Annual Report of Southwest Airlines Co\. for year 2018

**12****\. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)**

Comprehensive income includes changes in the fair value of certain financial derivative instruments that qualify for hedge accounting, unrealized gains and losses on certain investments, and actuarial gains/losses arising from the Company’s postretirement benefit obligation\. A rollforward of the amounts included in AOCI, net of taxes, is shown below for 2018 and 2017:

|                                                    |                      |                               |                                |           |                         |                                                        |
| -------------------------------------------------- | -------------------- | ----------------------------- | ------------------------------ | --------- | ----------------------- | ------------------------------------------------------ |
| **(in millions)**                                  | **Fuel derivatives** | **Interest rate derivatives** | **Defined benefit plan items** | **Other** | **Deferred tax impact** | **Accumulated other  <br>comprehensive income (loss)** |
| Balance at December 31, 2016                       | $(499)               | $(18)                         | $(14)                          | $20       | $188                    | $(323)                                                 |
| Changes in fair value                              | (50)                 | —                             | 5                              | 13        | 11                      | (21)                                                   |
| Reclassification to earnings                       | 552                  | 11                            | —                              | —         | (207)                   | 356                                                    |
| Balance at December 31, 2017                       | $3                   | $(7)                          | $(9)                           | $33       | $(8)                    | $12                                                    |
| ASU 2017\-12 adoption adjustment (a)               | (26)                 | —                             | —                              | —         | 6                       | (20)                                                   |
| ASU 2018\-02 stranded AOCI adoption adjustment (b) | —                    | —                             | —                              | —         | 2                       | 2                                                      |
| Changes in fair value                              | —                    | 1                             | 67                             | (8)       | (14)                    | 46                                                     |
| Reclassification to earnings                       | (33)                 | 6                             | —                              | —         | 7                       | (20)                                                   |
| Balance at December 31, 2018                       | $(56)                | $—                            | $58                            | $25       | $(7)                    | $20                                                    |

(a) The Company adopted the New Hedging Standard as of January 1, 2018\. See Note 2 for further information on this adoption\.

(b) The Company adopted the Reclassification of Certain Tax Effects from AOCI as of January 1, 2018, which allowed the Company to reclassify to Retained earnings any tax effects stranded in AOCI as a result of the Tax Cuts and Jobs Act enacted in December 2017\.

The following table illustrates the significant amounts reclassified out of each component of AOCI for the year endedDecember 31, 2018:

|                                                         |                                     |                                                                              |
| ------------------------------------------------------- | ----------------------------------- | ---------------------------------------------------------------------------- |
| **Year ended December 31, 2018**                        | **Year ended December 31, 2018**    | **Year ended December 31, 2018**                                             |
| **(in millions)**                                       | **Amounts reclassified from AOCI**  | **Affected line item in the Consolidated Statement of Comprehensive Income** |
| **AOCI components**                                     | **Amounts reclassified from AOCI**  | **Affected line item in the Consolidated Statement of Comprehensive Income** |
| Unrealized gain on fuel derivative instruments          | $(33)                               | Fuel and oil expense                                                         |
|                                                         | (8)                                 | Less: Tax expense                                                            |
|                                                         | $(25)                               | Net of tax                                                                   |
| Unrealized loss on interest rate derivative instruments | $6                                  | Interest expense                                                             |
|                                                         | 1                                   | Less: Tax expense                                                            |
|                                                         | $5                                  | Net of tax                                                                   |
| Total reclassifications for the period                  | $(20)                               | Net of tax                                                                   |

**13****\. EMPLOYEE RETIREMENT PLANS**

***Defined Contribution Plans***

Southwest has defined contribution plans covering substantially all of its Employees\. Contributions under all defined contribution plans are primarily based on Employee compensation and performance of the Company\. The Company sponsors Employee savings plans under section 401(k) of the Internal Revenue Code of 1986, as amended\. The Southwest Airlines Co\. 401(k) Plan includes Company matching contributions and the Southwest Airlines Pilots Retirement Saving Plan has non\-elective Company contributions\. In addition, the Southwest Airlines Co\. ProfitSharing

110


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

**AAG’s Results of Operations**

***Operating Statistics***

The table below sets forth selected operating data for the years ended December 31, 2017, 2016 and 2015\.

