Updated March 17, 2020

Industry Review: Allocating Capital to Benefit Customers, Employees and Investors

http://airlines.org/dataset/a4a-presentation-industry-review-and-outlook/http://airlines.org/blog/the-nature-and-status-of-u-s-airline-competition-beyond-the-80-percent-rhetoric/https://atwonline.com/aeropolitics/op-ed-how-lower-aviation-fuel-taxes-boost-local-economies

2

“This is probably the best time in modern

history in which to fly.”

Source: https://www.usatoday.com/story/travel/flights/2019/05/29/j-d-powers-best-airlines-customer-satisfaction-2019-southwest-jetblue-alaska/1256499001/

Michael Taylor, Sr. Director, Travel & Hospitality Intelligence, J.D. Power (May 29, 2019)

3

Source: A4A, Bureau of Transportation Statistics, Diio by Cirium and company literature

U.S. Airlines* Facilitate the Safe and Rapid Movement of People and Goods WorldwideU.S. Passenger and Cargo Airlines Connect the World

Moving 58,000 tons of cargo

per day to/from more than 220

countries

Carrying 2.5M passengers

per day to/from nearly 80 countries

* Includes passenger/combination and cargo-only carriers

~ 750,000direct employees

Powering 28,000 flightsper day across

the globe

4

Contents

»Core» Trends in Traffic, Fares, Operations and Financial Performance

» Initiatives to Improve Profitability

» Affordability, Competition and Access to Air Travel

» Reinvestment in People and Product

» Customer Satisfaction

»APPENDIX

5

As Real Airfares Have Plunged, Growth in Flyers = 5x Growth in U.S. PopulationAncillary Services Included, 2018 Domestic Air Travel Was ~44% Cheaper Than in 1980

Source: Bureau of Economic Analysis, Bureau of Labor Statistics and Bureau of Transportation Statistics (DB1B via Airline Data Inc. and T1 scheduled service for U.S. airlines)

$695

$369

43

133

0

20

40

60

80

100

120

140

160

$0

$100

$200

$300

$400

$500

$600

$700

$800

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

2022

2026

2030

Fare+Fees Possible Trips on Disposable Income

Domestic Round Trip (in 2019 Dollars)

927

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

0100200300400500600700800900

1,0001,100

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

2022

2026

2030

Per CapitaM

illio

ns

Passengers per Capita Up 2.3x (+129%)

U.S. Airline Pax +237%

U.S. Population +48%

6

In 2019, U.S. Airline* Profitability Trailed U.S. Corporate Average by ~ Three PointsPre-Tax Profit Margin (% of Operating Revenues)

1 Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United2 CSX, Norfolk Southern and Union PacificSource: Company SEC filings

34.6 28.6

21.5 16.7 13.8 13.8 12.8 12.0 11.3 9.9

6.3 6.3 0.0 0.0

(0.8)

Rai

lroad

s (2

)

McD

onal

d´s

Appl

e

Hon

eyw

ell

Dis

ney

Star

buck

s

All U

.S. C

orps

Com

cast

Cat

erpi

llar

Airli

nes

(1)

Mar

riott

Chi

potle

Nor

dstro

m

Ford

Boei

ng

7

Even in Best Years, the Profitability of U.S. Airlines Lags the U.S. Corporate AveragePre-Tax Profit Margin (%) Gap Widened in 2016-2018, But Narrowed in 2019

Source: ATA Annual Reports (1970-1976), A4A Passenger Airline Cost Index (1977-present); Bureau of Economic Analysis

9.9 12.8

(25)(20)(15)(10)(5)05

101520

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

U.S. Recession U.S. Passenger Airlines All U.S. Corporations

Note: Recessions highlighted in gray

8

U.S. Airlines Continue to Strive for Solid Profitability Across the Business CycleIn Current U.S. Business Cycle, Airline Margins Are Less Than Half the U.S. Average

29.9 28.5

23.3

16.6 15.7

10.8 7.1

0

5

10

15

20

25

30

35

MCD AAPL DIS SBUX All USA CMG Airlines

Sources: U.S. Bureau of Economic Analysis, A4A Passenger Airline Cost Index and company SEC filings

McD

onal

d’s

App

le

Star

buck

s

Pre-Tax Profit Margin (%) in 2010-2019

Dis

ney

Chi

potle

9

In 2019, U.S. Airlines Saw Average Profit Margin Rise 1.7 PointsStrong Travel Demand Helped Offset Cargo Weakness and Continued Cost Pressure

Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United

1. Traffic = revenue passenger miles; yield = revenue per passenger-mile flown; U.S. CPI up 1.8 percent2. Sale of frequent flyer award miles to airline business partners, transportation of pets, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc.3. Aircraft rents, professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, payments to regionals

