Updated November 18, 2019

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 and Bureau of Transportation Statistics

U.S. Airlines* Facilitate the Safe and Rapid Movement of People and Goods Worldwide

28,000 worldwide flights per day 58,000 tons of cargo per day

2.4 million passengers per day

* Includes passenger/combination and cargo-only carriers

Over 740,000 direct employees

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 = 4.7x 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)

$300$400$500$600$700

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

Fare Fare + AncillaryDomestic Round Trip (in 2018 Dollars)

0.0

1.0

2.0

3.0

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

Fare Fare+Ancillary

Domestic Round Trip (% of Disposable Income)

889

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

0

100

200

300

400

500

600

700

800

900

1,000

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

2022

Per CapitaM

illio

ns

Passengers per Capita Have Doubled (+120%)

U.S. Airline Passengers +224%

U.S. Population +47%

6

In 2018, U.S. Airline* Profitability Was a Little Over Half the U.S. AveragePre-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

37.2 33.3

27.4 24.8 23.4 17.9 16.1 15.2 14.3

11.3 10.4 8.2 5.1 3.5 2.7

McD

onal

d´s

Rai

lroad

s (2

)

Appl

e

Dis

ney

Star

buck

s

Hon

eyw

ell

Com

cast

All U

.S. C

orps

Cat

erpi

llar

Mar

riott

Boei

ng

Airli

nes

(1)

Nor

dstro

m

Chi

potle

Ford

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

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

9.3 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

30.0 29.7

25.1

17.1 15.7

11.6

6.7

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 2010-2018

Dis

ney

Chi

potle

9

In First Nine Months of 2019, U.S. Airlines Saw Average Profit Margin Rise 1.9 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 1.7 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: YTD3Q19 vs. YTD3Q18

4.9

(7.9)

3.1 4.5 5.9

(3.5)

7.3 4.9 8.5

1.2 2.4 8.2 10.1

Pre-Tax ProfitMargin (%)

Traffic up 4.0%

10

Air Cargo Volumes Beginning to PlateauPossible Indicator of Industrial Recession

Sources: Bureau of Transportation Statistics T1 all services

(10)

(5)

0

5

10

15

20

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

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

* Freight, mail and express revenue ton miles RTMs) flown systemwide

11

World Crude-Oil Prices Averaged $64 in First 10 Months of 2019Spot Price of Brent Crude Oil ($ per Barrel)

Sources: A4A and Energy Information Administration (http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.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 Mi as of Oct. 25, 2019

(1.8)

1.3

4.6

0.9 2.0 2.4

(6)

(4)

(2)

0

2

4

6

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

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

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

Compound Annual Growth Rate (%)

High Oil + Tepid GDP =Industry Shrinks

Extreme Oil+ Better GDP =Industry Grows~ ½ Economy

Lower Oil+ Better GDP =Industry Grows~ 2X Economy

13

U.S. and Foreign Airlines Offering a Record 3.16M Daily Seats From U.S. AirportsIn 2019, ~2.7 Percent YOY Growth in Flights Driving ~3.5 Percent Growth in Seats

Sources: Innovata (via Diio Mi) published schedules as of Nov. 15, 2019, 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 and Seats in Small Communities* Rebounding Steadily in Recent YearsSmall U.S. Airports Seeing Most Flights Since 2011, Most Seats Ever

Sources: Innovata (via Diio Mi) published schedules as of Nov. 8, 2019, for all airlines providing scheduled passenger service from U.S. airports to all destinations

Avg.

Dai

ly F

light

s (S

ched

uled

)

5,121

456,094

300,000

350,000

400,000

450,000

500,000

550,000

600,000

3,000

3,500

4,000

4,500

5,000

5,500

6,000

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Avg. Daily Seats (Scheduled)

Flights (Left Axis)

Seats (Right Axis)

* 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 Are Deploying Larger Aircraft, and Mainline-Only Carriers Are GrowingRegionals Now Just 43% of Domestic Departures; Over Half of Those are Large RJs

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

Source: Innovata (via Diio Mi) published schedules as of May 13, 2019

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

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)*

17

Among 11 U.S. Airline Brands, Smaller Carriers Have Been Growing the FastestAllegiant and Spirit Are Now Four to Five Times as Large as They Were in 2007

3 6 11 23 3179 98 110 128 131

349408

050

100150200250300350400450

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

Source: Innovata (via Diio Mi) schedules as of Nov. 8, 2019, for selected marketing airlines including predecessors

18

36 28 28 32 37 45 54 65 79 95112 128

145166

193

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

E

2020

F

2021

F

Spirit Airlines Will Continue to Be the Fastest Growing U.S. Carrier for the Foreseeable FutureYear-End Active Fleet*

Source: Spirit Airlines as of Oct. 23, 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.

