Annual Report of American Airlines Group Inc\. for year 2017

and the amount of revenue to be recognized\. These estimates are generally based on the analysis of our historical data\. We and other airline industry participants have consistently applied this accounting method to estimate revenue from forfeited tickets at the date of travel\. Estimated future refunds and exchanges included in the air traffic liability are routinely evaluated based on subsequent activity to validate the accuracy of our estimates\. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed\.

***Loyalty Program***

We currently operate the loyalty program, AAdvantage\. This program awards mileage credits to passengers who fly on American, any **one**world airline or other partner airlines, or by using the services of other program participants, such as the Citi and Barclaycard US co\-branded credit cards, hotels and car rental companies\. Mileage credits can be redeemed for travel on American or other participating partner airlines\.

Through December 31, 2017, we used the incremental cost method to account for the portion of our loyalty program liability incurred when AAdvantage members earn mileage credits by flying on American, any **one**world airline or other partner airlines\. We have an obligation to provide future travel when these mileage credits are redeemed and therefore have recorded a liability for mileage credits outstanding\.

The incremental cost liability includes all mileage credits, even mileage credits for members whose account balances have not yet reached the minimum level required to redeem an award\. Mileage credits are subject to expiration\. The liability for outstanding mileage credits is valued based on the estimated incremental cost of carrying one additional passenger\. The estimated incremental cost primarily includes unit costs incurred for fuel, food and insurance as well as fees incurred when travel awards are redeemed on partner airlines\. In calculating the liability, we estimate how many mileage credits will never be redeemed for travel and exclude those mileage credits from the estimate of the liability\. Estimates are also made for the number of miles that will be used per award redemption and the number of travel awards that will be redeemed on partner airlines\. These costs and estimates are based on our historical program experience as well as consideration of enacted program changes, as applicable\. Changes in the liability resulting from members earning additional mileage credits or changes in estimates are recorded in the consolidated statements of operations as a part of passenger revenue\.

As of December 31, 2017 and 2016, the liability for outstanding mileage credits accounted for under the incremental cost method was $677 million and $669 million, respectively, and is included on the consolidated balance sheets within loyalty program liability\.

A change to certain estimates used in the calculation of incremental cost could have a material impact on the liability\. A one percentage point increase or decrease in the percentage of travel awards redeemed on partner airlines would have an approximate $38 million impact on the liability as of December 31, 2017\. A 10% increase or decrease in the assumed price per gallon of fuel would have an approximate $11 million impact on the liability as of December 31, 2017\.

We also sell loyalty program mileage credits to participating airline partners and non\-airline business partners, such as the Citi and Barclaycard US co\-branded credit cards\. Sales of mileage credits to non\-airline business partners is comprised of two components, transportation and marketing\. We account for mileage sales under our agreements with non\-airline business partners in accordance with Accounting Standards Update (ASU) 2009\-13, “Revenue Recognition (Topic 605) –Multiple\-Deliverable Revenue Arrangements\.” In accordance with ASU 2009\-13, we allocate the consideration received from the sale of mileage credits based on the relative selling price of each product or service delivered\.

As a result of our co\-branded credit card program agreements with Citi and Barclaycard US that we entered into in 2016, we identified the following revenue elements in these co\-branded credit card agreements: the transportation component; and the use of the American brand including access to loyalty program member lists, advertising and other travel related benefits (collectively, the marketing component)\.

The transportation component represents the estimated selling price of future travel awards and is determined using historical transaction information, including information related to customer redemption patterns\. The transportation component is deferred based on its relative selling price and is amortized into passenger revenue on a straight\-line basis over the period in which the mileage credits are expected to be redeemed for travel\. As of December 31, 2017 and 2016, we had $2\.1 billion in deferred revenue from the sale of mileage credits recorded within loyalty program liability on our consolidated balance sheets\.

A change to certain estimates used in the allocation of consideration received from the sale of mileage credits could have a material impact on the liability\. A 10% increase or decrease in the relative selling price of the transportation component would have an approximate $87 million impact on the liability as of December 31, 2017\.

73


Annual Report of ALASKA AIR GROUP, INC\. for year 2018

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Performance\-Based Pay*  (PBP) is a program that rewards the majority of Alaska and Horizon employees\. The program is based on various metrics that adjust periodically, including those related to Air Group profitability, safety, Mileage Plan™ and credit card growth, achievement of unit\-cost goals and employee engagement as measured by customer satisfaction\. |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | The  *Operational Performance Rewards Program*  entitles the majority of Alaska and Horizon employees to quarterly payouts of up to  $300  per person if certain monthly operational and customer service objectives are met\. In 2019, quarterly payout maximums per person have been increased to $450\.  |

**NOTE 9\. COMMITMENTS AND CONTINGENCIES**

Future minimum payments for commitments as of December 31, 2018 (in millions):

|            |                     |                     |                                    |                                            |                                   |
| ---------- | ------------------- | ------------------- | ---------------------------------- | ------------------------------------------ | --------------------------------- |
|            | **Aircraft Leases** | **Facility Leases** | **Aircraft Commitments** **^(a)^** | **Capacity Purchase Agreements** **^(b)^** | **Aircraft Maintenance Deposits** |
| 2019       | $350                | $133                | $495                               | $138                                       | $61                               |
| 2020       | 320                 | 124                 | 517                                | 145                                        | 65                                |
| 2021       | 286                 | 113                 | 556                                | 166                                        | 59                                |
| 2022       | 262                 | 94                  | 307                                | 174                                        | 48                                |
| 2023       | 208                 | 26                  | 108                                | 179                                        | 24                                |
| Thereafter | 847                 | 122                 | 33                                 | 1,065                                      | 8                                 |
| Total      | $2,273              | $612                | $2,016                             | $1,867                                     | $265                              |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | Includes non\-cancelable contractual commitments for aircraft and engines, buyer furnished equipment, and aircraft maintenance and parts management\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------- |
| (b) | Includes all non\-aircraft lease costs associated with capacity purchase agreements\. |

***Lease Commitments***

Aircraft lease commitments include future obligations for the Company's operating airlines – Alaska and Horizon – as well as aircraft leases operated by third parties\. At December 31, 2018, the Company had lease contracts for 10 B737 aircraft, 61 Airbus aircraft, nine Bombardier Q400 aircraft, and 32 E175 aircraft with SkyWest Airlines, Inc\. (SkyWest)\. The Company has an additional two scheduled lease deliveries of A321neo aircraft in 2019, as well as three scheduled lease deliveries of E175 aircraft in 2021 to be operated by SkyWest\. The Company does not intend to operate the three E175s currently scheduled for delivery in 2021, and is working to remove those aircraft from the capacity purchase agreement\. All lease contracts have remaining non\-cancelable lease terms ranging from 2019 to 2033\. The Company has the option to increase capacity flown by SkyWest with eight additional E175 aircraft with deliveries from 2021 to 2022\. Options to lease are not reflected in the commitments table above\.

