fare available.
	•		We expanded the availability of self-service kiosks across our system and, in November 2003, opened a new state-of-the-art automation center for check-in at Phoenix Sky Harbor International Airport with 28 fully-integrated kiosks.
	•		Working with Arizona State University’s School of Engineering, we created a sophisticated group boarding protocol using back to front and outside-in logic to board passengers faster and in a manner which is more convenient to customers.

     Regional Airline Alliance

     We have a regional alliance agreement with Mesa Airlines. Mesa, operating as America West Express, provides regional feeder service to and from our Phoenix and Las Vegas hubs to destinations in the western United States and northern Mexico flying principally regional jets and large turboprop aircraft. Through this arrangement with Mesa, we offered America West Express service to an additional 31 destinations as of December 31, 2003.

     In 2003, we restructured our agreement with Mesa. The amendment adjusted the firm number and mix of regional jets, reduced the firm number of Dash-8 turboprops, restructured Beech 1900 codeshare flying, created a new model for Mesa-handled station costs and settled outstanding disputed amounts associated with the previous codeshare arrangement. Designed to defer further growth of the regional fleet until 2004, the amendment accelerated five return rights on CRJ-200s to June 2003, eliminated the 15 firm CRJ-700 aircraft entirely by March 2004 and increased from 25 to 38 the firm number of CRJ-900 aircraft.

     Alliances with Other Airlines

     AWA 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 credits on partner carriers. Lounge arrangements provide lounge members with access to partner carriers’ lounges.

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     AWA’s alliance agreement with British Airways allows British Airways to code share on flights operated by AWA connecting to and from British Airways’ Phoenix, San Francisco and Los Angeles services. The agreement also allows AWA FlightFund members to earn credit for travel on British Airways and for frequent flyer benefits earned by AWA customers to be redeemed for travel on British Airways’ system.

     Relationships with Northwest Airlines (“Northwest”) and EVA Airways provide connecting service on AWA from those airlines’ pacific routes to Las Vegas and Phoenix. The frequent flyer agreement with Northwest also provides for AWA FlightFund members to earn and redeem credit on Northwest’s transpacific flights. In addition, AWA lounge members have access to Northwest’s WorldClub lounges in the United States.

     AWA’s alliance agreements with Hawaiian Airlines (“Hawaiian”) and Big Sky Airlines (“Big Sky”) allow AWA to code share on flights operated by those carriers. AWA’s agreement with Hawaiian offers connecting service to and from Hawaiian’s nonstop Phoenix to Honolulu service and beyond to the other islands of Hawaii. AWA FlightFund members can earn and redeem credit for travel on Hawaiian. AWA’s alliance with Big Sky offers connecting service in Denver, Colorado; Spokane, Washington; Boise, Idaho and Billings, Montana to Big Sky’s destinations in Montana and Washington state. AWA FlightFund members can earn and redeem credit for travel on Big Sky.

     Airline Competition and Marketing

     The airline industry is highly competitive and volatile. Airlines compete on the basis of pricing, scheduling (frequency and flight times), 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 and other services. We compete with all of the major airlines on medium and long haul routes to, from and through our hubs and in our new transcontinental markets and with a number of carriers for short haul flights at our Phoenix and Las Vegas hubs.

     We also compete with a growing number of low cost carriers at our Phoenix and Las Vegas hubs and across our route system. The low cost carrier sector is growing and for the 12 months ended December 31, 2003, low cost carrier capacity (as measured by available seat miles) represented 25% of all domestic mainline service, an increase of 3 points from the 12 months ended December 31, 2002, when low cost carrier marketshare accounted for approximately 22% of all domestic mainline service.

     Our low cost structure allows us to compete with other major full service carriers based on price. In addition to our low cost structure, our full service amenities (for example, first class seating, an award winning frequent flyer program and assigned seating) allow us to compete with other low cost carriers. However, many of the low cost carriers have lower cost structures than we do. The consolidation of existing carriers and the entry of additional carriers, including new low cost carriers and the recent trend of low fare airline-within-an-airline strategies several major airlines have undertaken, in many of our markets (as well as increased services by established carriers) could negatively impact our results of operations. In addition, certain airlines have in the past engaged in retaliatory activities, including deep pricing discounts in certain markets and termination of alliance agreements, in response to changes in our pricing structure. For additional discussion of industry competition and related government regulation, see “Risk Factors Relating to America West and Industry Related Risks - The airline industry and the markets we serve are highly competitive and we may be unable to compete effectively against carriers with substantially greater resources or lower cost structures” and, generally, “– Government Regulations.”