Change (%) in Operating Revenues and Expenses: 2019 vs. 2018

4.7

(8.6)

4.7 4.5 6.3

(4.5)

8.2 5.4

8.0 1.7 2.5

8.2 9.9

Pre-Tax ProfitMargin (%)

Traffic up 4.1%

10

Through 2019, U.S. Airline Passenger Traffic Held Steady, But Air Cargo Volumes Weakened2020 Will Be Entirely Different

Sources: Bureau of Transportation Statistics T1 all services

(20)(15)(10)(5)05

101520

Jan-

16

Apr-1

6

Jul-1

6

Oct

-16

Jan-

17

Apr-1

7

Jul-1

7

Oct

-17

Jan-

18

Apr-1

8

Jul-1

8

Oct

-18

Jan-

19

Apr-1

9

Jul-1

9

Oct

-19

Jan-

20

Apr-2

0

Jul-2

0

Oct

-20

Jan-

21

Cargo Traffic (RTMs) Passenger Traffic (RPMs)

Change (%) YOY in Traffic* – U.S. Passenger and Cargo Airlines

* RTMs = freight, mail and express revenue ton miles; RPMs = revenue passenger miles

?

11

World Crude-Oil Prices Averaged $64 in 2019 – Below 2018 But $10 Higher Than 2017Spot Price of Brent Crude Oil ($ per Barrel)

Sources: A4A and Energy Information Administration (https://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm)

$0$10$20$30$40$50$60$70$80$90

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov

-16

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep-

17

Nov

-17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Nov

-18

Jan-

19

Mar

-19

May

-19

Jul-1

9

Sep-

19

Nov

-19

Jan-

20

Mar

-20

May

-20

Jul-2

0

Sep-

20

Nov

-20

Jan-

21

12

For U.S. Airlines, the Price of Oil* Is a Huge Determinant of Capacity GrowthWhen Fuel Costs Decline and Finances Improve, Growth Accelerates

Source: Bureau of Economic Analysis, EIA, IHS Markit and published airline schedules via Diio by Cirium as of Jan. 10, 2020

(1.8)

1.3

4.6

0.9 2.0 2.4

(8)

(6)

(4)

(2)

0

2

4

6

2005-2010 ($75) 2010-2014 ($108) 2014-2019 ($57) 2020 (???)

Domestic Airline Capacity (ASMs) U.S. Economy (Real GDP)

* Brent crude oil in dollars per barrel, shown next to each time period

Com

poun

d An

nual

Gro

wth

Rat

e (%

)

Oil Shock+ Weak GDP

Extreme Oil+ Better GDP

Oil Relief+ Good GDP

COVID-19+ Weak GDP

?

13

In 2019, U.S. and Foreign Airlines Offered a Record 3.16M Daily Seats From U.S. AirportsIn 2019, 2.7 Percent YOY Growth in Flights Helped Drive 3.5 Percent Growth in Seats

Sources: Diio by Cirium published schedules as of Jan. 17, 2020, for all U.S. and non-U.S. airlines

Scheduled U.S. Airport Flights/Day (000s)

24.3 24.5 24.8 25.4 26.1

2.7 2.8 2.93 3.06 3.16

2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

Scheduled U.S. Airport Seats/Day (Millions)

14

Scheduled Flights From Small Community U.S. Airports* Up 10 Percent From 2015 to 2019Flights Up 14 Percent at “Small Hub” Airports and 6 Percent at “Nonhub” Airports

Sources: Diio by Cirium published schedules as of Jan. 10, 2020, for all airlines providing scheduled passenger service from U.S. airports to all destinations

Aver

age

Dai

ly F

light

s

3,707 3,072 2,458 2,801

2,805 2,372

2,199 2,322

6,512

5,443 4,657

5,123

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2005 2010 2015 2019

FAA Small Hub Airport FAA Nonhub Primary Airport

* Per https://www.faa.gov/airports/planning_capacity/passenger_allcargo_stats/categories/, U.S. airports with less than 0.25% of annual passenger boardings

Notes: Recession (Dec-2007–Jun-2009); FAA pilot qualification (1,500-hour) rule effective Jul-2013; pilot flight/duty/rest rule effective Jan-2014

15

Airlines Have Deployed Larger Aircraft, and Mainline-Only Carriers Have GrownRegionals Now Just 44% of Domestic Departures; Over Half of Those are Large RJs

% of Domestic U.S. Departures by Aircraft Size*

Source: Diio by Cirium published schedules as of Jan 3, 2020

45 38 27 21

8 15 20 23

37 36 27 22

11 11 25 34

2005 2010 2015 2019

≤ 50 51-100 101-150 151+

* Numbers may not add to 100 due to rounding

16

Almost All U.S. Airlines Have Migrated to Larger Aircraft DomesticallyUltra Low-Cost Carriers Operate the Most Seats per Domestic Flight