Facility lease commitments primarily include airport and terminal facilities and building leases\. Total rent expense for aircraft and facility leases was $619 million, $552 million and $315 million, in 2018, 2017 and 2016\.

***Aircraft Purchase Commitments***

Aircraft purchase commitments include non\-cancelable contractual commitments for aircrafts and engines\. As of December 31, 2018, the Company had commitments to purchase 36 B737 aircraft (four B737 NextGen aircraft and 32 B737 MAX aircraft, with deliveries in 2019 through 2023) and seven E175 aircraft with deliveries in 2019 and 2021\. The Company also has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2022 through 2024\. In addition, the Company has options to purchase 37 B737 aircraft and 30 E175 aircraft\. The cancelable purchase commitments and option payments are not reflected in the table above\.

 84


Annual Report of American Airlines Group Inc\. for year 2017

**ITEM 1A\. RISK FACTORS**

Below are certain risk factors that may affect our business, results of operations and financial condition, or the trading price of our common stock or other securities\. We caution the reader that these risk factors may not be exhaustive\. We operate in a continually changing business environment, and new risks and uncertainties emerge from time to time\. Management cannot predict such new risks and uncertainties, nor can it assess the extent to which any of the risk factors below or any such new risks and uncertainties, or any combination thereof, may impact our business\.

***Downturns in economic conditions could adversely affect our business\.***

Due to the discretionary nature of business and leisure travel spending and the highly competitive nature of the airline industry, our revenues are heavily influenced by the condition of the U\.S\. economy and economies in other regions of the world\. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel, changes in booking practices and related reactions by our competitors, all of which in turn have had, and may have in the future, a strong negative effect on our business\. See also *“The airline industry is intensely competitive and dynamic”* below\.

***Our business is very dependent on the price and availability of aircraft fuel\. Continued periods of high volatility in fuel costs, increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity\.***

Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business\. Jet fuel market prices have fluctuated substantially over the past several years and prices continue to be highly volatile\.

Because of the amount of fuel needed to operate our business, even a relatively small increase or decrease in the price of fuel can have a material effect on our operating results and liquidity\. Due to the competitive nature of the airline industry and unpredictability of the market for air travel, we can offer no assurance that we may be able to increase our fares, impose fuel surcharges or otherwise increase revenues or decrease other operating costs sufficiently to offset fuel price increases\. Similarly, we cannot predict the effect or the actions of our competitors if the current relatively low fuel prices remain in place for a significant period of time or fuel prices decrease in the future\.

Although we are currently able to obtain adequate supplies of aircraft fuel, we cannot predict the future availability, price volatility or cost of aircraft fuel\. Natural disasters (including hurricanes or similar events in the U\.S\. Southeast and on the Gulf Coast where a significant portion of domestic refining capacity is located), political disruptions or wars involving oil\-producing countries, changes in fuel\-related governmental policy, the strength of the U\.S\. dollar against foreign currencies, changes in access to petroleum product pipelines and terminals, speculation in the energy futures markets, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages, distribution challenges, additional fuel price volatility and cost increases in the future\. Any of these factors or events could cause a disruption in oil production, refinery operations or pipeline capacity and possibly result in significant increases in the price of aircraft fuel and diminished availability of aircraft fuel supply\.

Our aviation fuel purchase contracts generally do not provide meaningful price protection against increases in fuel costs\. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review this policy from time to time based on market conditions and other factors\. Accordingly, as of December 31, 2017, we did not have any fuel hedging contracts outstanding\. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices\. See also the discussion in Part II, Item 7A\. Quantitative and Qualitative Disclosures About Market Risk – “*Aircraft Fuel*\.”

***The airline industry is intensely competitive and dynamic\.***

Our competitors include other major domestic airlines and foreign, regional and new entrant airlines, as well as joint ventures formed by some of these airlines, many of which have more financial or other resources and/or lower cost structures than ours, as well as other forms of transportation, including rail and private automobiles\. In many of our markets we compete with at least one low\-cost air carrier\. Our revenues are sensitive to the actions of other carriers in many areas including pricing, scheduling, capacity, amenities, loyalty benefits and promotions, which can have a substantial adverse impact not only on our revenues, but on overall industry revenues\. These factors may become even more significant in periods when the industry experiences large losses, as airlines under financial stress, or in bankruptcy, may institute pricing structures intended to achieve near\-term survival rather than long\-term viability\.

15


Annual Report of Southwest Airlines Co\. for year 2017

Customer demand for low\-fare air travel enabled the Company to fill the additional seats, as evidenced by a Company record annual load factor of 84\.0 percent\. On a unit basis, Passenger revenues decreased 3\.8 percent, year\-over\-year, largely driven by a 4\.3 percent decrease in passenger revenue yield, year\-over\-year, which included a reduction to 2016 Passenger revenues associated with the Company's July 2015 amended co\-branded credit card agreement ("Agreement") with Chase Bank USA, N\.A\. ("Chase") and a resulting required change in accounting methodology\. See Note 1 to the Consolidated Financial Statements for further information\. The Agreement resulted in an acceleration of the timing of revenue recognition on a prospective basis beginning July 1, 2015, as well as a change in classification\.

Freight revenues for 2016 decreased by $8 million, or 4\.5 percent, compared with 2015, primarily due to sluggish demand\.

The Company recorded a Special revenue adjustment during 2015 of $172 million\. This adjustment represented a one\-time non\-cash reduction to deferred revenue liability as a result of the Agreement with Chase and the resulting required change in accounting methodology, and is classified as a special item and thus excluded from the Company's 2015 non\-GAAP financial results\. See Note 1 to the Consolidated Financial Statements and the Note Regarding Use of Non\-GAAP Financial Measures for further information\.

Other revenues for 2016 increased by $490 million, or 41\.9 percent, compared with 2015, primarily as a result of the Agreement with Chase and the resulting required change in accounting methodology\. This change resulted in approximately 90 percent of the increase to Other revenue year\-over\-year\. Excluding this impact of the Agreement with Chase, Other revenues increased primarily due to higher ancillary revenues associated with EarlyBird Check\-in® and A1\-15 select open priority boarding positions sold at the airport\.