     Most tickets for travel on AWA are sold by travel agents. Airlines often pay override commissions in connection with special revenue programs, competing not only with respect to the price of tickets sold but also with respect to the amount of commissions paid. Our Agency AWArds commission program for travel agents offers agencies the opportunity to earn commission payments in exchange for booking more of their business on AWA. We believe that this commission structure is competitive with the commission programs of the other major airlines in the United States.

     Most tickets sold by travel agents are sold through computer reservations systems (“CRS”). Travel agents’ reliance on those CRSs have, from time to time, significantly increased the cost of making reservations, which costs are born by airlines that subscribe to the CRSs, including AWA. We have sought to reduce these costs through several initiatives. First, our electronic or paperless ticketing program responds to customer needs and reduces distribution costs for tickets booked directly through the Airline’s reservation system and through travel agencies. During 2003, approximately 94% of the Airline’s tickets were processed electronically, up from 86% during 2002. Second, we provide the ability for our customers to book tickets directly through the Internet using the Airline’s web site located at www.americawest.com, thus avoiding the more expensive CRSs. Bookings through americawest.com

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were approximately 20% of total 2003 bookings, up from 15% in 2002.

     On December 31, 2003, the DOT issued a decision to terminate the existing regulations that restricted preferential scheduling displays and other CRS practices that place AWA and other similarly situated users at a competitive disadvantage to airlines controlling the systems. In its decision, the DOT found that the regulations were no longer justified since no CRS is now owned by a U.S. airline. As a result, the mandatory participation rule, under which an airline that owns or controls a CRS is required to purchase the same level of service from other CRSs that it purchases from the CRS it owns or controls, and the rule against discriminatory booking fees, which requires that all carriers pay the same fee for the same level of service, are rescinded as of January 31, 2004. The rule prohibiting CRSs from using preferential CRS displays to favor one or more particular carrier over another will be rescinded as of July 31, 2004. At this point it is not possible to predict how this will affect AWA’s distribution costs, but such costs could rise significantly and, given the highly competitive nature of the industry, AWA may not be able to pass these costs on to its customers.

     Frequent Flyer Program

     All major United States airlines offer frequent flyer programs to encourage travel on their respective airlines and customer loyalty. AWA offers the FlightFund program, which allows members to earn mileage credits by flying AWA and America West Express, by flying on certain partner airlines and by using the services of a wide variety of other program participants such as hotels, rental car agencies and other specialty services. AWA also sells mileage credits to credit card companies, telephone companies, hotels, car rental agencies and others that participate in the FlightFund program.

     Through the FlightFund program accumulated mileage credits can be redeemed for free travel on AWA, America West Express and certain partner airlines and for first class upgrades on AWA. Use of mileage credits is subject to industry standard restrictions including availability and blackout dates. The Airline must purchase space on other airlines to accommodate FlightFund redemption travel on those airlines.

     We account for the FlightFund program under the incremental cost method whereby travel awards are valued at the incremental cost of carrying one passenger based on expected redemptions. Those incremental costs are based on expectations of expenses to be incurred on a per passenger basis and include fuel, liability insurance, food, beverages, supplies and ticketing costs that are accrued as FlightFund members accumulate mileage credits. No profit or overhead margin is included in the accrual for those incremental costs. Transportation-related revenue from the sale of mileage credits is deferred and recognized when transportation is provided. Non-revenue FlightFund travel accounted for 2.1%, 2.7% and 2.6% of total revenue passenger miles for the years ended December 31, 2003, 2002 and 2001, respectively. We do not believe that non-revenue FlightFund travel results in any significant displacement of revenue passengers.