19

The Grounding of the B737 Max, Airbus Production Delays, Changing Market Conditions and Other Considerations Have Led Several Airlines to Modify 2019 Growth Plans

Source: Company SEC filings

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

Early 2019 10/24/19 ChangeSpirit 15 14.5 --Allegiant 7-9 8.5-8.9 --JetBlue 4.5-6.5 6-7

Delta 3 4

United 4-6 3-4

Hawaiian 1.5-4.5 1.9-2.4 --Alaska 2 2.1 --American 3 1

Southwest 5 (1.5)

20

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

Source: Innovata (via Diio Mi) 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

21

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

22

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

23

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

24

Competition in Select City Pairs: Airline Share of O&D Passengers in 2018 vs. 2007Competitive Presence of Low-Cost and Ultra Low-Cost Carriers Continues to Expand

Source: DOT Data Bank 1B and Innovata published schedules via Diio Mi

Los Angeles (BUR/LAX/LGB)-Seattle2007 2018

Alaska 63.7 Alaska 56.4United 17.1 Delta 20.6Southwest 7.9 JetBlue 6.3American 6.5 Southwest 6.0

American 5.7

Boston-Cleveland/Akron2007 2018

Continental 63.2 JetBlue 48.5AirTran 29.5 United 25.7

Spirit 13.4American 5.1Delta 5.1

Chicago (MDW/ORD)-Sacramento2007 2018

United 45.1 Southwest 37.4Southwest 41.8 United 34.1US Airways 5.0 American 24.1

Memphis-Orlando (MCO/SFB)2007 2018

Northwest 60.6 Southwest 44.9AirTran 22.2 Delta 16.2Frontier 8.7 Frontier 16.2Delta 5.6 Allegiant 15.0

American 5.8

25

Air Travel Between the U.S. and Foreign Countries* Reached All-Time High in 2018Foreign Flag Airlines Carried 53 Percent of Passengers (Up From 47 Percent in 2013)

Source: U.S. Department of Commerce National Travel and Tourism Office *Years preceding 2011 do not include traffic between the United States and Canada

98.4 102.1 104.6 107.2 111.9 115.9

86.9 95.2 104.5 114.4 121.7 130.1 185.4 197.3 209.1 221.6 233.6 246.1

0

50

100

150

200

250

300

2013: 4.4% 2014: 6.5% 2015: 6.0% 2016: 6.0% 2017: 5.4% 2018: 5.3%

U.S. Flag Foreign Flag

International Air Passengers* (Millions) to/from the United States

26

U.S. Passenger Airline Jobs Averaging Highest Level Since 2002September 2019 Represented the 71st Consecutive Month of YOY Gains

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

520.

0

378.

6

437.

9 44

7.1

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)

2010-2018+59,330 (15.7%)

2000-2010-141,367 (27%)

27

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 (%)

28

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

29

From 2010-2018, U.S. Airlines Plowed 75 Percent of Operating Cash Flow Back Into the Product While Retiring $79 Billion in Debt and Returning $48 Billion in Cash to Shareholders

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

2010-2018 Total Per Passenger % of Ops CF

Retire Debt $78.8B ~$12 49%

Enhance the Product* $120.9B ~$18 75%

Reward Shareholders $47.5B ~$7 29%

30

U.S. Airlines Have Been Spending Billions on Planes/Facilities/Ground Equipment/TechnologyCollectively, Passenger Carriers Took Delivery of One New Aircraft per Day 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 Over $1B shifted from 2019 to 2020

due to delayed aircraft deliveries

$5.2 $6.6$9.8

$12.5 $13.9$17.0 $17.5

$19.9 $18.6 $18.1

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020F

?