**Operating Expenses**

Operating expenses for 2016 increased by $961 million, or 6\.1 percent, compared with 2015, while capacity increased 5\.7 percent over the same period\. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs\. The following table presents the Company's Operating expenses per ASM for 2016 and 2015, followed by explanations of these changes on a per ASM basis and/or on a dollar basis:

|                                    |                             |                             |             |                                |
| ---------------------------------- | --------------------------- | --------------------------- | ----------- | ------------------------------ |
|                                    | **Year ended December 31,** | **Year ended December 31,** | **Per ASM** | **Percent**

**change**  |
| (in cents, except for percentages) | **2016**                    | **2015**                    | **change**  | **Percent**

**change**  |
| Salaries, wages, and benefits      | 4\.57¢                      | 4\.54¢                      | 0\.03¢      | 0\.7 %                         |
| Fuel and oil                       | 2\.46                       | 2\.58                       | (0\.12)     | (4\.7)                         |
| Maintenance materials and repairs  | 0\.70                       | 0\.72                       | (0\.02)     | (2\.8)                         |
| Aircraft rentals                   | 0\.15                       | 0\.17                       | (0\.02)     | (11\.8)                        |
| Landing fees and other rentals     | 0\.82                       | 0\.83                       | (0\.01)     | (1\.2)                         |
| Depreciation and amortization      | 0\.82                       | 0\.72                       | 0\.10       | —                              |
| Acquisition and integration        | —                           | 0\.03                       | (0\.03)     | (100\.0)                       |
| Other operating expenses           | 1\.70                       | 1\.59                       | 0\.11       | 6\.9                           |
| Total                              | 11\.22¢                     | 11\.18¢                     | 0\.04¢      | 0\.4 %                         |

Operating expenses per ASM for 2016 increased 0\.4 percent, compared with 2015, primarily due to the accelerated depreciation expense associated with the planned early retirement of the Classic fleet, higher contract programming and consulting expenses associated with large technology projects, and higher wage rates due to new labor agreements\. These increases were partially offset by lower jet fuel prices and lower profitsharing expense\. See Note 1 to the Consolidated Financial Statements for further information on the early retirement of the Classic fleet\. Operating expenses per ASM for 2016, excluding Fuel and oil expense and special items (a non\-GAAP financial measure), increased 1\.6 percent year\-over\-year\. See Note Regarding Use of Non\-GAAP Financial Measures for additional detail regarding non\-GAAP financial measures\.

47


Annual Report of DELTA AIR LINES, INC\.  for year 2018

ITEM 3\. LEGAL PROCEEDINGS

Capacity Antitrust Litigation

In July 2015, a number of purported class action antitrust lawsuits were filed alleging that Delta, American, United and Southwest had conspired to restrain capacity\. The lawsuits were filed in the wake of media reports that the U\.S\. Department of Justice had served civil investigative demands upon these carriers seeking documents and information relating to this subject\. The lawsuits have been consolidated into a single Multi\-District Litigation proceeding in the U\.S\. District Court for the District of Columbia\. In November 2016, the District Court denied the defendants' motion to dismiss the claims, and the matter is now proceeding through discovery\. Delta believes the claims in these cases are without merit and is vigorously defending these lawsuits\.

\*\*\*

For a discussion of certain environmental matters, see "Business\-Regulatory Matters\-Environmental Matters" in Item 1\.

ITEM 4\. MINE SAFETY DISCLOSURES

Not applicable\.

 22


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2018

[Table of Contents](https://www.example.com#sCFFD9DA26B5659A3A528A4B51B718F87)

The aircraft listed in the table above are scheduled for delivery from 2019 through 2027\. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company's future capital commitments could change\. In 2019, United expects to take delivery of 25 Embraer E175 aircraft, 20 Boeing 737 MAX aircraft, 8 Boeing 787 aircraft and 2 Boeing 777\-300ER aircraft\.United also has agreements to purchase 20 used Airbus A319 aircraft with expected delivery dates through 2022\.

During the third quarter of 2018, United entered into an agreement with the lessor of 54 Embraer ERJ 145 aircraft to purchase those aircraft in 2019\. The provisions of such agreement resulted in a change in accounting classification of the applicable leases from operating leases to capital leases up until the applicable purchase date\.

The table below summarizes United's commitments as of December 31, 2018, which primarily relate to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments for the years ended December 31 (in billions)\. Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company\.

|            |        |
| ---------- | ------ |
| 2019       | $4\.2  |
| 2020       | 5\.3   |
| 2021       | 3\.5   |
| 2022       | 2\.8   |
| 2023       | 1\.9   |
| After 2023 | 7\.0   |
|            | $24\.7 |

In February 2019, the Company secured $1\.0 billion of EETC financing to finance certain aircraft deliveries in 2018 and 2019\. The Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions\. Financing may be necessary to satisfy the Company's capital commitments for its firm order aircraft and other related capital expenditures\.

***Legal and Environmental\.*** The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business\. As of December 31, 2018, management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation and claims will not materially affect the Company's consolidated financial position or results of operations\. The Company records liabilities for legal and environmental claims when a loss is probable and reasonably estimable\. These amounts are recorded based on the Company's assessments of the likelihood of their eventual disposition\.

***Guarantees and Indemnifications\.*** In the normal course of business, the Company enters into numerous real estate leasing and aircraft financing arrangements that have various guarantees included in the contracts\. These guarantees are primarily in the form of indemnities under which the Company typically indemnifies the lessors and any tax/financing parties against tort liabilities that arise out of the use, occupancy, operation or maintenance of the leased premises or financed aircraft\. Currently, the Company believes that any future payments required under these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are covered by insurance (subject to deductibles)\. Additionally, certain leased premises such as fueling stations or storage facilities include indemnities of such parties for any environmental liability that may arise out of or relate to the use of the leased premises\.

As of December 31, 2018, United is the guarantor of approximately $1\.9 billion in aggregate principal amount of tax\-exempt special facilities revenue bonds and interest thereon\. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long\-term agreements with the respective governing bodies\. The leasing arrangements associated with approximately $1\.3 billion of these obligations are accounted for as operating leases with the associated expense recorded on a straight\-line basis resulting in ratable accrual of the lease obligation over the expected lease term\. These tax\-exempt special facilities revenue bonds are included in our lease commitments disclosed in Note 11 of this report\. The leasing arrangements associated with approximately $466 million of these obligations are accounted for as capital leases\. All of these bonds are due between 2019 and 2038\.

In connection with funding the Synergy Loan Agreement, the Company entered into an agreement with AVH's significant minority shareholder, Kingsland Holdings Limited ("Kingsland"), pursuant to which, in return for Kingsland's pledge of its 144\.8 million shares of AVH common stock (equivalent to 18\.1 million American Depositary Receipts ("ADRs")) and its consent to Synergy's pledge of its AVH common stock to United under the Synergy Loan Agreement, United (1) granted to Kingsland the right to put its shares of AVH common stock to United at market price on the fifth anniversary of the Synergy

84


Annual Report of Southwest Airlines Co\. for year 2017

The Company's application of its netting policy associated with cash collateral differs depending on whether its derivative instruments are in a net asset position or a net liability position\. If its fuel derivative instruments are in a net asset position with a counterparty, cash collateral amounts held are first netted against current outstanding derivative amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding derivative instruments\. If the Company's fuel derivative instruments are in a net liability position with the counterparty, cash collateral amounts provided are first netted against noncurrent outstanding derivative amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of current outstanding derivative instruments\.