102

107 11

9 126 13

8 144 151 17

0 184 191

50

75

100

125

150

175

200

2010 2015 2019

Average Seats per Domestic Departure by Marketing Airline*

Source: Diio by Cirium schedules as of Dec. 6, 2019, for selected marketing airlines * Includes flights operated by regional/express airline partners

17

Domestically, Traditional U.S. Network Carriers Fly Similarly Sized Mainline EquipmentAircraft Size Varies More Widely Across Their Regional/Express Partners

159

159

160 166

76

64 67 60

0255075

100125150175

Alaska American Delta United Alaska American Delta United

2010 2015 2019

Average Seats per Domestic Departure for Traditional U.S. Network Carriers

Source: Diio by Cirium schedules as of Dec. 6, 2019

MAINLINE OPERATIONS REGIONAL PARTNER OPERATIONS

18

In 2018, Inflation-Adjusted Domestic Fares/Fees Fell for Fourth Consecutive YearFrom 2010-2018, the Real Price* of Domestic Air Travel – Including Ancillaries – Fell 6.9 Percent

Source: A4A analysis of DOT Data Bank 1B (all cabins and fare basis codes) and DOT Form 41 via Airline Data Inc. (airlinedata.com) * Excludes taxes; CPI rose 2.4% YOY

364384 389 392 400 386

360 348 340

13

13 13 1213

13

1314

14

9

9 9 1010

10

99

8

389

408 413 416424

410

384371

362

$320

$340

$360

$380

$400

$420

$440

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Airfare/Seat Selection/Upgrades Bag Fees Change Fees

Round-Trip Ticket Price ($ 2018)*

19

Among 11 U.S. Airline Brands, Smaller Carriers Have Been Growing the FastestFrom 2007 to 2019, Allegiant and Spirit Grew 4X and 5X, Respectively

3 6 11 23 3179 98 110 128 131

349408

050

100150200250300350400450

Change (%) in Systemwide Scheduled ASMs – 2007 to 2019

Source: Diio by Cirium schedules as of Jan. 17, 2020, for selected marketing airlines including predecessors

20

32 37 45 54 65 79

95 112 12

8 145 16

0 186 21

4 246 27

1 300

38 48 50 52 53 53 56 57 65 73

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F

Active Fleet Airports Served

Spirit Airlines Aims to Remain the Fastest Growing U.S. CarrierThe Company Is Targeting a Fleet of 300 Aircraft by the End of 2025

Source: Year-end active fleet data from Spirit Airlines as of Feb. 5, 2020 plus A4A estimates for 2022-2024; airports served in December from Diio by Cirium as of Nov. 15, 2019

On October 23, 2019, Spirit announced an MOU with Airbus for the purchase of 100 A320 family (A319neo/A320neo/A321neo) aircraft (plus 50 options) for delivery through 2027.

21

Smaller U.S. Carriers Are Serving More and More Domestic MarketsCompetitive Presence of Low-Cost and Ultra Low-Cost Carriers Continues to Expand

Source: Diio by Cirium schedules as of August 30, 2019, for selected marketing airlines including predecessors

74

54 50

15

48

18

99

120

102

22

6750

Alaska Allegiant Frontier Hawaiian JetBlue Spirit

2007 2019

Number of U.S. Airports Served*

* July 15-21 of each year

22

ALK/Hawaiian/JBLU/ULCCs Could Carry a Third of Domestic Passengers By 2030Global Network Carrier Share Fell From 73 Percent in 2000 to 53 Percent in 2018

Source: DOT Data Bank 1B (each airline shown on a marketing-carrier basis and tracked with its respective merged/acquired predecessors [e.g., UA/CO]

73 71 69 68 67 67 65 62 60 59 58 57 57 57 56 55 54 53 53

18 19 20 21 21 21 22 23 24 25 25 25 25 24 24 24 24 24 23

9 10 10 11 12 13 13 15 16 16 17 18 19 19 20 21 22 23 24

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Global Network (AA, DL, UA) Southwest Other

Alaska 6.3JetBlue 5.3Spirit 4.2Frontier 3.1Allegiant 2.4Hawaiian 1.5Sun Country 0.4Other 0.4

Share (%) of U.S. Domestic O&D Passengers by Airline Business Model

23

LCCs/ULCCs and Other Non-AA/DL/UA Airlines* Now Carry Significant Share of Domestic Origin-Destination (O&D) Passengers in the Largest U.S. Metro Areas

Source: Compass Lexecon and A4A analysis of DOT Origin-Destination Survey (Data Bank 1B)