31

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

$4.3$6.2 $6.7 $6.0 $6.4 $7.0

$8.1

$10.9$12.7 $12.4

- 2 4 6 8

10 12 14 16

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

Aircraft and Related Equipment Other*

Capital Expenditures (Billions) for Atlas/FedEx/UPS

32

Airline-Airport Collaboration Has Paved Way for Widespread Infrastructure InvestmentMore Than $200B of Airport Infrastructure Development Across the USA Since 2008

Source: A4A research and FAA Form 127 reports filed by U.S. airports

» New, expanded or modernized terminal facilities at Atlanta, Bangor, Boston, Charlotte, Chicago (ORD), Dallas (DAL and DFW), Denver, Eugene, Everett, Grand Rapids, Greenville-Spartanburg, Honolulu, Houston (IAH), Kansas City, Las Vegas, Los Angeles, Miami, Nashville, Newark, New Orleans, New York (JFK and LGA), Oakland, Orlando, Pasco, Phoenix, Portland, Reno-Tahoe, Salt Lake City, San Antonio, San Diego, San Francisco, San Luis Obispo Seattle, Washington (DCA) and Wichita

» 27 airfield capacity projects including new runways at Charlotte, Chicago (ORD), Fort Lauderdale, Seattle and Washington (IAD) and airfield projects at Anchorage, Columbus, Des Moines, El Paso, Manchester, Philadelphia, Providence and Sioux Falls

» Investment in cargo and maintenance infrastructure is also robust, including projects in Baltimore, Cedar Rapids, Charlotte, Chicago (ORD), Cincinnati, Denver, Des Moines, Fort Worth, Greensboro, Indianapolis, Lafayette, Louisville, Memphis, Miami, Newark, Ontario, Phoenix, Rockford and Tampa

» In 2018 alone, airlines and airports together invested a record $14.7 billion on U.S. airport capital projects – up 16 percent from 2017 and 43 percent from 2016

33

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

34

Fitch Ratings: Skies Remain Friendly for U.S. Airports

Source: https://www.fitchratings.com/site/pr/10049679 and Peer Review of U.S. Airports (Attribute Assessments, Metrics and Ratings), Oct. 29, 2018

“…strong overall performance for U.S. airports should continue undeterred for the foreseeable future according to Fitch Ratings in its latest annual peer review for the sector…

Fitch-rated airports are still largely entrenched in ‘A’ territory. ‘Airports in general are showing a lot of resilience as the industry continues to evolve and event-driven challenges from the broader economy take shape,’ said Senior Director Seth Lehman. ‘Over 90% of the airports Fitch rates currently have a Stable Rating Outlook, which signifies continued stability deep into next year.’

GDP growth and general airline health remain the most important revenue gauges for airports, though rising rates could make borrowing debt more expensive for airports with a substantial pipeline of investments on the horizon.”

-- Fitch Ratings: “Skies Remain Friendly for U.S. Airports” (Oct. 29, 2018)

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 1H 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.

95

0.0

0.5

1.0

1.5

2.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

1H19

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

0.31

0.0

0.5

1.0

1.5

2.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

1H19

2020

2021

2022

Involuntary Denied Boardings per 10K Pax*

B737 MAX Grounded 3/13

* U.S. passenger airlines

39

40

“Making the movement of people and goods easier, and stimulating economies”

Source: “Celebrating an industry,” Air Transport World (April 2018)

“The combination of creative freedom and new-generation aircraft has led to another hugely significant development in recent years: the hundreds of new city pairs that airlines have launched and continue to add to their networks. These directly link communities by air as they’ve never before been connected, making the movement of people and goods easier, and stimulating economies.”

-- Karen Walker, Editor-in-Chief, Air Transport World (April 2018)

41

Commercial Aviation Supports 5% of U.S. GDP and More Than 10M U.S. JobsFor Every 100 Airline Jobs, Approximately 300 Jobs Are Supported Outside the Industry

Source: FAA, The Economic Impact of Civil Aviation on the U.S. Economy (Nov. 2016)

» In 2014, economic activity (output) in the United States attributed to commercial aviation-related goods and services totaled $1.54 trillion, generating 10.2 million jobs with $427 billion in earnings.

» Commercial aviation contributed $846 billion (4.9 percent) to U.S. GDP, the value-added measure of overall U.S. economic activity.

Terms Commercial aviation – airlines, air couriers, airports, airframe/engines//avionics

manufacturers, visitor expenditures, R&D, travel arrangements. Output – the total economic value of goods and services produced. Earnings – wages/salaries/other labor income, benefits, and proprietors’ income

paid to all employed persons who deliver final demand output and services. Jobs – the number of people employed in the industry that provide civil-aviation

services, manufacture aircraft and aircraft engines, or work in other industries that are indirectly affected by activity in the civil air transportation sector.