|                                                                          |                             |                             |                             |                                    |                                    |
| ------------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- | ---------------------------------- | ---------------------------------- |
|                                                                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Increase (Decrease) 2017\-2016** | **Increase (Decrease) 2016\-2015** |
|                                                                          | **2017**                    | **2016**                    | **2015**                    | **Increase (Decrease) 2017\-2016** | **Increase (Decrease) 2016\-2015** |
| **Mainline**                                                             |                             |                             |                             |                                    |                                    |
| Revenue passenger miles (millions)  ^(a)^                                | 201,351                     | 199,014                     | 199,467                     | 1\.2%                              | (0\.2)%                            |
| Available seat miles (millions)  ^(b)^                                   | 243,806                     | 241,734                     | 239,375                     | 0\.9%                              | 1\.0%                              |
| Passenger load factor (percent)  ^(c)^                                   | 82\.6                       | 82\.3                       | 83\.3                       | 0\.3pts                            | (1\.0)pts                          |
| Yield (cents)  ^(d)^                                                     | 14\.52                      | 14\.02                      | 14\.56                      | 3\.5%                              | (3\.7)%                            |
| Passenger revenue per available seat mile (cents)  ^(e)^                 | 11\.99                      | 11\.55                      | 12\.13                      | 3\.9%                              | (4\.8)%                            |
| Operating cost per available seat mile (cents)  ^(f)^                    | 12\.96                      | 11\.94                      | 12\.03                      | 8\.6%                              | (0\.8)%                            |
| Aircraft at end of period                                                | 948                         | 930                         | 946                         | 1\.9%                              | (1\.7)%                            |
| Fuel consumption (gallons in millions)                                   | 3,579                       | 3,596                       | 3,611                       | (0\.5)%                            | (0\.4)%                            |
| Average aircraft fuel price including related taxes (dollars per gallon) | 1\.71                       | 1\.41                       | 1\.72                       | 21\.4%                             | (18\.2)%                           |
| Full\-time equivalent employees at end of period                         | 103,100                     | 101,500                     | 98,900                      | 1\.6%                              | 2\.6%                              |
| **Total Mainline and Regional**                                          |                             |                             |                             |                                    |                                    |
| Revenue passenger miles (millions)  ^(a)^                                | 226,346                     | 223,477                     | 223,010                     | 1\.3%                              | 0\.2%                              |
| Available seat miles (millions)  ^(b)^                                   | 276,493                     | 273,410                     | 268,736                     | 1\.1%                              | 1\.7%                              |
| Passenger load factor (percent)  ^(c)^                                   | 81\.9                       | 81\.7                       | 83\.0                       | 0\.2pts                            | (1\.3)pts                          |
| Yield (cents)  ^(d)^                                                     | 15\.96                      | 15\.47                      | 15\.92                      | 3\.2%                              | (2\.8)%                            |
| Passenger revenue per available seat mile (cents)  ^(e)^                 | 13\.07                      | 12\.65                      | 13\.21                      | 3\.3%                              | (4\.3)%                            |
| Total revenue per available seat mile (cents)  ^(g)^                     | 15\.27                      | 14\.70                      | 15\.25                      | 3\.9%                              | (3\.7)%                            |
| Aircraft at end of period                                                | 1,545                       | 1,536                       | 1,533                       | 0\.6%                              | 0\.2%                              |
| Fuel consumption (gallons in millions)                                   | 4,352                       | 4,347                       | 4,323                       | 0\.1%                              | 0\.5%                              |
| Average aircraft fuel price including related taxes (dollars per gallon) | 1\.73                       | 1\.42                       | 1\.72                       | 21\.4%                             | (17\.6)%                           |
| Full\-time equivalent employees at end of period  ^(h)^                  | 126,600                     | 122,300                     | 118,500                     | 3\.5%                              | 3\.2%                              |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------ |
| ^(a)^ | Revenue passenger mile (RPM) – A basic measure of sales volume\. One RPM represents one passenger flown one mile\. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------- |
| ^(b)^ | Available seat mile (ASM) – A basic measure of production\. One ASM represents one seat flown one mile\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------- |
| ^(c)^ | Passenger load factor – The percentage of available seats that are filled with revenue passengers\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------ |
| ^(d)^ | Yield – A measure of airline revenue derived by dividing passenger revenue by RPMs\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------- |
| ^(e)^ | Passenger revenue per available seat mile (PRASM) – Passenger revenues divided by ASMs\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------ |
| ^(f)^ | Operating cost per available seat mile (CASM) – Operating expenses divided by ASMs\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------ |
| ^(g)^ | Total revenue per available seat mile (TRASM) – Total revenues divided by total mainline and regional ASMs\. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------- |
| ^(h)^ | Regional full\-time equivalent employees only include our wholly\-owned regional airline subsidiaries, Envoy, Piedmont and PSA\. |