Metro Area Airport(s) 2000 2007 2018Atlanta, GA ATL 14.4 28.1 28.9Boston, MA BOS 7.8 27.1 49.5Charlotte, NC CLT 0.0 8.8 10.4Chicago, IL MDW/ORD 26.0 30.6 35.9Dallas/Fort Worth, TX DAL/DFW 27.3 26.6 36.6Denver, CO DEN 14.7 38.8 55.0Detroit, MI DTW 15.0 23.3 29.7Houston, TX HOU/IAH 34.0 30.6 42.7Los Angeles, CA BUR/LAX/LGB 35.8 43.7 50.8Miami, FL FLL/MIA 19.1 35.5 45.2Minneapolis/St. Paul, MN MSP 12.7 14.6 29.7New York, NY-NJ EWR/JFK/LGA 8.5 25.8 29.8Orlando, FL MCO/SFB 24.2 52.3 66.2Philadelphia, PA PHL 6.6 28.0 28.8Phoenix, AZ PHX 39.4 46.5 52.0St. Louis, MO STL 26.5 35.5 61.3Salt Lake City, UT SLC 23.3 34.2 30.5San Diego, CA SAN 48.5 55.0 63.4San Francisco, CA OAK/SFO 33.9 45.0 52.2Seattle, WA SEA 51.4 57.0 63.8Tampa, FL TPA/PIE 29.2 48.6 61.6Washington, DC BWI/DCA/IAD 17.5 35.7 46.0

24

Competitive Choices for Domestic Flyers Have Continued to IncreaseContrary to Some Assertions, Traffic Analysis Shows More Competitors on U.S. City Pairs

Source: Compass Lexecon analysis of DOT Origin-Destination Survey (Data Bank 1B)

3.33

3.39

3.48

2000

2010

2018

* Carrying at least 5 percent of O&D passengers in the city pair; average number of competitors is passenger-weighted across city pairs

Average Number of Competitors* on All Reported Domestic U.S. Itineraries

25

Competition in Select City Pairs: Airline Share of O&D Passengers in 2019 vs. 2007Competitive Presence of Low-Cost and Ultra Low-Cost Carriers Continues to Expand

Source: DOT Data Bank 1B (nondirectional data for year ending 3Q19) and published airline schedules via Diio by Cirium

Los Angeles (BUR/LAX/LGB)-Seattle2007 2019

Alaska 63.7 Alaska 54.9United 17.1 Delta 23.2Southwest 7.9 JetBlue 5.9American 6.5 Southwest 5.4

American 5.3

Boston-Cleveland/Akron2007 2019

Continental 63.2 JetBlue 45.5AirTran 29.5 Delta 22.6

Spirit 12.9United 12.5

Chicago (MDW/ORD)-Sacramento2007 2019

United 45.1 United 41.1Southwest 41.8 Southwest 35.4US Airways 5.0 American 17.8

Memphis-Orlando (MCO/SFB)2007 2019

Northwest 60.6 Southwest 44.9AirTran 22.2 Delta 16.9Frontier 8.7 Allegiant 14.9Delta 5.6 Frontier 13.3

American 7.8

26

Nonstop Service Is Available in More Domestic Air-Travel Markets Than Ever BeforeShare of Busiest Markets With Nonstop Service Rose From 69 Percent in 1990 to 89 Percent in 2018

Source: Compass Lexecon analysis of DOT O&D traffic data, OAG schedule data, and T100 and Form 298C.traffic data

69.1 70.8 75.3 80.7 78.8 84.5 88.7

0102030405060708090

100

1990 1995 2000 2005 2010 2015 2018

Share (%) of Top 2000 Domestic Markets (Origin-Destination Airport Pairs) With Nonstop Service*

* Top 2000 markets accounted for 81% of domestic O&D passengers in 2018

27

U.S. Passenger Airline Jobs Averaging Highest Level Since 2002January 2020 Represented the 75th Consecutive Month of YOY Gains

Source: Bureau of Transportation Statistics for scheduled U.S. passenger airlines

520.

0

378.

6

437.

9 44

8.6

452.

9

375

400

425

450

475

500

525

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

U.S. Scheduled Passenger Airline Full-Time Equivalent Employees (000s)

2010-2019+69,978 (18.5%)

2000-2010-141,367 (27%)

28

U.S. Airline Job Growth Continues to Outpace Overall U.S. Job Growth

Source: Bureau of Labor Statistics (U.S. nonfarm employment, CES0000000001) and Bureau of Transportation Statistics (U.S. scheduled passenger airline FTEs)

(3)(2)(1)012345

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

Jan-

18

Jul-1

8

Jan-

19

Jul-1

9

Jan-

20

Jul-2

0

Jan-

21

U.S. Airlines Overall USA

Year-Over-Year Change (%)

29

U.S. Passenger Airlines Spent $53 Billion on Employee Wages & Benefits in 2018Average Compensation per Employee Rose Approximately $35K (41 Percent) From 2010-2018