     The Airline’s Fleet

     At December 31, 2003, AWA operated a fleet of 139 aircraft having an average age of 10.7 years. In 2003, AWA parked and sold two owned 737-200 aircraft, returned to lessor two 737-300 aircraft, returned two A320 aircraft and took delivery of two A320 aircraft. Additionally, one 737-200 aircraft was parked and sold in the first quarter of 2004.

     In 2004, we plan to take delivery of one new A319 aircraft and two new A320 aircraft, lease three additional A320 aircraft and retire all eight 737-200 aircraft which would result in a fleet of 137 aircraft at the end of 2004, having an average age of 10.7 years. Despite the slight decline in aircraft throughout the year, we expect our mainline capacity (as measured by available seat miles) to increase 8-10% in 2004 due to increased utilization, larger aircraft and the timing of the deliveries and retirements. Depending on market conditions, AWA may add additional aircraft in late 2004 to support 2005 growth.

     AWA’s fleet at the end of 2003 and as currently planned at the end of 2004 is described in the table below:

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     As of December 31, 2003, AWA had firm commitments to purchase or acquire by operating lease a total of 15 Airbus A318-100, one Airbus A319-100 and three Airbus A320-200 aircraft for delivery in 2004 through 2007. AWA also has 17 options and 25 purchase rights to acquire aircraft in the “A320 family” of aircraft (A318s, A319s, A320s and A321s) for delivery in 2005 through 2008.

     We expect that expirations of aircraft operating leases scheduled to occur over the next several years will allow AWA the flexibility to manage the growth of its fleet size and related financial obligations in response to unfavorable economic conditions. Certain of these leases contain put options pursuant to which the lessors could require AWA to renew the leases for periods ranging from eight months to 8.7 years or call options pursuant to which the lessors could require AWA to return the aircraft to the lessors upon receipt of four to nine months written notice. In 2003, AWA renewed the leases for three aircraft as a result of the exercise of put options by the aircraft lessors. No call options were exercised in 2003. Assuming the exercise of the put options, as of December 31, 2003, leases for 57 of AWA’s aircraft should be terminated by the end of 2008.

     The following table illustrates AWA’s committed orders, scheduled lease expirations and lessor put and call options for the years 2004-2008:

(a)		Includes one aircraft subject to a put option in each of the years 2004 – 2009.
(b)		Includes one aircraft callable in 2004 - 2005, one aircraft callable in 2004 - 2006, six aircraft callable in 2004 - 2008 and one aircraft callable in 2004 - 2009.
(c)		Includes one aircraft callable in 2005 - 2006.

     For further details on AWA’s commitments to acquire aircraft, financing strategies and capital requirements for aircraft, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and “Risk Factors Relating to America West and Industry Related Risks - Our high level of indebtedness and fixed costs limits our ability to fund general corporate requirements and obtain additional financing, limits our flexibility in responding to competitive developments and increases our vulnerability to adverse economic and industry conditions.”

Aircraft Fuel

     Fuel costs were our second-largest operating expense in 2004. Our average cost of fuel, net of hedging gains (losses), over the past five years was as follows:

     The price and supply of jet fuel are unpredictable and fluctuate based on events outside our control including geopolitical developments, regional production patterns and environmental concerns. Price escalations or reductions in the supply of jet fuel will increase our operating expenses and cause our operating results and net income to decline. See “Risk Factors Relating to America West and Industry Related Risks – Fluctuations in fuel costs could adversely affect our operating expenses and results.”

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The Leisure Company

     As of January 1, 2004, TLC has been merged into AWA and will continue to operate as the America West Vacations division of AWA. See Note 18, “Subsequent Event – Merger of America West Vacations Subsidiary into AWA” in Notes to Financial Statements of AWA. TLC sells individual and group travel packages including air transportation on AWA and Hawaiian Airlines, hotel accommodations, car rentals and other travel products directly to consumers and through retail travel agencies in the United States, Canada and Mexico. TLC’s travel packages are sold under the America West Vacations brand. TLC is one of the largest tour packagers to Las Vegas in the United States, contracting for volume blocks of rooms with 31 Las Vegas hotels and resorts in 2003.