49


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2017

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

ventures with ANA for transpacific cargo services and continues to implement a cargo joint venture with Lufthansa for transatlantic cargo services\. These cargo joint ventures offer expanded and more seamless access to cargo space across the carriers’ respective combined networks\.

***Loyalty Program\.*** United’s MileagePlus program builds customer loyalty by offering awards, benefits and services to program participants\. Members in this program earn miles for flights on United, United Express, Star Alliance members and certain other airlines that participate in the program\. Members can also earn miles by purchasing the goods and services of our network of non\-airline partners, such as domestic and international credit card issuers, retail merchants, hotels and car rental companies\. Members can redeem miles for free (other than taxes and government imposed fees), discounted or upgraded travel and non\-travel awards\.

United has an agreement with Chase Bank USA, N\.A\. (“Chase”), pursuant to which members of United’s MileagePlus loyalty program who are residents of the United States can earn miles for making purchases using a MileagePlus credit card issued by Chase\. The agreement also provides for joint marketing and other support for the MileagePlus credit card and provides Chase with other benefits such as permission to market to the Company’s customer database\.

Approximately 5\.4 million and 5\.2 million MileagePlus flight awards were used on United in 2017 and 2016, respectively\. These awards represented 7\.5% and 7\.7% of United’s total revenue passenger miles in 2017 and 2016, respectively\. Total miles redeemed for flights on United in 2017, including class\-of\-service upgrades, represented approximately 85% of the total miles redeemed\. In addition, excluding miles redeemed for flights on United, MileagePlus members redeemed miles for approximately 2\.3 million other awards in 2017 as compared to 2\.0 million in 2016\. These awards include United Club memberships, car and hotel awards, merchandise and flights on other air carriers\.

***Aircraft Fuel\.*** The table below summarizes UAL’s aircraft fuel consumption and expense during the last three years\.

|           |                                                  |                                         |                                   |                                                          |  |
|:---------:| ------------------------------------------------:| ---------------------------------------:| ---------------------------------:| --------------------------------------------------------:|:- |
|  **Year** | **Gallons
Consumed**
**(in millions)** | **Fuel Expense**
**(in millions)** | **Average Price
Per Gallon** | **Percentage of
Total
Operating
Expense** |  |
|  **2017** |                                           3,978  |                                  $6,913 |                           $1\.74  |                                                      20% |
|  **2016** |                                           3,904  |                                  $5,813 |                           $1\.49  |                                                      18% |
|  **2015** |                                           3,886  |                                  $7,522 |                           $1\.94  |                                                      23% |

Our operational and financial results can be significantly impacted by changes in the price and availability of aircraft fuel\. To provide adequate supplies of fuel, the Company routinely enters into purchase contracts that are customarily indexed to market prices for aircraft fuel, and the Company generally has some ability to cover short\-term fuel supply and infrastructure disruptions at some major demand locations\. The price of aircraft fuel has fluctuated substantially in the past several years\. As of December 31, 2017, the Company did not have any outstanding fuel hedging contracts\. The Company’s current strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors\.

***Third\-Party Business\.*** United generates third\-party business revenue that includes frequent flyer award non\-air redemptions, maintenance services, catering and ground handling\. Third\-party business revenue is recorded in Other operating revenue\. Expenses associated with third\-party business are recorded in Other operating expenses\.