Source: A4A Passenger Airline Cost Index

$32.3 $33.3 $35.6 $35.8 $38.3$42.6

$46.7$50.3 $52.7

85.3 86.492.4 94.0

99.5

107.8113.6

118.1 120.2

2010 2011 2012 2013 2014 2015 2016 2017 2018

Total ($Bils) Per FTE ($000)

Employee Wages and Benefits

30

From 2010-2019, U.S. Airlines Plowed ~73 Percent of Operating Cash Flow Back Into the Product While Retiring $91 Billion in Debt and Returning $56 Billion in Cash to Shareholders

Source: SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and merged/acquired predecessors * Capital expenditures

2010-2019 Total Per Passenger % of Ops CF

Retire Debt $91B ~$12 48%

Enhance the Product* $139B ~$18 73%

Reward Shareholders $56B ~$7 30%

31

U.S. Airlines Have Been Spending Billions on Planes/Facilities/Ground Equipment/TechnologyCollectively, U.S. Passenger Carriers Took Delivery of ~880 New Aircraft in 2017-2019

Source: SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and merged/acquired predecessors* Includes payments made for aircraft and other flight equipment, ground and other property and equipment (e.g., vans, air stairs, lavatory trucks, deicing vehicles), airport and other facility construction and information technology

Capital Expenditures (Billions) for U.S. Passenger Airlines

$5.2$6.6

$9.8$12.5

$13.9$17.0 $17.5

$19.8 $18.6 $17.8

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Red

uced

due

to

dela

yed

a/c

deliv

erie

s

32

Investments in Aircraft, Facilities, Ground Vehicles and IT on the Rise for U.S. Cargo Airlines

Source: SEC filings of Atlas, FedEx and UPS * Facilities, vehicles, information technology, package handling and ground support equipment

4.36.2 6.7 6.0 6.4 7.0

8.1

10.912.7 12.2

- 2 4 6 8

10 12 14 16

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Aircraft and Related Equipment Other*

Capital Expenditures ($ Billions) for Atlas/FedEx/UPS

33

Source: A4A analysis of FAA Form 127 reports

Capital Improvements at U.S. Airports, Too, Are on the RiseIn 2018, Terminal-Related Projects Constituted 48 Percent of Airport Capital Spending

3.1 2.4 2.4 3.0 2.9 3.1 2.5 2.9 2.7

4.8 4.1 3.6 3.5 3.4 3.7 4.2

5.5 7.0 1.3

1.4 1.4 0.9 0.8 1.1 1.8 2.2

2.2 1.7 1.3 1.4 1.4 1.7 1.9 1.8

2.1 2.7 $10.9

$9.2 $8.8 $8.9 $8.9 $9.8 $10.3$12.7

$14.7

2010 2011 2012 2013 2014 2015 2016 2017 2018

Airfield Terminal Parking/Roads/Rail/Transit Other

Capital Expenditures (Billions) for U.S. Commercial-Service Airports

34

Airport Investment Is Booming Across the United StatesU.S. Airports With Capital Improvements Exceeding $100M From 2001-2018

Source: FAA Form 127 reports (capital expenditures and construction in progress) and A4A research; note: large hub airports include projects underway or approved

$1-4.9B

$5-9.9B

$10B+

$100-$999M

.

ATL

CLT

DCA

DFW

IAH

MDW

MIA

PHL

SEA

TPA

MSP

PDX

DEN

LAS

PHX

SLC

SAN

LAX

BWI

MYR

IND

ICT

AUS

MEM

LGB

SJC

MSY

MCI

BHMDAL

HOU

RDUBNA

SMF STL

SGF

DSM

TULOKC

BOI

GPT

ELPTUS

JAX

COS

HSV

GRR

SNA

FAT

ONT

XNA

LIT

ECP

BDL

GEG

AEX

PNS

PBI

RSW

SAV

SFB

LEX

BTR

PWM

LFT

BUF

GSO

DLH

OMA

ROC SYR

MHT

ABQ

BOS

PVD

ABE

CLE

CAKPIT

CHS

DAY

CVG

CMH

SAT

TYS

IAD

SWF

FLL

DTW

SDF

ORF

RIC

BTV

MKE

SFO

OAK

ORD

HNL

ANC

FAIOGG

ITOBET

ALB

BUR

LCK

SJUANI

JNU

SBA

STT

LIH

KOA

MOB

IWAAGS

RNO

CID

FSDIDA

SHV

BGR

MRY

PSP

LIH

LIH

BFI

PUW

SBP

SGU

PSC

RDM

EUG

MFR

BLI

LIHJAC

MSO

GTF

BZNBIL

PIE

SRQ

DABMLB

ISN

MOT

BISFAR

LNK

RST

LBB

ABI

CRPEFD

MSN

ATW

JAN

TLH

ILMLIH

MCO

CAE

AVL

GSP

TRI

CRW

ROA PHF

CHO

HGR

RFD

PIA

MLISBN FWA

TOL

EVV

ERI ELM HPN

AVP

ACK

PBG

ISPMDTJFK

EWR

LGAACY

35

J.D. Power: North America Airport Satisfaction* Climbs to Record HighLatest Results Released Sept. 25, 2019

