First-Half 2019 Review and Labor Day

Period Air Travel Forecast

August 20, 2019

John P. Heimlich Sharon L. Pinkerton

VP & Chief Economist SVP, Legislative & Regulatory Policy

1H 2019 OPERATIONS AND FINANCIAL RESULTS

airlines.org2

Notable 1H 2019 Operating Challenges

airlines.org3

Source: A4A research, FAA Air Traffic Organization and masFlight (subsidiary of Global Eagle)

Runway Maintenance / Rehabilitation / Widening

ABQ ANC DAL DEN EWR FLL HNL IAH JFK MCO ORD RDU SAN STL

Jan Drone-related disruption at LHR and EWR, government shutdown, Polar Vortex

Feb MCO security incident, smoke at Dallas TRACON, major snowstorms

Mar LAX power outage LAX, MAX grounding, Sabre IT outage, major snowstorms

Apr AeroData (weight/balance) outage, “bomb cyclone,” blizzards, Sabre outage

May Labor issues at AA/SWA, extreme weather, outage at Sabre supplier CenturyLink

Jun Ongoing labor issues, LAX outage, Collins Aerospace GPS issues, thunderstorms

Involuntary Denied Boardings and Customer Complaints Have Been Trending Down

Grounding of B737 MAX Largely Responsible for Anomalous 1H 2019 Increase

airlines.org4

1.2

0

1.1

8 1

.42

1.1

3 1

.38

1.90

1.5

2

1.3

4

0.9

8

0.9

5

0.0

0.5

1.0

1.5

2.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

1H

19

2020

2021

2022

Source: DOT Air Travel Consumer Report

DOT Customer Complaints per 100K Pax*

1.0

9

0.8

2

0.9

9

0.9

2

0.9

2

0.7

6

0.6

2

0.4

0

0.1

4

0.3

1

0.0

0.5

1.0

1.5

2.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

1H

19

2020

2021

2022

Involuntary Denied Boardings per 10K Pax*

* U.S. passenger airlines

B7

37

MA

X G

rou

nd

ed 3

/13

J.D. Power: North America Airline Customer Satisfaction Climbs to Record High

airlines.org

658

773

650

675

700

725

750

775

800

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

20

14

201

5

201

6

201

7

20

18

201

9

202

0

Source: J.D. Power 2019 North America Airline Satisfaction StudySM

“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)

Note: Scale = 0 to 1000

5

Seven factors (in order):

Cost and fees

In-flight services*

Aircraft

Boarding/deplaning/baggage

Flight crew

Check-in

Reservation

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.

* Food, beverage and entertainment

Since 2000: Down $153, 30%

1Q 2019 Inflation-Adjusted Fares Flat YOY and 8 Percent Below 1Q 2010

In Real Terms, Price of Domestic Air Travel Fell ~30% From 1Q 2000 to 1Q 2019

airlines.org6

Source: Bureau of Transportation Statistics

$325

$350

$375

$400

$425

$450

$475

$500

$525

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

Average First-Quarter Domestic Round-Trip Ticket Price Including Taxes (in 2019 Dollars)*

* Fare and taxes only

Since 2010: Down $29, 8%

Traffic Grew Faster Than Capacity, Constrained by Aircraft Issues and Bad Weather

Increase in Price Paid per Mile Flown Trailed U.S. Inflation

airlines.org7

Change (%) 1H19 vs. 1H18

4.4 3.1

1.0 point 0.8 1.7

(0.9)

Traffic(RPMs)

Capacity(ASMs)

Load Factor Yield U.S. CPI Yield (Real)

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

1. RPM = revenue passenger mile; ASM = available seat mile; load factor = RPM ÷ ASM

2. Yield = revenue per passenger-mile flown; CPI = U.S. Consumer Price Index (“inflation”); real yield = inflation-adjusted yield