***Distribution Channels\.*** The Company’s airline seat inventory and fares are distributed through the Company’s direct channels, traditional travel agencies and on\-line travel agencies\. The use of the Company’s direct sales website, www\.united\.com, the Company’s mobile applications and alternative distribution systems provides the Company with an opportunity to de\-commoditize its services, better present its content, make more targeted offerings, better retain its customers, enhance its brand and lower its ticket distribution costs\. Agency sales are

5


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

|                                                                                |
| -------------------------------------------------------------------------------------------------- |
| **ITEM 7\. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |

**OVERVIEW**

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our company, our operations and our present business environment\. MD&A is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes\. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward\-looking statements\. Please consider our forward\-looking statements in light of the risks referred to in this report’s introductory cautionary note and the risks mentioned in Part I, “Item 1A\. Risk Factors\.” This overview summarizes the MD&A, which includes the following sections:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Year in Review* —highlights from  2017  outlining some of the major events that happened during the year and how they affected our financial performance\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Results of Operations* —an in\-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the three years presented in our consolidated financial statements\. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item\. Financial and statistical data is also included here\. As Virgin America was acquired on December 14, 2016, its financial and operational results are reflected in the year ended December 31, 2017, but not in the comparative prior period\. However, for comparability purposes, we have added "Combined Comparative" information for the prior year, which is more fully described below\. This section includes forward\-looking statements regarding our view of  2018 \. Further information about the acquisition of Virgin America can be found in  Note 2  to the consolidated financial statements\. |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Liquidity and Capital Resources* —an overview of our financial position, analysis of cash flows, sources and uses of cash, contractual obligations and commitments and off\-balance sheet arrangements\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------- |
| *•* | *Critical Accounting Estimates* —a discussion of our accounting estimates that involve significant judgment and uncertainties\. |

**YEAR IN REVIEW**

In 2017, we expanded our network at a record pace, adding 44 new markets across the network during the year\. Additionally, we devoted a significant amount of energy and resources to integrating Alaska and Virgin America\. We achieved many integration milestones, including merging many back\-office functions, co\-locating many stations, and launching technology for front\-line employees to enable them to serve our customers seamlessly between carriers\.

In 2017, we posted our 14th consecutive annual profit on an adjusted basis\. Our pretax income was $1\.2 billion, compared to $1\.3 billion in 2016\. Our 2017 pretax income on an adjusted basis (a non\-GAAP financial measure) was $1\.3 billion, a decrease of 9% from 2016\. Adjusted pretax income for 2017 excludes $118 million of merger\-related costs associated with our acquisition of Virgin America and $7 million of mark\-to\-market fuel hedge benefit\.

The decrease in adjusted pretax income was driven largely by an increase in operating expenses, excluding fuel and special items, of $1\.5 billion, and an increase in fuel expense of $616 million\. The increase in operating expense was primarily due to the full\-year impact of Virgin America in our financial results\. The increased costs were partially offset by an increase in operating revenues of $2\.0 billion\.

The growth in revenues of $2\.0 billion was driven by the growth in our business, attributable to the inclusion of Virgin America in our results for the full year, as well as our expansion into 44 new markets entered into during the year\. On the regional side of our business, Horizon began flying the new Embraer E175 regional jets in 2017 — the first 10 of 33 aircraft scheduled for delivery over a three year period\. We believe we have a strong future ahead of us and look forward to the many new opportunities our combined networks will bring our company\.

See “Results of Operations” below for further discussion of changes in revenues and operating expenses and our reconciliation of Non\-GAAP measures to the most directly comparable GAAP measure\.

 33


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

**PART IV**

**ITEM 15\. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

**Consolidated Financial Statements**

The following consolidated financial statements of American Airlines Group Inc\. and Independent Auditors’ Report are filed as part of this report:

|                                                                                |                                                                                |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |
|                                                                                | **Page**                                                                                |
| [Report of Independent Registered Public Accounting Firm](https://americanairlines.gcs-web.com/email-alerts#s58AD223309B859C99EEC644CADDBD4AA)                                              |
[80](https://americanairlines.gcs-web.com/email-alerts#s58AD223309B859C99EEC644CADDBD4AA) |
| [Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015](https://americanairlines.gcs-web.com/email-alerts#s7BDA6DE372C3575D87266844C43581C9)           |
[81](https://americanairlines.gcs-web.com/email-alerts#s7BDA6DE372C3575D87266844C43581C9) |
| [Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015](https://americanairlines.gcs-web.com/email-alerts#sA9330072FB535CF5AD96B4ED60464CD2) |
[82](https://americanairlines.gcs-web.com/email-alerts#sA9330072FB535CF5AD96B4ED60464CD2) |
| [Consolidated Balance Sheets at December 31, 2017 and 2016](https://americanairlines.gcs-web.com/email-alerts#s0B3B0FCF1ADF50CCA0DF949274F5D7E4)                                            |
[83](https://americanairlines.gcs-web.com/email-alerts#s0B3B0FCF1ADF50CCA0DF949274F5D7E4) |
| [Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015](https://americanairlines.gcs-web.com/email-alerts#sA4BAC43A341D5A92A99B16268BFD1F36)           |
[84](https://americanairlines.gcs-web.com/email-alerts#sA4BAC43A341D5A92A99B16268BFD1F36) |
| [Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015](https://americanairlines.gcs-web.com/email-alerts#s2405F136176E5DD6B4FB3FFB5D4A3085) |
[85](https://americanairlines.gcs-web.com/email-alerts#s2405F136176E5DD6B4FB3FFB5D4A3085) |
| [Notes to Consolidated Financial Statements](https://americanairlines.gcs-web.com/email-alerts#sF3A077E9AE5D5C96BA5A4C2BA114FBF3)                                                           |
[86](https://americanairlines.gcs-web.com/email-alerts#sF3A077E9AE5D5C96BA5A4C2BA114FBF3) |

The following consolidated financial statements of American Airlines, Inc\. and Independent Auditors’ Report are filed as part of this report:

|                                                                                |                                                                                |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |
|                                                                                | **Page**                                                                                |
| [Report of Independent Registered Public Accounting Firm](https://americanairlines.gcs-web.com/email-alerts#s2F15ED30F6F35A0C8AE6926E50F2D66D)                                              |
[125](https://americanairlines.gcs-web.com/email-alerts#s2F15ED30F6F35A0C8AE6926E50F2D66D) |
| [Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015](https://americanairlines.gcs-web.com/email-alerts#s7B3CF705030E5663BD0AAFAFF4F008C3)           |
[126](https://americanairlines.gcs-web.com/email-alerts#s7B3CF705030E5663BD0AAFAFF4F008C3) |
| [Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015](https://americanairlines.gcs-web.com/email-alerts#sCEE6CD2AD79C5E9DB1CC13FA45EC28F4) |
[127](https://americanairlines.gcs-web.com/email-alerts#sCEE6CD2AD79C5E9DB1CC13FA45EC28F4) |
| [Consolidated Balance Sheets at December 31, 2017 and 2016](https://americanairlines.gcs-web.com/email-alerts#s70D5BEE9107853C4AEF55E5A291EBC93)                                            |
[128](https://americanairlines.gcs-web.com/email-alerts#s70D5BEE9107853C4AEF55E5A291EBC93) |
| [Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015](https://americanairlines.gcs-web.com/email-alerts#s662D76AC82835F5E9AA7447F8B8E2D62)           |
[129](https://americanairlines.gcs-web.com/email-alerts#s662D76AC82835F5E9AA7447F8B8E2D62) |
| [Consolidated Statements of Stockholder’s Equity for the Years Ended December 31, 2017, 2016 and 2015](https://americanairlines.gcs-web.com/email-alerts#s757EBD33C90B5A0EB33C7F33ADD11338) |
[130](https://americanairlines.gcs-web.com/email-alerts#s757EBD33C90B5A0EB33C7F33ADD11338) |
| [Notes to Consolidated Financial Statements](https://americanairlines.gcs-web.com/email-alerts#sDE212492AD2A509F808A326F6C923AF0)                                                           |
[131](https://americanairlines.gcs-web.com/email-alerts#sDE212492AD2A509F808A326F6C923AF0) |

Schedules not included have been omitted because they are not applicable or because the required information is included in the Consolidated Financial Statements or notes thereto\.