Source: : J.D. Power North America Airport Satisfaction StudySM

* Now in its 14th year, the study is based on responses from 32,276 U.S. or Canadian residents who traveled through at least one U.S. or Canadian airport and covers both departure and arrival experiences (including connecting airports) during the past three months. Travelers evaluated either a departing or arriving airport from their round-trip experience. The study was fielded from October 2018 through September 2019..

689

675 69

0 725

731 74

9 761

762

600

650

700

750

800

2007 2008 2010 2015 2016 2017 2018 2019* Concourses, lounges, signage, restrooms, gate areas

Six factors (in order of importance):• Terminal Facilities*• Airport Accessibility• Baggage Claim• Security Check• Check-In / Baggage Check• Food / Beverage / Retail

Note: Scale = 0-1000; study not conducted in 2009/2011-2014

“Scaffolding and cranes are official welcome signs to several North American airports these days as record passenger volumes force major expansion efforts.”

36

ACSI 2019 Airline Customer Satisfaction Index: Second Best in 25-Year HistoryEase of Booking and Checking in for Flight Rank Highest

Source: ACSI Travel Report 2018-2019 (April 30, 2019)Note: ACSI and its logo are Registered Marks of the University of Michigan; see http://www.theacsi.org/the-american-customer-satisfaction-index

62

74

60626466687072747678

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Scale = 0-100; ACSI for airlines commenced in 1994828282

8180808080

7979

7878

7775

7373

7169

Ease of check-inMobile app quality

Mobile app reliabilityEase of making reservation

Courtesy of flight crewCourtesy of gate staff

Timeliness of arrivalWebsite satisfication

Baggage handlingBoarding experience

Call center satisfactionCleanliness of cabin and lavatory

Range of flight schedulesLoyalty program

Overhead storageQuality of premium food/beverage

Quality of inflight entertainmentSeat comfort

37

J.D. Power: North America Airline Customer Satisfaction Climbs to Record HighLatest Results Released May 29, 2019

Source: : J.D. Power North America Airline Satisfaction StudySM

Notes: The study is based on responses from 5,966 passengers who flew on a major North American airline between March 2018 and March 2019.

658

773

650

675

700

725

750

775

800

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Note: Scale = 0 to 1000

Seven factors (in order of importance):• Cost and fees• In-flight services (food/beverage/IFE)• Aircraft• Boarding/deplaning/baggage• Flight crew• Check-in• Reservation

“Airlines continue to deliver on the operational side of air travel. New technology investments have dramatically improved the reservation and check-in process. Fleets are newer and travelers generally feel that they are getting great value for their money. These improvements have been most profound in the traditional carrier segment, where customer satisfaction has climbed considerably.”

— Michael Taylor, J.D. Power (May 29, 2019)

38

Involuntary Denied Boardings and Customer Complaints Have Been Trending DownGrounding of B737 MAX Largely Responsible for Anomalous 2019 Increase

Source: DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)

1.20

1.

18 1.42

1.

13 1.38

1.90

1.52

1.

34

0.98

0.

99

0.0

0.5

1.0

1.5

2.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

DOT Customer Complaints per 100K Pax*1.

09

0.82

0.

99

0.92

0.

92

0.76

0.

62

0.40

0.

14

0.24

0.0

0.5

1.0

1.5

2.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Involuntary Denied Boardings per 10K Pax*

B737 MAX Grounded 3/13

* U.S. passenger airlines

39

40

Diminished Airline Pricing Power Has Led to Diminished “Take” of U.S. EconomySystemwide Passenger and Ancillary Revenues as Share of U.S. Gross Domestic Product

Source: A4A Passenger Airline Cost Index

0.6%

0.7%

0.8%

0.9%

1.0%19

80

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

Passenger Revenue Passenger and Ancillary Revenue

1980-2000 average = 0.93%

($45B)

41

In 2019, Passenger Traffic on U.S. Airlines Grew 4.4 Percent While Capacity Rose Just 3.3 Percent Due to Grounding of B737 MAX, Airbus Delays, Labor Issues and Disruptive Weather

Source: U.S. Bureau of Transportation Statistics T1, systemwide scheduled service on U.S. airlines – revenue passenger miles (RPMs) and available seat miles (ASMs)

82.1 82.0 82.8

83.1 83.4 83.8

83.4 83.5 83.7

84.6

80

81

82

83

84

85

86

700

800

900

1000

1100

1200

1300

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Load Factor (%)