The Company has the following recognized financial assets and financial liabilities resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting:

|                                     |                                           |                                        |                                               |                                                          |                                     |                                        |                                               |                                                          |     |
| ----------------------------------- | ----------------------------------------- | -------------------------------------- | --------------------------------------------- | -------------------------------------------------------- | ----------------------------------- | -------------------------------------- | --------------------------------------------- | -------------------------------------------------------- | --- |
| **Offsetting of derivative assets** | **Offsetting of derivative assets**       | **Offsetting of derivative assets**    | **Offsetting of derivative assets**           | **Offsetting of derivative assets**                      | **Offsetting of derivative assets** | **Offsetting of derivative assets**    | **Offsetting of derivative assets**           | **Offsetting of derivative assets**                      |     |
| (in millions)                       | (in millions)                             | (in millions)                          | (in millions)                                 | (in millions)                                            | (in millions)                       | (in millions)                          | (in millions)                                 | (in millions)                                            |     |
|                                     |                                           | (i)                                    | (ii)                                          | (iii) = (i) \+ (ii)                                      |                                     | (i)                                    | (ii)                                          | (iii) = (i) \+ (ii)                                      |     |
|                                     |                                           | **December 31, 2017**                  | **December 31, 2017**                         | **December 31, 2017**                                    |                                     | **December 31, 2016**                  | **December 31, 2016**                         | **December 31, 2016**                                    |     |
| **Description**                     | **Balance Sheet location**                | **Gross amounts of recognized assets** | **Gross amounts offset in the Balance Sheet** | **Net amounts of assets presented in the Balance Sheet** |                                     | **Gross amounts of recognized assets** | **Gross amounts offset in the Balance Sheet** | **Net amounts of assets presented in the Balance Sheet** |     |
| Fuel derivative contracts           | Prepaid expenses and other current assets | $147                                   | $(50)                                         | $97                                                      |                                     | $61                                    | $(48)                                         | $13                                                      |     |
| Fuel derivative contracts           | Other assets                              | $136                                   | $—                                            | $136                                                     | (a)                                 | $178                                   | $(58)                                         | $120                                                     | (a) |
| Fuel derivative contracts           | Accrued liabilities                       | $—                                     | $—                                            | $—                                                       | (a)                                 | $516                                   | $(516)                                        | $—                                                       | (a) |

(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the Consolidated Balance Sheet in Note 5\.

|                                          |                                           |                                             |                                               |                                                               |                                          |                                             |                                               |                                                               |     |
| ---------------------------------------- | ----------------------------------------- | ------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------- | ------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------- | --- |
| **Offsetting of derivative liabilities** | **Offsetting of derivative liabilities**  | **Offsetting of derivative liabilities**    | **Offsetting of derivative liabilities**      | **Offsetting of derivative liabilities**                      | **Offsetting of derivative liabilities** | **Offsetting of derivative liabilities**    | **Offsetting of derivative liabilities**      | **Offsetting of derivative liabilities**                      |     |
| (in millions)                            | (in millions)                             | (in millions)                               | (in millions)                                 | (in millions)                                                 | (in millions)                            | (in millions)                               | (in millions)                                 | (in millions)                                                 |     |
|                                          |                                           | (i)                                         | (ii)                                          | (iii) = (i) \+ (ii)                                           |                                          | (i)                                         | (ii)                                          | (iii) = (i) \+ (ii)                                           |     |
|                                          |                                           | **December 31, 2017**                       | **December 31, 2017**                         | **December 31, 2017**                                         |                                          | **December 31, 2016**                       | **December 31, 2016**                         | **December 31, 2016**                                         |     |
| **Description**                          | **Balance Sheet location**                | **Gross amounts of recognized liabilities** | **Gross amounts offset in the Balance Sheet** | **Net amounts of liabilities presented in the Balance Sheet** |                                          | **Gross amounts of recognized liabilities** | **Gross amounts offset in the Balance Sheet** | **Net amounts of liabilities presented in the Balance Sheet** |     |
| Fuel derivative contracts                | Prepaid expenses and other current assets | $50                                         | $(50)                                         | $—                                                            |                                          | $48                                         | $(48)                                         | $—                                                            |     |
| Fuel derivative contracts                | Other assets                              | $—                                          | $—                                            | $—                                                            | (a)                                      | $58                                         | $(58)                                         | $—                                                            | (a) |
| Fuel derivative contracts                | Accrued liabilities                       | $—                                          | $—                                            | $—                                                            | (a)                                      | $674                                        | $(516)                                        | $158                                                          | (a) |
| Interest rate derivative contracts       | Accrued liabilities                       | $1                                          | $—                                            | $1                                                            | (a)                                      | $—                                          | $—                                            | $—                                                            | (a) |
| Interest rate derivative contracts       | Other noncurrent liabilities              | $21                                         | $—                                            | $21                                                           | (a)                                      | $35                                         | $—                                            | $35                                                           | (a) |

96


Annual Report of ALASKA AIR GROUP, INC\. for year 2017

**ADOPTION OF NEW ACCOUNTING STANDARDS**

The new Revenue Recognition standard issued by the Financial Accounting Standards Board (FASB) replaces most existing revenue recognition guidance in U\.S\. GAAP, and is effective for the Company beginning January 1, 2018\.

The most significant change to the financial statements resulting from the new standard is revenue recognition related to the frequent flyer program revenues and liabilities\. Historically, we have used the incremental cost approach for miles earned through travel\. This approach has been eliminated with the new standard\. Instead, we are required to allocate a portion of the ticket price for each ticket flown, or miles earned, through a relative selling price model and defer revenue recognition until a mileage award is redeemed and flown, or unused mileage credits expire\. As our Mileage Plan™ program is growing, the Company expects revenue deferred will exceed revenue earned under the new standard for miles earned through travel\.

Further, unused ticket revenue that was previously recorded at the time of expiration will now be recorded at the original departure date if that ticket has not been changed or refunded prior to that date, based on estimates of expected expiration using historical patterns\. We estimate the change in ticket breakage methodology will not have a significant impact on the statements of operations, but will result in a reduction in air traffic liability compared to previously reported balances\.

The new standard also requires us to present ancillary revenues related to passenger travel as Passenger Revenue\. Historically, such ancillary revenues have been presented as Other Revenues\. Further, some ancillary revenues related to passenger travel will be recognized at the date of travel rather than the date of sale under the new standard\.

It is worth noting that the standard impacts the timing of revenue recognition, and is not indicative of a weaker revenue environment\. Additionally, the standard does not impact the timing of cash flows\.