175


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

NOTE 16 \. RESTRUCTURING

The following table shows the balances and activity for restructuring charges:

|                                  |               |               |               |
| -------------------------------- | ------------- | ------------- | ------------- |
| **(in millions)**                | **2018**      | **2017**      | **2016**      |
| Liability at beginning of period | $237          | $333          | $467          |
| Reclassified to lease liability  | (195

) | —             | —             |
| Payments                         | (5

)   | (103

) | (144

) |
| Additional expenses and other    | 1             | 7             | 10            |
| Liability at end of period       | $38           | $237          | $333          |

Restructuring charges in 2017 and 2016 primarily include remaining lease payments for permanently grounded aircraft related to domestic and Pacific fleet restructurings\. The domestic fleet restructuring involves replacing a portion of our   50 \-seat regional fleet with more efficient and customer preferred aircraft and replacing older, less cost effective B\-757\-200 aircraft with B\-737\-900ER aircraft\. The Pacific fleet restructuring resulted in the 2017 retirement of the B\-747\-400 fleet, which is being replaced with smaller\-gauge, widebody aircraft to better match capacity with demand\.

As a result of the implementation of the new lease accounting standard,   $195 million  of the lease restructuring liability related to aircraft and certain airport facilities was reclassified at adoption on January 1, 2018 to current and noncurrent operating lease liabilities\. The remaining balance in the restructuring liability at  December 31, 2018  is primarily related to certain airport facilities with variable rates\.

NOTE 17 \. EARNINGS PER SHARE

We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding, excluding restricted shares\. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share\-based awards, including stock options and restricted stock awards\. Antidilutive common stock equivalents excluded from the diluted earnings per share calculation are not material\. The following table shows our computation of basic and diluted earnings per share:

|                                             |                             |                             |                             |
| ------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                             | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions, except per share data)**    | **2018**                    | **2017**                    | **2016**                    |
| Net income                                  | $3,935                      | $3,205                      | $4,195                      |
| Basic weighted average shares outstanding   | 691                         | 720                         | 751                         |
| Dilutive effect of share\-based awards      | 3                           | 3                           | 4                           |
| Diluted weighted average shares outstanding | 694                         | 723                         | 755                         |
| Basic earnings per share                    | $5\.69                      | $4\.45                      | $5\.59                      |
| Diluted earnings per share                  | $5\.67                      | $4\.43                      | $5\.55                      |

 96


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

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

The following table provides information relating to our amortizable intangible assets as of  December 31, 2019  and  2018  (in millions):

|                               |                  |                  |
| ----------------------------- | ---------------- | ---------------- |
|                               | **December 31,** | **December 31,** |
|                               | **2019**         | **2018**         |
| Domestic airport slots        | $365             | $365             |
| Customer relationships        | 300              | 300              |
| Marketing agreements          | 105              | 105              |
| Tradenames                    | 35               | 35               |
| Airport gate leasehold rights | 137              | 137              |
| Accumulated amortization      | (704

)    | (663

)    |
| Total                         | $238             | $279             |

Certain domestic airport slots and airport gate leasehold rights are amortized on a straight\-line basis over   25 years \. The customer relationships and marketing agreements were identified as intangible assets subject to amortization and are amortized on a straight\-line basis over approximately   nine years  and   30 years , respectively\. Tradenames are fully amortized\.

We recorded amortization expense related to these intangible assets of   $41 million  for both years ended  December 31, 2019  and  2018  and   $44 million  for  2017 \. We expect to record annual amortization expense for these intangible assets as follows (in millions):

|                     |      |
| ------------------- | ---- |
| 2020                | $41  |
| 2021                | 41   |
| 2022                | 41   |
| 2023                | 7    |
| 2024                | 7    |
| 2025 and thereafter | 101  |
| Total               | $238 |

Indefinite\-Lived Intangible Assets

Indefinite\-lived intangible assets include certain domestic airport slots and international slots and route authorities\. Indefinite\-lived intangible assets are not amortized but instead are assessed for impairment annually on October 1 or more frequently if events or circumstances indicate that the asset may be impaired\. As of  December 31, 2019  and  2018 , we had   $1\.8 billion  and   $1\.9 billion , respectively, of indefinite\-lived intangible assets on our consolidated balance sheets\.

Indefinite\-lived intangible assets are assessed for impairment by initially performing a qualitative assessment to determine whether we believe it is more likely than not that an asset has been impaired\. If we believe impairment has occurred, we then evaluate for impairment by comparing the estimated fair value of assets to the carrying value\. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value\. Based upon our annual assessment, there were   no  material indefinite\-lived intangible asset impairments in  2019 \.