World Crude-Oil Prices Averaged $66 in First Half of 2019

Spot Price of Brent Crude Oil ($ per Barrel)

airlines.org8

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90Jan-1

6

Jul-

16

Jan-1

7

Jul-

17

Ja

n-1

8

Jul-

18

Jan-1

9

Jul-

19

Jan-2

0

Jul-

20

Jan-2

1

Source: A4A and Energy Information Administration (http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm)

In 1H 2019, U.S. Airlines Saw Average Profit Margin Rise 2.1 Points

Strong Travel Demand Helped Offset Cargo Weakness and Continued Cost Pressure

airlines.org9

Change (%) in Operating Revenues and Expenses: 1H19 vs. 1H18

5.2

(6.2)

3.2 4.9 5.8

0.1

6.4 5.1

8.4

0.0

2.9

7.2 9.3

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 1.7 percent

2. 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

Pre-Tax Profit

Margin (%)

Traffic +4.4%, Yield +0.8%

Air Cargo Volumes Beginning to Plateau

Possible Indicator of Industrial Recession

airlines.org10

0

10

20

30

40

50

60

Jan-1

6

Apr-

16

Ju

l-1

6

Oct-

16

Jan-1

7

Apr-

17

Jul-17

Oct-

17

Jan-1

8

Apr-

18

Jul-18

Oct-

18

Jan-1

9

Ap

r-19

Jul-19

Oct-

19

Domestic International

Source: DOT T100 segment data

Cargo Revenue Ton Miles Flown (Billions)

airlines.org11

The Grounding of the B737 Max, Airbus Production Delays and Other Considerations

Have Led Several Airlines to Modify 2019 Growth Plans

Source: Company SEC filings * As of July 31, 2019

Company Guidance re: 2019 Growth (%) in Scheduled ASMs

Early 2019 Current* Change

Spirit 15 14.5

Allegiant 7-9 8-9

JetBlue 4.5-6.5 5.5-6.5

Delta 3 4

United 4-6 3-4

Hawaiian 1.5-4.5 1.5-2.5

Alaska 2 2.1

American 3 1.5

Southwest 5 (1-2)

MAX Grounding + Aircraft Production Delays = Schedule Reductions

airlines.org12

(261)

(326)

1Q19 2Q19 3Q19 4Q19

Source: Alaska, American, Southwest, United and A4A estimates

B737 MAX

Grounded

3/13/2019

?

Estimated Reduction in Average Daily Scheduled Departures

LABOR DAY PERIOD AIR TRAVEL FORECAST

airlines.org13

U.S. Economy, Jobs Growing; Household Net Worth Continues to Set New Records

airlines.org

2.9

1.6

2.4

2.9

2.2 1.8

2015 2016 2017 2018 2019F 2020F

U.S. Real GDP Growth (% CAGR)

14

U.S. Employment Growth (000s per Month)

22

7

19

3

17

9

22

3

17

2

2015 2016 2017 2018 2019

Sources: U.S. GDP (Bureau of Economic Analysis actuals and IHS Markit forecast); U.S. nonfarm payroll employment growth (month-over-month, seasonally adjusted) from

BLS; consumer sentiment (University of Michigan, Index 1Q 1966=100); U.S. household net worth in current dollars, not seasonally adjusted (Federal Reserve)

Consumer Sentiment (UMich Index 1Q66=100) U.S. Household Net Worth (Trillions)

$9

0

$95

$1

03

$1

04

$1

09

2015 2016 2017 2018 1Q19

97

.9

96

.2

10

0.1

98

.6

97

.5

98

.3

91

.2

93

.8

98

.4

97

.2

10

0.0

98

.2

98

.4

Jul

Aug

Sep

Oct

No

v

De

c

Ja

n

Fe

b

Ma

r

Apr

Ma

y

Ju

n

Ju

l

A4A Projects U.S. Airlines to Carry 17.5M Labor Day-Period* Passengers in 2019

Up ~4 Percent From 16.9M Estimated to Have Flown in 2018

airlines.org15

2.28

2.37

2.70

2.82

2.85

2.98

2.05

2.14

1.98

2.04

2.60

2.71

2.42

2.48

16.9

17.5

2018E

2019F

Wed Thu Fri Sat Sun Mon Tue

Source: A4A, TSA and BTS T1 data – systemwide scheduled service * For this purpose, defined as the Wednesday preceding Labor Day through the Tuesday after