Although less significant, the new retirement benefits accounting standard is also effective January 1, 2018\. Under this new standard, all components of net periodic benefit cost will be presented in Nonoperating income (expense), except service cost, which will remain in Wages and benefits\. This change has an impact on CASM excluding fuel and special items\. Management believes it is useful to compare forecasted results with the restated results under the new standards\.

We have provisionally modeled the impacts of the revenue recognition standard and the pension accounting standard, and expect the following changes to the statements of operations for the years ending December 31, 2016 and December 31, 2017\. All adjustments and recast amounts below are subject to finalization upon implementation in 2018\.

|                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
| --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- |
| **Provisional impact of new accounting standards to the 2016 Statement of Operations:** | **Provisional impact of new accounting standards to the 2016 Statement of Operations:** | **Provisional impact of new accounting standards to the 2016 Statement of Operations:** | **Provisional impact of new accounting standards to the 2016 Statement of Operations:** | **Provisional impact of new accounting standards to the 2016 Statement of Operations:** |
|                                                                                | **FY 2016**                                                                             | **Adjustments \-**                                                                      | **Adjustments \-**                                                                      | **FY 2016**                                                                             |
|                                                                                | **As Reported**                                                                         | **Revenue Recognition**                                                                 | **Retirement Benefits**                                                                 | **As Recast**                                                                           |
| Passenger Revenue                                                                       | $5,006                                                                                | $391                                                                                | $—                                                                                | $5,397                                                                                |
| Other Revenue                                                                           | 925                                                                                | (398)                                                                                | —                                                                                | 527                                                                                |
| Total Operating Revenue                                                                 | 5,931                                                                                | (7)                                                                                | —                                                                                | 5,924                                                                                |
| Operating Expense                                                                       | 4,582                                                                                | 24                                                                                | 12                                                                                | 4,618                                                                                |
| Nonoperating Income (Expense)                                                           | (4)                                                                                | —                                                                                | 12                                                                                | 8                                                                                |
| Income Before Income Tax                                                                | $1,345                                                                                | $(31)                                                                                | $—                                                                                | $1,314                                                                                |

 58


Annual Report of DELTA AIR LINES, INC\.  for year 2018

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|                                                                                | **Page**                                                            |
| [**ITEM 9B\. OTHER INFORMATION**](http://ir.delta.com/.#s4A813179D04E5010B65DBCC1A56D3FB5)                                                                                |
[ 100](http://ir.delta.com/.#s4A813179D04E5010B65DBCC1A56D3FB5) |
| **PART III**                                                                                |                                                                     |
| [**ITEM 10\. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE**](http://ir.delta.com/.#s61E82D11868A528884B870A128F4DF73)

[**REGISTRANT**](http://ir.delta.com/.#s61E82D11868A528884B870A128F4DF73)                       |
[ 100](http://ir.delta.com/.#s61E82D11868A528884B870A128F4DF73) |
| [**ITEM 11\. EXECUTIVE COMPENSATION**](http://ir.delta.com/.#s4BE86F40B553581B8F4875033859EE1E)                                                                                |
[ 100](http://ir.delta.com/.#s4BE86F40B553581B8F4875033859EE1E) |
| [**ITEM 12\. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND**](http://ir.delta.com/.#s78BCBFBA9CBA5EED8BE9936FE4DEDEDE)

[**RELATED STOCKHOLDER MATTERS**](http://ir.delta.com/.#s78BCBFBA9CBA5EED8BE9936FE4DEDEDE) |
[ 100](http://ir.delta.com/.#s78BCBFBA9CBA5EED8BE9936FE4DEDEDE) |
| [**ITEM 13\. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR**](http://ir.delta.com/.#s6063998C1C8D59B989E045384B63823A)

[**INDEPENDENCE**](http://ir.delta.com/.#s6063998C1C8D59B989E045384B63823A)                      |
[ 100](http://ir.delta.com/.#s6063998C1C8D59B989E045384B63823A) |
| [**ITEM 14\. PRINCIPAL ACCOUNTANT FEES AND SERVICES**](http://ir.delta.com/.#sCF2ED2E8AB65582AB8DEF7AA2A5667E6)                                                                                |
[ 101](http://ir.delta.com/.#sCF2ED2E8AB65582AB8DEF7AA2A5667E6) |
| **PART IV**                                                                                |                                                                     |
| [**ITEM 15\. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**](http://ir.delta.com/.#sB5890E1A75FB5144AA83B1330BF09AEE)                                                                                |
[ 101](http://ir.delta.com/.#sB5890E1A75FB5144AA83B1330BF09AEE) |
| [**ITEM 16\. FORM 10\-K SUMMARY**](http://ir.delta.com/.#sAF5958795E87551DB00F9061D7BE8CC3)                                                                                |
[ 105](http://ir.delta.com/.#sAF5958795E87551DB00F9061D7BE8CC3) |
| [SIGNATURES](http://ir.delta.com/.#sCDAF1772359D5ECEB1BBD050FF9A051B)                                                                                |
[ 106](http://ir.delta.com/.#sCDAF1772359D5ECEB1BBD050FF9A051B) |


Annual Report of American Airlines Group Inc\. for year 2017

|                               |                                                                                |
| ----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Exhibit**