     TLC remains focused on high-volume leisure travel products which have traditionally provided high profit margins. TLC has negotiated several strategic partnerships with hotels, Internet travel sites and media companies to capitalize on the continued growth in online travel sales. TLC sells vacation packages and hotel rooms through its call center, via the Internet and its websites, AmericaWestVacations.com, AWVTravelAgents.com and AWVCruise.com, through global distribution systems Sabre TourGuide and WorldSpan Tour Source and through third-party websites on a co-branded or private-label basis. In 2003, approximately 54% of total bookings were made electronically compared to 49% in 2002.

     TLC competes in a fragmented travel industry, which is highly competitive, price sensitive and has relatively low barriers to entry. TLC competes for customers with other wholesale travel companies, consolidators and E-travel companies through national mass media, preferred supplier agreements and Internet distribution agreements.

Employees and Labor Relations

     The Company’s businesses are labor intensive with wages, salaries and benefits representing approximately 29% of the Company’s operating expenses during 2003.

     As of December 31, 2003, the Company employed 10,561 full-time and 2,408 part-time employees, for a full-time equivalent of 11,475 employees. As of December 31, 2003, AWA employed 10,382 full-time and 2,396 part-time employees, for a full-time equivalent of 11,326 employees.

     In 2003, the Company’s front-line non-union employees received a 3% pay increase. All other non-union employees are compensated on a pay-for-performance basis under which salaries and wages are determined, in part, by performance evaluations by an employee’s management team. The Company awards a bonus, referred to as AWArd Pay, to eligible, non-executive, non-union employees provided the Company achieves certain annually established targets. AWArd Pay bonuses could range from 5% of base pay if those targets are met to 25% of base pay if those targets are significantly exceeded. Based on the Company’s profit for the year ended December 31, 2003, 7.5% bonuses were paid to eligible Company employees in early 2004, the first payments under the program since 1999.

     A large majority of the employees of the major airlines in the United States are represented by labor unions. There have been numerous attempts by unions to organize AWA’s employees and we expect these organization efforts to continue in the future. As illustrated by the table below, several groups of AWA’s employees have selected union representation and negotiated collective bargaining agreements with the Airline. We cannot predict the outcome of any continuing or future efforts to organize the Airline’s employees or the terms of any future labor agreements or the effect, if any, on the Company’s or AWA’s operations or financial performance. For more discussion, see “Risk Factors Relating to America West and Industry Related Risks - Negotiations with labor unions could divert management attention and disrupt operations and new collective bargaining agreements or amendments to existing collective bargaining agreements could increase our labor costs and operating expenses.”

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*     In contract negotiations.

     A tentative agreement with ALPA was reached on December 12, 2003. On December 30, 2003, 771 of AWA’s pilots voted for ratification and 679 voted against. The agreement was signed on December 30, 2003.

     On January 13, 2003, negotiations commenced with the Transportation Workers Union (“TWU”) on a second contract covering the Company’s dispatchers. On September 17, 2003, TWU filed a petition for mediation with the National Mediation Board (“NMB”). Mediated discussions began on October 15, 2003 and a tentative agreement for a new four-year contract was announced on February 20, 2004. The tentative agreement is subject to ratification by TWU membership, and that process will begin around March 26, 2004.

     Negotiations with the International Brotherhood of Teamsters – Airline Division (“IBT”) on a second contract covering the Company’s mechanics and related employees commenced on October 9, 2003 and will continue into 2004.

     Negotiations with the Association of Flight Attendants – Communications Workers of America (“AFA”) on a second contract covering the Company’s flight attendants commenced on February 4, 2004 and will continue in 2004.

     On April 4, 2003, the Company signed a five-year agreement with the IBT covering the Company’s 54 stock clerks.

The Company’s Facilities

     Our Company’s principal facilities include administrative office space located in Tempe and Phoenix, Arizona; reservations centers and other call centers located in Tempe, Arizona and Reno, Nevada; and airport and airport related facilities associated with the Airline’s hubs in Phoenix and Las Vegas, Nevada. The following table describes Holdings’ and AWA’s principal properties:

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     In addition, we have leased an aggregate of 230,000 square feet of office space in Tempe and Phoenix. Space for ticket counters, gates and back offices has been obtained at each of the other airports operated by AWA personnel, either by lease from the airport operator or by sublease from another airline. Space and facilities at certain airports where AWA’s operation is managed by Mesa Airlines is provided by Mesa as part of AWA’s ground handling arrangement.