Bill

ions

Load Factor (%) RPMs ASMs

42

U.S. Airlines Have Continued to Move More People and Goods Over Longer Distances

Source: U.S. Bureau of Transportation Statistics (T1 systemwide for U.S. airlines – all services) Note: Recessions highlighted in gray

00

10

20

30

40

50

60

70

80

90

100

0

200

400

600

800

1,000

1,200

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

2022

2026

2030

Revenue Passenger Miles (Billions)

00

10

20

30

40

50

60

70

80

90

100

05

101520253035404550

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

2022

2026

2030

Cargo Revenue Ton Miles (Billions)

43

Especially Since 2000, Changes in the Price to Fly a Mile on U.S. Carriers Have Correlated Closely With Changes in the Cost of Inputs to Airline Production

Source: A4A Passenger Airline Cost Index

0

50

100

150

200

250

10.00

11.00

12.00

13.00

14.00

15.00

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Passenger Yield (Left Axis) Airline Cost Index (Right Axis)

Yiel

d (C

ents

per

RPM

) Cost Index (2000=100)

44

In 2011-2018, Average Load Factor Has Exceeded Breakeven RequirementStable at 82 to 84 Percent Over Past Several Years, With Breakeven Rising to 75 Percent

Source: A4A Passenger Airline Cost Index (http://airlines.org/dataset/a4a-quarterly-passenger-airline-cost-index-u-s-passenger-airlines/)

56.7 62.6

66.2

81.3 81.0 80.9 77.5 75.6

66.8 68.2 71.2 74.6

83.7

50556065707580859095

10019

71-1

980

1981

-199

0

1991

-200

0

2001

-201

0

2011

2012

2013

2014

2015

2016

2017

2018

Breakeven Actual

Load Factor (%)

45

Low-Cost Carriers In Particular Continue to Put Substantial Pressure on Fares“Southwest Effect” Remains in Force – Brueckner/Lee/Singer

Source: Jan K. Brueckner, Darin Lee and Ethan S. Singer, “Airline competition and domestic US airfares: A comprehensive reappraisal,” Economics of Transportation, 2013

A December 2016 update of the frequently cited Brueckner/Lee/Singer study (2013) demonstrated that the “Southwest Effect” remains in force:

o In the period 3Q 2015 through 2Q 2016, Southwest’s presence on a route lowered fares 21.2 percent

o In addition, the update found that many smaller but rapidly expanding carriers put substantial downward pressure on global network carrier domestic air fares, e.g.: Alaska ↓ 24.0 percent JetBlue ↓ 25.4 percent Spirit ↓ 18.5 percent

46

Low-Cost Carriers In Particular Continue to Put Substantial Pressure on Fares“Southwest Effect” Remains in Force – Beckenstein/Campbell

Source: Alan R. Beckenstein, Ph.D., Professor of Business Administration at the Darden School of Business, University of Virginia; and Brian M. Campbell, Ph.D., Principal, the Campbell-Hill Aviation Group, LLC, “Public Benefits and Private Success: The Southwest Effect Revisited,” Darden Business School Working Paper Number 206 (August 2017)

“The presence and magnitude of the Southwest Effect has endured through time. Even today, when new markets have frequently been affected already by Southwest’s fares on connecting services, the Southwest Effect still shows, on average, an additional market fare reduction of 15% and corresponding traffic increase of 28% to 30%, from the introduction of nonstop service by Southwest.”

“The Southwest Effect is alive and well. We find no evidence that the Southwest Effect has been eroded or overtaken in significance or magnitude by other airlines… Our study finds that Southwest produces $9.1 billion annually in domestic consumer fare savings. One-way average market fares are $45 lower when Southwest serves a market nonstop than when it does not. If Southwest provides only connecting service in a city-pair market, average market fares are $17 lower (one-way) than when there is no competitive effect from Southwest.”

47

From 2017-2019, Medium-Sized U.S. Airports Grew Faster Than Large U.S. AirportsPercent Change in Scheduled Available Seat Miles at Top U.S. Airports: 2017 to 2019

Source: Diio by Cirium published schedules as of Jan. 10, 2020, for all airlines providing scheduled service

81

53

44

34

31

27

25

22

20

20

20

18

18

16

15

15

15

14

13

12

12

12

11

11

11

11

11

10

10

9 9 9 9 8 8 8 7 7 7 7 6 6 6 6 6 5 5 5 5 4 4 3 3 3 3 3 2 2 (2

)(3

)(4

)