**Number** | **Description**                                                                                |
| 4\.64                         | [Revolving Credit Agreement (2015\-2B), dated as of September 24, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-2B, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.14 to American’s Current Report on Form 8\-K filed on September 24, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515327525/d69559dex414.htm)                                                                                |
| 4\.65                         | [Note Purchase Agreement, dated as of April 24, 2013, among American Airlines, Inc\. (as successor in interest to US Airways, Inc\.) Wilmington Trust Company, as Pass Through Trustee, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.12 to US Airways Group’s Current Report on Form 8\-K filed on April 25, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513171448/d526546dex412.htm)                                                                                |
| 4\.66                         | [Assumption Agreement, dated as of December 30, 2015, by American Airlines, Inc\. for the benefit of Wilmington Trust Company, as pass through trustee, subordination agent, and paying agent, and Wilmington Trust, National Association, as escrow agent, in each case, under the Note Purchase Agreement, dated as of April 24, 2013, among American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), Wilmington Trust Company, Wilmington Trust, National Association and Wilmington Trust Company (incorporated by reference to Exhibit 10\.2 to AAG’s Current Report on Form 8\-K filed on December 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515418305/d110614dex102.htm) |
| 4\.67                         | [Form of Participation Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (incorporated by reference to Exhibit 4\.13 to US Airways Group’s Current Report on Form 8\-K filed on April 25, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513171448/d526546dex413.htm)                                                                                |
| 4\.68                         | [Form of Trust Indenture and Security Agreement among American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee (incorporated by reference to Exhibit 4\.14 to US Airways Group’s Current Report on Form 8\-K filed on April 25, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513171448/d526546dex414.htm)                                                                                |
| 4\.69                         | [Form of Amendment No\. 1 to Participation Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (Exhibit A to Note Purchase Agreement) (incorporated by reference to Exhibit 4\.8 to US Airways Group’s Current Report on Form 8\-K filed on June 6, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513250235/d548366dex48.htm)                                                                                |
| 4\.70                         | [Form of Amendment No\. 1 to Trust Indenture and Security Agreement among American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee (Exhibit B to Note Purchase Agreement) (incorporated by reference to Exhibit 4\.9 to US Airways Group’s Current Report on Form 8\-K filed on June 6, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513250235/d548366dex49.htm)                                                                                |
| 4\.71                         | [Amended and Restated Guarantee, dated as of March 31, 2014, from American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) relating to obligations of US Airways under the equipment notes relating to its Series 2013\-1 Pass Through Certificates (incorporated by reference to Exhibit 10\.5 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000011/d715288dex105.htm)                                                                                |
| 4\.72                         | [Form of Participation Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee, Subordination Agent and Pass Through Trustee (Schedule I to Amendment No\. 1 to Note Purchase Agreement (2012\-2)) (incorporated by reference to Exhibit 4\.10 to US Airways Group’s Current Report on Form 8\-K filed on June 6, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513250235/d548366dex410.htm)                                                                                |
| 4\.73                         | [Form of Trust Indenture and Security Agreement among American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, Wilmington Trust, National Association, as Securities Intermediary, and Wilmington Trust Company, as Indenture Trustee (Schedule II to Amendment No\. 1 to Note Purchase Agreement (2012\-2)) (incorporated by reference to Exhibit 4\.11 to US Airways Group’s Current Report on Form 8\-K filed on June 6, 2013 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000119312513250235/d548366dex411.htm)                                                                                |
| 4\.74                         | [Form of Participation Agreement (Participation Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee and Subordination Agent) (incorporated by reference to Exhibit 4\.14 to US Airways Group’s Current Report on Form 8\-K filed on December 23, 2010 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012310116213/p18414exv4w14.htm)                                                                                |
| 4\.75                         | [Form of Indenture (Trust Indenture and Security Agreement between American Airlines, Inc\. (as successor in interest to US Airways, Inc\.), as Owner, and Wilmington Trust Company, as Indenture Trustee) (incorporated by reference to Exhibit 4\.15 to US Airways Group’s Current Report on Form 8\-K filed on December 23, 2010 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012310116213/p18414exv4w15.htm)                                                                                |
| 4\.76                         | [Amended and Restated Guarantee, dated as of March 31, 2014, from American Airlines Group Inc\. (as successor in interest to US Airways Group, Inc\.) relating to obligations of US Airways under the equipment notes relating to its Series 2010\-1 Pass Through Certificates (incorporated by reference to Exhibit 10\.1 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000011/d715288dex101.htm)                                                                                |

181


Annual Report of American Airlines Group Inc\. for year 2018

operating point\-to\-point service on such routes\. We also compete with all\-cargo and charter airlines and, particularly on shorter segments, ground and rail transportation\.

On all of our routes, pricing decisions are affected, in large part, by the need to meet competition from other airlines\. Price competition occurs on a market\-by\-market basis through price discounts, changes in pricing structures, fare matching, targeted promotions and loyalty program initiatives\. Airlines typically use discount fares and other promotions to stimulate traffic during normally slack travel periods, when they begin service to new cities or when they have excess capacity, to generate cash flow, to maximize revenue per available seat mile and to establish, increase or preserve market share\. We have often elected to match discount or promotional fares initiated by other air carriers in certain markets in order to compete in those markets\. Most airlines will quickly match price reductions in a particular market\. In addition, low\-fare, low\-cost carriers, such as Southwest Airlines and JetBlue Airways, and so\-called ultra\-low\-cost carriers, such as Allegiant Air, Frontier Airlines and Spirit Airlines, compete in many of the markets in which we operate and competition from these carriers is increasing\.

In addition to price competition, airlines compete for market share by increasing the size of their route system and the number of markets they serve\. The American Eagle regional carriers increase the number of markets we serve by flying to lower demand markets and providing connections at our hubs\. Many of our competitors also own or have agreements with regional airlines that provide similar services at their hubs and other locations\. We also compete on the basis of scheduling (frequency and flight times), availability of nonstop flights, on\-time performance, type of equipment, cabin configuration, amenities provided to passengers, loyalty programs, the automation of travel agent reservation systems, onboard products, markets served and other services\.

***International***

In addition to our extensive domestic service, we provide international service to Canada, Central and South America, Asia, Europe, Australia and New Zealand\. In providing international air transportation, we compete with U\.S\. airlines, foreign investor\-owned airlines and foreign state\-owned or state\-affiliated airlines\. Competition is increasing from foreign state\-owned and state\-affiliated airlines in the Gulf region, including Emirates, Etihad Airways and Qatar Airways\. These carriers have large numbers of international widebody aircraft in service and on order and are increasing service to the U\.S\. from locations both in and outside the Middle East\. Service to and from locations outside of the Middle East is provided by some of these carriers under so\-called “fifth freedom” rights permitted under international treaties which allow service to and from stopover points between an airline’s home country and the ultimate destination\. Such flights, such as a stopover in Europe on flights to the United States, allow the carrier to sell tickets for travel between the stopover point and the United States in competition with service provided by us\. Additionally, these carriers have made significant investments in a number of airlines located outside of the Middle East, such as Air Italy, providing these affiliated airlines with capital and aircraft to permit increases in service that compete with us\. We believe these state\-owned and state\-affiliated carriers in the Gulf region, including their affiliated carriers, benefit from significant government subsidies, which have allowed them to grow quickly, reinvest in their product and expand their global presence\. Competition is also increasing from low\-cost airlines executing international long\-haul expansion strategies, including, for example, Icelandair, Norwegian Air Shuttle and Wow Air\.

In order to increase our ability to compete for international air transportation service, which is subject to extensive government regulation, U\.S\. and foreign carriers have entered into bilateral and multilateral marketing relationships, alliances, cooperation agreements and JBAs to exchange traffic among each other’s flights and route networks\. See “*Distribution and Marketing Agreements*” above for further discussion\.

**Employees and Labor Relations**

The airline business is labor intensive\. In 2018, salaries, wages and benefits were our largest expense and represented approximately 33% of our total operating expenses\. As of December 31, 2018, we had approximately 128,900 active full\-time equivalent employees, approximately 84% of whom were represented by various labor unions responsible for negotiating the collective bargaining agreements (CBAs) covering them\.