42

By Almost Every Measure, the Golden Age of Air Travel Wasn’t Then – It Is Now

Source: A4A and Patrick Smith, “There Was No ‘Golden Age’ of Air Travel,” New York Times (May 27, 2017)

Pre-Deregulation (Before 1979) TodaySafety Feared by many; fatality risk = 1 in 1M Safest travel mode; fatality risk = 1 in 135MCompetition Only 1-2 airlines per route, no price competition No limit on carriers per route; vigorous competitionAffordability Average domestic round trip > $600 including fees Average domestic round trip < $400 including feesAccessibility Luxury good (mostly high-income) – 63% had flown Accessible to all – 88% have flown; mass transitSmall-market service Often propeller aircraft, suboptimal times Widespread jets, market-driven flight timesInternational service Flights, carriers, cities, sales limited by law Plentiful, cheaper due to “Open Skies”Routings & frequency Often multiple stops, few flights/day/week Plentiful nonstop/one-stop, multiple flights/dayShopping Phone calls, ticket offices, travel agents A few clicks onlineTicket delivery By mail only Universally electronic, retrievableChecking in Lined up at the ticket counter Online, kiosk, mobileInflight entertainment Occasional movie, far-away shared screen Unlimited options, streaming to personal devicesBag tracking No tools at customers’ disposal Mobile tools becoming universalEnvironmental impact Not very fuel efficient; more CO2 per flight ~130% more efficient; substantial avoidance of CO2

43

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)

44

In 2018, Passenger Traffic (Revenue Passenger Miles) on U.S. Airlines Grew Faster Than Capacity (Available Seat Miles), Lifting the Industry’s Average Load Factor to 83.7 Percent

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

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+4.6%

+4.9%

45

U.S. Airlines Will Continue to Move More People and Goods Over Longer DistancesIn the 2020s, RPMs Will Exceed 1 Trillion Annually; Cargo RTMs Will Surpass 50 Billion Annually

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)

46

Jet-Fuel Prices Rose in 2017 and 2018A Penny per Gallon per Year Equates to ~$200M in U.S. Airline Industry Fuel Expenses

Source: A4A and Bureau of Transportation Statistics (all U.S. carriers, scheduled an nonscheduled services)

0.81

1.66

2.27

3.05 3.15 3.01 2.86

1.861.46

1.702.16

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

2000 2005 2010 2011 2012 2013 2014 2015 2016 2017 2018

Systemwide Average Paid Price of Jet Fuel per Gallon

47

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)

48

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 (%)

49

Within the Travel-and-Tourism Sector, Airfare Remains One of the Better BargainsIn Contrast to Air Travel, the Price of a Day at Disney Rose 34-Fold From 1971 to 2018

Sources: A4A Passenger Airline Cost Index (using DOT Form 41 passenger yield), allears.net, “How theme parks like Disney World left the middle class behind” (Drew Harwell, The Washington Post, June 12, 2015) and “Disney Introduces Demand-Based Pricing at Theme Parks” (Brooks Barnes, The New York Times, Feb. 27, 2016)

$3.50

$119

$0

$20

$40

$60

$80

$100

$120

$140

1971

1976

1981

1986

1991

1996

2001

2006

2011

2016

2021

Magic Kingdom® ($/day)

0

500

1000

1500

2000

2500

3000

3500

4000

1971

1976

1981

1986

1991

1996

2001

2006

2011

2016

2021

U.S. CPIDisneyAirfare

Price Index (1971 = 100)

34X

2.5X6.2X

5.54

13.78

0

2

4

6

8

10

12

14

16

18

1971

1976

1981

1986

1991

1996

2001

2006

2011

2016

2021

U.S. Carrier Airfare (¢/mile)

CAGR1971-1978: 5.7%1978-2018: 1.3%

50

As Commercial Air Travel Has Become Safer and More Accessible, More Americans Are Taking to the Skies: Almost 90 Percent in Their Lifetimes, Almost 50 Percent in Past Year

Source: Gallup and Ipsos Public Affairs; NBC News (Dec. 20, 2017)

21 25 2939

474963

7381 87

0102030405060708090

100

1971 1977 1988 1997 2018

Past 12 Months In Lifetime

% of U.S. Adult Population That Flew…

51

2018 Inflation-Adjusted Fares Were Lowest Ever Recorded by DOTFares/Taxes/Ancillaries Down 10 Percent From 2010, 25 Percent From 2000

Source: A4A (ancillaries) and Bureau of Transportation Statistics (fares and taxes) * Adjusted for inflation; round trips, but includes one-ways if no return purchased

$300$325$350$375$400$425$450$475$500

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Annual Fare and Taxes Total Including Ancillaries

Average Domestic Airfare Including Taxes and Estimated Ancillaries (2018 Dollars)*

52

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

53

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.”