Labor-Day Period* Passenger Enplanements (Millions) on U.S. Airlines

U.S. airlines will carry 2.51 million passengers per day, up ~95,000 from 2018

U.S. airlines will offer 2.87 million seats per day, up ~109,000 from 2018

Friday preceding Labor Day typically falls in the top 25

Saturday/Sunday preceding Labor Day are among the lightest days of the entire year

Airlines Applaud DOT Action on

Emotional Support Animals (ESAs)

airlines.org16

The Number of Passengers Traveling With Emotional Support Animals Is Surging

Growth Rates for U.S. Airlines in 2017 and 2018

airlines.org

58.3

14.3

3.1

4.7

2017

2018

Emotional Support Animals Passengers

17

Source: Data from Alaska, Allegiant, American, Delta, Frontier, Hawaiian, JetBlue, Southwest, Spirit and United plus A4A estimates for rest of industry as of Aug. 19, 2019

Note: Numbers reflect PNRs (not segments) with animals and do not capture multiple animals per PNR.

Year-Over-Year Change (Percent)

airlines.org18

19

Coalition Commending DOT for Issuing Guidance on ESAs and Service Animals

INVESTMENT AT U.S. AIRPORTS TO

ACCOMMODATE DEMAND

airlines.org20

Airport Investment Is Booming Across the United States

U.S. Airports With Capital Improvements Exceeding $100M From 2001-2018*

$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

TUL

OKC

BOI

GPT

ELP

TUS

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

FAI

OGG

ITO

BET

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

21airlines.org

ALB

BUR

LCK

SJU

ANI

JNU

SBA

STT

LIH

KOA

MOB

IWA

AGS

RNO

CID

FSD

IDA

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

ILM

LIH

MCO

CAE

AVL

GSP

TRI

CRW

ROA PHF

CHO

HGR

RFD

PIA

MLISBN

FWA

TOL

EVV

ERI ELM HPN

AVP

ACK

PBG

ISPMDT

JFK

EWR

LGA

ACY

U.S. Airports Have Ample/Multiple Resources from Which to Fund Improvements

airlines.org22

9.2

9.1

8.7 9.2

10

.4

10

.5 11

.5

12

.0

10

.7

10

.6 11

.6 12

.6

12

.9

13

.5 14

.3

14

.4

15

.1 15

.8

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

General Aviation

Commercial Aviation

Airport & Airway Trust Fund Revenues ($ Bils) Airport & Airway Trust Fund Uncommitted Balance ($ Bils)

7.3

4.8

3.9

2.4

1.9

1.8

1.5

1.4

0.3 0.7 1.4 2

.8

4.9 5

.8

5.6 5.9

5.8 6.1

7.7

9.9

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Source: A4A, FAA, Congressional Budget Office, U.S. Treasury

U.S. Airport Revenues ($ Bils)

19.4

19.0

18.6

18.2

19.6

21.0

22.6

23.9

20.2

20.7

21.4

21.5

22.8

23.8

23.7

25.7

26.6

28.6

1.59 1.86 2.06 2.052.16

2.532.84

2.64

2.52 2.73 2.71 2.802.81 2.88 3.04

3.16 3.293.51

21

.0

20

.9

20

.6

20

.2

21

.8

23

.5

25

.5

26

.5

22

.7

23

.4

24

.1

24

.3

25

.6

26

.7

26

.8

28

.9

29

.9

32

.1

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Airlines/Parking/Concessions/Grants/Other* PFCs

U.S. Airport Unrestricted Cash & Investments ($ Bils)

9.8

9.7

10

.5

11

.3

12

.5

12

.8

14

.1

14

.6

15

.9

2010 2011 2012 2013 2014 2015 2016 2017 2018

* Non-PFC revenues are estimated pending final reports by airports to FAA