(10)0

102030405060708090

ON

TBU

RJA

XBN

AAU

SR

DU

OG

GSM

FSA

TM

SY TPA

CM

HSJ

CD

EN IND

RSW CVG BO

SSA

NM

CO

OM

AD

AL FLL

SEA

EWR

PHL

SLC

HO

UST

LPB

ID

FW CLE PI

TSF

OIA

HSJ

UAB

QD

TW BUF

ANC

CLT

MSP IA

DO

RD

ATL

LGA

BDL

PDX

OAK

PHX

LAS

LAX

SNA

DC

ABW

IJF

KH

NL

MC

IM

KE MIA

MD

W

48

E-Commerce and Rapid Fulfillment Redrawing the Map for Distribution of Air CargoCincinnati (CVG) and Tampa (TPA) Are Among the Biggest Winners

Source: DOT T100 segment data

15

(8)

19 38

(4)

18

263

(18)

2 32

(7)

11

69 25 20 13 8 6 19

42

101

9 31

(3)(21)

2 39 23 19

149 104

40 17 34 41

(100)(50)

050

100150200250300

MEM AN

CSD

FLA

XM

IAO

RD

CVG JF

KIN

DD

FWEW

RAT

LO

NT

HN

LO

AKSF

OPH

LIA

HSE

APH

XR

FDBO

SPD

XD

EN IAD

MSP

MC

OD

TW SLC

TPA

BWI

CLT

AFW

SJU

LCK

% Change in Outbound Cargo Payload at Largest U.S. Cargo Airports, 2010-2018

49

In the Deregulated Period, U.S. Airline “Earnings” Have Been Cyclical and VolatileCumulative Net Income = $35 Billion (0.9 Percent of Revenues)

Source: A4A Passenger Airline Cost Index

1.8

(11.4)

20.6

(65.0)

88.9

(100)(80)(60)(40)(20)

020406080

100

1979-1989 1990-1994 1995-2000 2001-2009 2010-2018

Net

Inco

me

($ B

illio

ns)

0.4%Margin: (3.3%) 3.8% (6.3%) 6.0%

50

Airline Creditworthiness Has Improved But Continues to Lag Many Fortune 500sStandard & Poor’s Ratings (as of March 17, 2020)

Source: Standard and Poor’s; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?”

InvestmentGrade1

Speculative2

Grade

1 Describes issuers with relatively high levels of creditworthiness and credit quality2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk

Johnson & Johnson, Microsoft AAAAlphabet (Google), ExxonMobil AA+Walmart AAToyota AA-Airbus, PepsiCo A+Amtrak, Target, UPS ABoeing, BP A-EasyJet, Ryanair, Southwest, eBay, GE, McDonald’s, Starbucks BBB+British Airways/IAG, Lufthansa, FedEx, Marriott BBBDelta, Ford BBB-Air Canada BB+Alaska, JetBlue, United, Avis Budget Group, Sabre BBAeromexico, Air Baltic, American, Hawaiian, LATAM,, TAP BB-Allegiant, Azul, SAS, Turkish, Virgin Australia, Spirit, WestJet, Hertz B+Gol Linhas Aereas (GOL) BAvianca SD

51

From 2010-2019, Following the Financial Crisis, U.S. Airlines Retired ~$91 Billion in Debt and Returned ~$56 Billion to Shareholders to Lure and Retain New Equity Investors

Source: SEC filings of AAL/ALGT/ALK/DAL/HA/JBLU/LUV/SAVE/UAL and merged predecessors * Payments on long-term debt and capital lease obligations

9.111.2

7.5 7.910.5

8.0 8.56.1

9.812.1

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Retirement of Long-Term Debt ($ Billions) Returns to Shareholders ($ Billions)

0.1 0.3 0.6 1.2

4.6

10.5

13.1

8.87.8

9.3

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Stock Repurchase Cash Dividends

52

As U.S. Airlines Generate Sufficient Cash from Operations, They Are Better Able to Fund Capital Improvements, Improve Customer Experience and Enhance Shareholder Value

Source: SEC filings of AAL/ALGT/ALK/DAL/HA/JBLU/LUV/SAVE/UAL and merged predecessors * Operating cash flow minus capital expenditures

Cas

h Fl

ow (B

illion

s)

4.5 3.0

(0.0)0.6

2.5

11.1 10.5

1.5

6.8 9.8

27.6

($5)

$0

$5

$10

$15

$20

$25

$30

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Free* (FCF) Operating

53

U.S. Airline Industry Employment Has Reached Its Highest Level Since the End of 2000Over the Past Decade, Since the Great Recession, U.S. Airlines Added 186,000 Jobs (33%)

Source: Bureau of Transportation Statistics * 2016 includes FedEx acquisition of TNT on May 25, 2016, which increased headcount by approximately 55,000

754

667

649

612

625

611

603

621

587

564

568

583

583

584

594

615 68

6 70

5 73

0 75

0

0

100

200

300

400

500

600

700

80020

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Year-End Full-Time + Part-Time Employees at U.S. Passenger and Cargo Airlines (000s)

54