54

Over Past Two Years, Medium-Sized Airports Have Seen the Fastest U.S. GrowthPercent Change in Scheduled Available Seat Miles at Top U.S. Airports: 2017 to 2019

Source: Innovata (via Diio Mi) published schedules as of June 21, 2019, for all airlines providing scheduled service

82

58

46

37

34

29

25

23

22

22

20

20

18

18

16

15

15

14

13

13

13

13

13

12

12

12

11

10

10

10

10

10

9 9 9 9 7 7 7 7 7 7 6 6 6 6 6 6 5 5 5 4 4 4 4 3 3 2 (1

)(2

)(3

)

(10)0

102030405060708090

ON

TBU

RJA

XBN

AAU

SR

DU

OG

GSM

FSA

TM

SY SJC

TPA

CM

HD

EN IND

SAN

CVG BO

SPH

LO

MA

DAL

RSW

MC

OEW

RH

OU

SEA

STL

FLL

SLC

PIT

DFW CLE

SFO

IAH

ABQ

BUF

OR

DD

TW IAD

PBI

PDX

CLT

ANC

SJU

MSP AT

LLG

ABD

LO

AKPH

XLA

SLA

XM

CI

SNA

BWI

DC

AJF

KH

NL

MKE MIA

MD

W

55

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

56

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%

57

Airline Creditworthiness Has Improved But Continues to Lag Many Fortune 500sPer S&P, Only Two U.S. Passenger Airlines Have Investment-Grade Credit

Source: Standard and Poor’s; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?” * Rated by Fitch (not currently rated by S&P)

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

“Standard & Poor’s ratings express the agency’s opinion about the ability and willingness of an issuer…to meet its financial obligations in full and on time.”

Johnson & Johnson, Microsoft AAAAlphabet (Google), ExxonMobil, USA AA+Wal-Mart AAToyota AA-Airbus, PepsiCo, UPS A+Etihad,* Amtrak, Boeing, GE, Target ABP A-EasyJet, Ryanair, Southwest, eBay, McDonald’s, Starbucks BBB+British Airways, FedEx, Ford, Marriott, Wizz Air* BBBDelta, Lufthansa, Qantas, WestJet BBB-Alaska, Air Canada BB+Avis, JetBlue, United, Sabre BBAeroflot, American, Hawaiian, LATAM, Spirit BB-SAS, Turkish, Virgin Australia, Hertz B+Avianca, Gol Linhas Aereas (GOL) B

58

Following 2001-2009 Financial Crisis, U.S. Airlines Have Retired ~$79 Billion in Debt and Returned ~$48 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

9.1

11.2

7.5 7.9

10.5

8.0 8.5

6.1

9.9

2010

2011

2012

2013

2014

2015

2016

2017

2018

Retirement of Debt ($ Billions) Returns to Shareholders ($ Billions)

0.1 0.3 0.6 1.2

4.6

10.5

13.1

8.8 8.2

2010

2011

2012

2013

2014

2015

2016

2017

2018

DividendsStock Repurchase

59

As U.S. Airlines Generate Sufficient Cash from Operations, They Are Better Able to Fund Capital Improvements 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

1.3

6.8

25.4

($5)

$0

$5

$10

$15

$20

$25

$30

2010 2011 2012 2013 2014 2015 2016 2017 2018

Free* (FCF) Operating

60

U.S. Economy, Jobs Growing; Household Net Worth Continues to Set New RecordsConsumer Sentiment Up in September and October

Source: 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)

2.9

1.6 2.4

2.9 2.3 2.0

2015 2016 2017 2018 2019F 2020F

U.S. Real GDP Growth (% CAGR) U.S. Employment Growth (000s per Month)

227 193 179 223

167

2015 2016 2017 2018 2019

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

$91 $97 $106 $106 $113

2015 2016 2017 2018 2Q19859095

100105

2016 Ap

rJu

lO

ct20

17 Apr

Jul

Oct

2018 Ap

rJu

lO

ct20

19 Apr

Jul

Oct

2020

61

U.S. Airline Industry Employment at Highest Level Since 2000

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 74

4

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)

62

U.S. Airline Wages Averaged 45 Percent More Than U.S. Private Sector in 2018From 2010 to 2018, Airline Wages Rose 46 Percent (More Than Double Growth of Overall USA*)

Source: BEA NIPA Table 6.6D and A4A Passenger Airline Cost Index

$38.9$51.9

$63.3$50.3

$62.6

$91.6

$0

$20

$40

$60

$80

$100

$12020

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Wages and Salaries (000) per Full-Time Equivalent Employee (FTE)

U.S. Passenger Airlines

U.S. Private Sector

63