Labor relations in the air transportation industry are regulated under the Railway Labor Act (RLA), which vests in the National Mediation Board (NMB) certain functions with respect to disputes between airlines and labor unions relating to union representation and CBAs\. When an RLA CBA becomes amendable, if either party to the agreement wishes to modify its terms, it must notify the other party in the manner prescribed under the RLA and as agreed by the parties\. Under the RLA, the parties must meet for direct negotiations, and, if no agreement is reached during direct negotiations between the parties, either party may request that the NMB appoint a federal mediator\. The RLA prescribes no timetable for the direct negotiation and mediation processes, and it is not unusual for those processes to last for many months or even several years\. If no agreement is reached in mediation, the NMB in its discretion may declare that an impasse exists and proffer binding arbitration to the parties\. Either party may decline to submit to arbitration, and if arbitration is rejected by either party, a 30\-day “cooling

8


Annual Report of Southwest Airlines Co\. for year 2017

Fuel and oil expense for 2017increased by $293 million, or 8\.0 percent, compared with 2016\. On a per ASM basis, Fuel and oil expense for 2017increased 4\.1 percent, compared with 2016\. On both a dollar and per ASM basis, the increases were attributable to higher market jet fuel prices, partially offset by a decrease in net hedging losses recognized compared to 2016\. See Note Regarding Use of Non\-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non\-GAAP Financial Measures for additional detail regarding non\-GAAP financial measures\. The Company's average economic jet fuel price per gallon increased 4\.2 percent, year\-over\-year, from $1\.92 for 2016 to $2\.00 for 2017\. These figures do not include premium expense associated with the Company's fuel hedges, which on a per gallon basis equated to approximately $0\.08 and $0\.06 for 2016 and 2017, respectively\. The Company also improved its fuel efficiency during 2017, compared with 2016, when measured on the basis of ASMs generated per gallon of fuel\. Fuel gallons consumed increased 2\.5 percent, compared with 2016, while year\-over\-year capacity increased 3\.6 percent\. As a result of the Company's fuel hedging program, the Company recognized net losses totaling $416 million in Fuel and oil expense for 2017, compared with net losses totaling $820 million for 2016\. These totals include cash settlements realized from the settlement of fuel derivative contracts associated with the Company's economic fuel hedge totaling $572 million paid to counterparties for 2017, compared with $1\.0 billion paid to counterparties for 2016\. Additionally, these totals exclude gains and/or losses recognized from hedge ineffectiveness and from derivatives that did not qualify for hedge accounting\. These items are recorded as a component of Other (gains) losses, net\. See Note 10 to the Consolidated Financial Statements\.

As of January 19, 2018, on an economic basis, the Company had derivative contracts in place related to expected future fuel consumption as follows:

|                     |                                                                                |                                                                                |                                                                                |                                                                                |                                                                                |
| ------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| **Period**          | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** | **Maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying West Texas Intermediate/Brent Crude Oil, Heating Oil, and Gulf Coast Jet Fuel\-equivalent price levels (a)** |
| **2018**            | 78%                                                                                | 78%                                                                                | 78%                                                                                | 78%                                                                                | 78%                                                                                |
| **2019**            | 63%                                                                                | 63%                                                                                | 63%                                                                                | 63%                                                                                | 63%                                                                                |
| **2020**            | 31%                                                                                | 31%                                                                                | 31%                                                                                | 31%                                                                                | 31%                                                                                |
| **Beyond 2020 (b)** | 11%                                                                                | 11%                                                                                | 11%                                                                                | 11%                                                                                | 11%                                                                                |

(a) The Company's hedge position can vary significantly at different price levels, including prices at which the Company considers "catastrophic" coverage\. The percentages provided are not indicative of the Company's hedge coverage at every price, but represent the highest level of coverage at a single price\. The Company believes its coverage related to first quarter 2018 is best reflected within the jet fuel forecast price sensitivity table provided below\. See Note 10 to the Consolidated Financial Statements for further information\.

(b) The Company's coverage for 2021 was approximately 11 percent of estimated fuel consumption\. The coverage beyond 2021 was not significant\.

As a result of applying hedge accounting in prior periods, including related to hedge positions that have either been offset or settled early on a cash basis, the Company has amounts "frozen" in Accumulated other comprehensive income (loss) ("AOCI"), and these amounts will be recognized in earnings in future periods when the underlying fuel derivative contracts settle\. The following table displays the Company's estimated fair value of remaining fuel derivative contracts (not considering the impact of the cash collateral provided to or received from counterparties \- see Note 10 to the Consolidated Financial Statements for further information), as well as the amount of deferred gains/losses in AOCI at December 31, 2017, and the expected future periods in which these items are expected to settle and/or be recognized in earnings (in millions):

43


Annual Report of American Airlines Group Inc\. for year 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC\.

Maturities of lease liabilities were as follows (in millions):

|                              |                       |                       |
| ---------------------------- | --------------------- | --------------------- |
|                              | **December 31, 2019** | **December 31, 2019** |
|                              | **Operating Leases**  | **Finance Leases**    |
| 2020                         | $1,974                | $153                  |
| 2021                         | 1,804                 | 128                   |
| 2022                         | 1,608                 | 132                   |
| 2023                         | 1,423                 | 110                   |
| 2024                         | 1,028                 | 116                   |
| 2025 and thereafter          | 3,268                 | 171                   |
| Total lease payments         | 11,105                | 810                   |
| Less: Imputed interest       | (2,022

)       | (140

)         |
| Total lease obligations      | 9,083                 | 670                   |
| Less: Current obligations    | (1,695

)       | (112

)         |
| Long\-term lease obligations | $7,388                | $558                  |

As of  December 31, 2019 , American has additional operating lease commitments that have not yet commenced of approximately   $2\.0 billion  for   22  787\-8 aircraft to be delivered in  2020  and  2021  with lease terms of   10 years \.

5\. Income Taxes

The significant components of the income tax provision were (in millions):

|                                |                             |                             |                             |
| ------------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                                | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                | **2019**                    | **2018**                    | **2017**                    |
| Current income tax provision:  |                             |                             |                             |
| State and Local                | $2                          | $3                          | $14                         |
| Foreign                        | 8                           | 28                          | 10                          |
| Current income tax provision   | 10                          | 31                          | 24                          |
| Deferred income tax provision: |                             |                             |                             |
| Federal                        | 567                         | 453                         | 2,176                       |
| State and Local                | 56                          | 50                          | 70                          |
| Deferred income tax provision  | 623                         | 503                         | 2,246                       |
| Total income tax provision     | $633                        | $534                        | $2,270                      |