Government Regulations

     The airline industry is highly regulated as more fully described below.

     DOT Oversight

     AWA operates under a certificate of public convenience and necessity issued by the DOT. Although the Airline Deregulation Act of 1978 abolished regulation of domestic routes and fares, the DOT retains the authority to alter or amend AWA’s certificate or to revoke that certificate for intentional failure to comply with the terms and conditions of the certificate. In addition, the DOT has jurisdiction over international tariffs and pricing, international routes, computer reservation systems, code share agreements and economic and consumer protection matters such as advertising, denied boarding compensation and smoking and has the authority to impose civil penalties for violation of the United States Transportation Code or DOT regulations.

     FAA Funding

     In 1997, new aviation taxes were imposed through September 30, 2007 to provide funding for the Federal Aviation Administration (“FAA”). Included in the law is a phase-in of a modified federal air transportation excise tax structure with a system that includes a domestic excise tax which started at 9% and declined to 7.5% in 1999, a domestic segment tax that started at $1.00 and increased to $3.00 in 2003, and an increase in taxes imposed on international travel from $6.00 per international departure to an arrival and departure tax of $12.00 (each way). Both the domestic segment tax and the international arrival and departure tax are indexed for inflation. The legislation also included a 7.5% excise tax on certain amounts paid to an air carrier for the right to provide mileage and similar awards (e.g., purchase of frequent flyer miles by a credit card company). As a result of competitive pressures, AWA and other airlines have been limited in their ability to pass on the cost of these taxes to passengers through fare increases.

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     Passenger Facility Charges

     During 1990, Congress enacted legislation to permit airport authorities, with prior approval from the DOT, to impose passenger facility charges (“PFCs”) as a means of funding local airport projects. These charges, which are intended to be collected by the airlines from their passengers, are limited to $4.50 per enplanement and no more than $18.00 per round trip. As a result of competitive pressure, AWA and other airlines have been limited in their ability to pass on the cost of the PFCs to passengers through fare increases.

     Additional Security and Safety Measures

     On November 19, 2001, the President signed into law the Aviation and Transportation Security Act (the “ATSA”). This law enhances aviation security measures and federalizes many aspects of civil aviation security. The ATSA established a new Transportation Security Administration, now within the Department of Homeland Security. Under the ATSA, substantially all security screeners at airports are federal employees and a significant number of other airport security functions are overseen and performed by federal employees, including federal security managers, federal law enforcement officers and federal air marshals. The ATSA mandated that beginning on January 18, 2002, all checked baggage at United States airports be screened using explosive detection systems or, where such systems are not yet available, using other screening techniques such as positively matching baggage to a passenger who has boarded an aircraft. The ATSA required all checked baggage to be screened by explosive detection systems by December 31, 2003. Other requirements in the ATSA that directly affect airline operations include the strengthening of cockpit doors, deploying federal air marshals on board certain flights, improving airline crew security training and expanding use of criminal background checks of employees. Implementation of these and other requirements of the ATSA will result in increased costs for air carriers and may result in delays and disruptions to air travel. Under the ATSA, funding for the new federal security system is to be provided by a $2.50 per enplanement ticket tax, not to exceed $5.00 per one-way trip, and by imposing additional direct fees on air carriers. Pursuant to the ATSA, air carriers began collecting the new ticket tax from passengers on February 1, 2002 and have been required to make additional payments to the Transportation Security Administration. In 2003, the Company’s cost of compliance with the security requirements of the ATSA was approximately $13.2 million. The estimated cost to the Company of compliance with the security requirements of the ATSA for 2004 is approximately $15.3 million. As a result of competitive pressure, AWA 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.

     The Company is subject to various other federal, state and local laws and regulations related to occupational health and safety, including Occupational Health and Safety Administration and Food and Drug Administration regulations.