The income tax provision differed from amounts computed at the statutory federal income tax rate as follows (in millions):

|                                                       |                             |                             |                             |
| ----------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                       | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                       | **2019**                    | **2018**                    | **2017**                    |
| Statutory income tax provision                        | $547                        | $460                        | $1,244                      |
| State income tax provision, net of federal tax effect | 41                          | 46                          | 53                          |
| Book expenses not deductible for tax purposes         | 29                          | 10                          | 30                          |
| Foreign income taxes, net of federal tax effect       | 8                           | 22                          | 6                           |
| Change in valuation allowance                         | 5                           | (6

)                 | 4                           |
| 2017 Tax Act                                          | —                           | —                           | 924                         |
| Other, net                                            | 3                           | 2                           | 9                           |
| Income tax provision                                  | $633                        | $534                        | $2,270                      |

137


Annual Report of Southwest Airlines Co\. for year 2018

**Item 6\.** ***Selected Financial Data***

The following financial information, for the five years ended December 31, 2018, has been derived from the Company’s Consolidated Financial Statements\. This information should be viewed in conjunction with the Consolidated Financial Statements and related notes thereto included elsewhere herein\. The Company provides the operating data below because these statistics are commonly used in the airline industry and, therefore, allow readers to compare the Company’s performance against its results for prior periods, as well as against the performance of the Company’s peers\.

As of January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014\-09: Revenue from Contracts with Customers (the "New Revenue Standard"), ASU 2017\-07: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the "New Retirement Standard"), and ASU 2017\-12: Targeted Improvements to Accounting for Hedging Activities (the "New Hedging Standard")\. As a result, certain prior period results have been recast due to the transition methods applied\. See Note 2 to the Consolidated Financial Statements for further information\.

|                                                                      |                             |                             |                             |                             |                             |
| -------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                      | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                                                      | **2018**                    | **2017**                    | **2016**                    | **2015**                    | **2014**                    |
|                                                                      |                             | **As Recast**               | **As Recast**               | **As Recast (k)**           | **As Recast (k)**           |
| **Financial Data (in millions, except per share amounts):**          |                             |                             |                             |                             |                             |
| Operating revenues                                                   | $21,965                     | $21,146                     | $20,289                     | $19,820                     | $18,605                     |
| Operating expenses                                                   | 18,759                      | 17,739                      | 16,767                      | 15,821                      | 16,437                      |
| Operating income                                                     | 3,206                       | 3,407                       | 3,522                       | 3,999                       | 2,168                       |
| Other expenses (income) net                                          | 42                          | 142                         | 72                          | 520                         | 352                         |
| Income before taxes                                                  | 3,164                       | 3,265                       | 3,450                       | 3,479                       | 1,816                       |
| Provision for income taxes                                           | 699                         | (92)                        | 1,267                       | 1,298                       | 680                         |
| Net income                                                           | $2,465                      | $3,357                      | $2,183                      | $2,181                      | $1,136                      |
| Net income per share, basic                                          | $4\.30                      | $5\.58                      | $3\.48                      | $3\.30                      | $1\.65                      |
| Net income per share, diluted                                        | $4\.29                      | $5\.57                      | $3\.45                      | $3\.27                      | $1\.64                      |
| Cash dividends per common share                                      | $0\.6050                    | $0\.4750                    | $0\.3750                    | $0\.2850                    | $0\.2200                    |
| Total assets at period\-end                                          | $26,243                     | $25,110                     | $23,286                     | $21,312                     | $19,723                     |
| Long\-term obligations at period\-end                                | $2,771                      | $3,320                      | $2,821                      | $2,541                      | $2,434                      |
| Stockholders’ equity at period\-end                                  | $9,853                      | $9,641                      | $7,784                      | $7,358                      | $6,775                      |
| **Operating Data:**                                                  |                             |                             |                             |                             |                             |
| Revenue passengers carried                                           | 134,890,243                 | 130,256,190                 | 124,719,765                 | 118,171,211                 | 110,496,912                 |
| Enplaned passengers                                                  | 163,605,833                 | 157,677,218                 | 151,740,357                 | 144,574,882                 | 135,767,188                 |
| Revenue passenger miles (RPMs) (000s) (a)                            | 133,322,322                 | 129,041,420                 | 124,797,986                 | 117,499,879                 | 108,035,133                 |
| Available seat miles (ASMs) (000s) (b)                               | 159,795,153                 | 153,811,072                 | 148,522,051                 | 140,501,409                 | 131,003,957                 |
| Load factor (c)                                                      | 83\.4%                      | 83\.9%                      | 84\.0%                      | 83\.6%                      | 82\.5%                      |
| Average length of passenger haul (miles)                             | 988                         | 991                         | 1,001                       | 994                         | 978                         |
| Average aircraft stage length (miles)                                | 757                         | 754                         | 760                         | 750                         | 721                         |
| Trips flown                                                          | 1,375,030                   | 1,347,893                   | 1,311,149                   | 1,267,358                   | 1,255,502                   |
| Seats flown (d)                                                      | 207,223,050                 | 200,878,967                 | 193,167,695                 | 184,955,094                 | 179,733,055                 |
| Seats per trip (e)                                                   | 150\.70                     | 149\.03                     | 147\.33                     | 145\.94                     | 143\.16                     |
| Average passenger fare                                               | $151\.64                    | $151\.73                    | $152\.89                    | $154\.85                    | $159\.80                    |
| Passenger revenue yield per RPM (cents) (f)                          | 15\.34                      | 15\.32                      | 15\.28                      | 15\.57                      | 16\.34                      |
| Operating revenue per ASM (cents) (g)(j)                             | 13\.75                      | 13\.75                      | 13\.66                      | 13\.98                      | 14\.20                      |
| Passenger revenue per ASM (cents) (h)                                | 12\.80                      | 12\.85                      | 12\.84                      | 13\.02                      | 13\.48                      |
| Operating expenses per ASM (cents) (i)                               | 11\.74                      | 11\.53                      | 11\.29                      | 11\.26                      | 12\.55                      |
| Operating expenses per ASM, excluding fuel (cents)                   | 8\.85                       | 8\.88                       | 8\.73                       | 8\.60                       | 8\.46                       |
| Operating expenses per ASM, excluding fuel and profitsharing (cents) | 8\.51                       | 8\.53                       | 8\.34                       | 8\.16                       | 8\.19                       |
| Fuel costs per gallon, including fuel tax                            | $2\.20                      | $1\.99                      | $1\.90                      | $1\.96                      | $2\.97                      |
| Fuel costs per gallon, including fuel tax, economic                  | $2\.20                      | $2\.06                      | $2\.00                      | $2\.13                      | $2\.95                      |
| Fuel consumed, in gallons (millions)                                 | 2,094                       | 2,045                       | 1,996                       | 1,901                       | 1,801                       |
| Active fulltime equivalent Employees                                 | 58,803                      | 56,110                      | 53,536                      | 49,583                      | 46,278                      |
| Aircraft at end of period                                            | 750                         | 706                         | 723                         | 704                         | 665                         |

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