     War Risk Insurance

     Since September 11, 2001, AWA and other airlines have been unable to obtain third party war risk (terrorism) insurance at reasonable rates from the commercial insurance market and have been obtaining this insurance through a special program administered by the FAA. Under the recently enacted Vision 100-Century of Aviation Reauthorization Act (“Vision 100”), this insurance program may continue until March 30, 2008. Should the federal insurance program terminate, as a result of competitive pressures AWA and other airlines would be limited in their ability to pass these additional costs on to passengers and the increase in costs could be material to AWA’s financial condition and results of operations.

     Slot Restrictions

     At New York City’s John F. Kennedy International Airport and LaGuardia Airport, and at Washington D.C.’s Ronald Reagan National Airport, which are designated “High Density Airports” by the FAA, there are restrictions on the number of aircraft that may land and take-off during peak hours. At the New York airports, slot restrictions are abolished after January 1, 2007. In the future these takeoff and landing time slot 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 AWA, particularly in light of the increase in the number of airlines operating at such airports. In general, the FAA rules relating to allocated slots at the High Density Airports contain provisions requiring the relinquishment of slots for non-use and permit carriers, under certain circumstances, to sell, lease or trade their slots to other carriers. All slots must be used on 80% of the dates during each two-month reporting period. Failure to satisfy the 80% use rate will result in loss of the slot which would revert to the FAA and be reassigned through a lottery arrangement.

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     AWA currently utilizes five slots at Kennedy Airport and 6 slots at National Airport during the restricted periods. AWA exceeds the requisite 80% use rate for these slots.

     Perimeter Rule at Washington D.C.’s Ronald Reagan National Airport

     There is a federal prohibition on flights exceeding 1,250 miles operating from or to National Airport. This “perimeter rule” generally prevents AWA from flying nonstop to and from National Airport and its principal hubs of Phoenix and Las Vegas. In 2000, Congress passed legislation which authorized the DOT to grant exceptions to the 1,250 mile perimeter rule for up to 12 slots per day. AWA was authorized six of these slots to operate two daily Phoenix - National Airport round trips and one daily Las Vegas - National Airport round trip. Vision 100, among other things, authorized the DOT to grant 12 additional beyond perimeter slot exemptions. America West submitted its application on January 9, 2004 requesting four Phoenix - National Airport slots and two Las Vegas - National Airport slots. AWA also formally applied for four Los Angeles - National Airport, four San Francisco - National Airport and two Phoenix - National Airport slots should the DOT choose to dismiss the statutory criterion of “providing air transportation with domestic network benefits beyond the 1,250 mile perimeter,” one of the four criteria required to be met for a “perimeter rule” exemption. The DOT must issue its decision selecting the carriers and routes that will receive the new slot exemptions at National Airport on or before April 9, 2004.

     Noise Abatement and Other Restrictions

     Numerous airports served by AWA, including those in Boston, Burbank, Denver, Long Beach, Los Angeles, Minneapolis-St. Paul, New York City, Orange County, San Diego, San Francisco, San Jose and Washington, D.C., have imposed restrictions such as curfews, limits on aircraft noise levels, mandatory flight paths, runway restrictions and limits on the number of average daily departures, which limit the ability of air carriers to provide service to, or increase service at, such airports. AWA’s Boeing 757-200s, Boeing 737-300s, Boeing 737-200s and Airbus A319s and A320s all comply with the current noise abatement requirements of the airports listed above.

     Aircraft Maintenance and Operations

     AWA is subject to the jurisdiction of the FAA with respect to aircraft maintenance and operations, including equipment, dispatch, communications, training, flight personnel and other matters affecting air safety. The FAA has the authority to issue new or additional regulations and to impose civil penalties for violations of the United States Transportation Code or FAA regulations. To ensure compliance with its regulations, the FAA conducts regular safety audits and requires AWA to obtain operating, airworthiness and other certificates, which are subject to suspension or revocation for cause. In addition, a combination of FAA and Occupational Safety and Health Administration (“OSHA”) regulations on both federal and state levels apply to all of AWA’s ground-based operations and to in-flight cabin attendants.