80


Annual Report of ALASKA AIR GROUP, INC\. for year 2019

OPERATING REVENUES

Total operating revenues increased $517 million, or 6%, during 2019 compared to the same period in 2018\. The changes are summarized in the following table:

|                            |                            |                            |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |  |  |  |  |  |  |  |  |  |  |  |  |
|:-------------------------- |:-------------------------- |:-------------------------- | --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:| --------------------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                            |                            |                            | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, |  |  |  |  |  |  |  |  |  |  |  |  |
| *(in millions)*            | *(in millions)*            | *(in millions)*            |                             2019 |                                  |                                  |                                  |                             2018 |                                  |                                  |                                  |                         % Change |                         % Change |
| Passenger revenue          | Passenger revenue          | Passenger revenue          |                          $8,095  |                                  |                                  |                                  |                          $7,631  |                                  |                                  |                                  |                           6\.1 % |                           6\.1 % |
| Mileage Plan other revenue | Mileage Plan other revenue | Mileage Plan other revenue |                             465  |                                  |                                  |                                  |                             434  |                                  |                                  |                                  |                           7\.1 % |                           7\.1 % |
| Cargo and other            | Cargo and other            | Cargo and other            |                             221  |                                  |                                  |                                  |                             199  |                                  |                                  |                                  |                          11\.1 % |                          11\.1 % |
| Total operating revenues   | Total operating revenues   | Total operating revenues   |                          $8,781  |                                  |                                  |                                  |                          $8,264  |                                  |                                  |                                  |                           6\.3 % |                           6\.3 % |

Passenger Revenue

On a consolidated basis, passenger revenue for 2019 increased by $464 million, or 6%, on a 2% increase in capacity, and a 4\.2% increase in unit revenues\. The capacity increase was driven by the continued expansion of our network and fleet growth over the past year\. Unit revenues increased largely due to our current year revenue initiatives, including our Saver Fare product, implemented as a part of a broader plan to drive revenue growth, and the realization of synergies from our acquisition of Virgin America\.

Mileage Plan other revenue

On a consolidated basis, Mileage Plan other revenue increased $31 million, or 7%, as compared to 2018, primarily due to increased miles purchased by our affinity card partner consistent with the overall growth in cardholders\.

Cargo and Other Revenue

On a consolidated basis, Cargo and other revenue increased $22 million, or 11%, from 2018 \.  The increase is primarily attributable to increased freight and mail volumes from our three freighters as a result of the annualization of new contracts entered into late in 2018 and revenue from our subleased slots at LaGuardia and Reagan National airports\.

OPERATING EXPENSES

Total operating expenses increased $97 million, or 1%, compared to 2018\. We consider it useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:

|                                        |                                        |                                        |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |                                  |  |  |  |  |  |  |  |  |  |  |  |  |
|:-------------------------------------- |:-------------------------------------- |:-------------------------------------- | --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:|:--------------------------------:|:--------------------------------:|:--------------------------------:| --------------------------------:| --------------------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                                        |                                        |                                        | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, | Twelve Months Ended December 31, |  |  |  |  |  |  |  |  |  |  |  |  |
| *(in millions)*                        | *(in millions)*                        | *(in millions)*                        |                             2019 |                                  |                                  |                                  |                             2018 |                                  |                                  |                                  |                         % Change |                         % Change |
| Fuel expense                           | Fuel expense                           | Fuel expense                           |                          $1,878  |                                  |                                  |                                  |                          $1,936  |                                  |                                  |                                  |                          (3\.0)% |                          (3\.0)% |
| Non\-fuel expenses                     | Non\-fuel expenses                     | Non\-fuel expenses                     |                           5,796  |                                  |                                  |                                  |                           5,553  |                                  |                                  |                                  |                           4\.4 % |                           4\.4 % |
| Special items \- merger\-related costs | Special items \- merger\-related costs | Special items \- merger\-related costs |                              44  |                                  |                                  |                                  |                              87  |                                  |                                  |                                  |                         (49\.4)% |                         (49\.4)% |
| Special items \- other                 | Special items \- other                 | Special items \- other                 |                               —  |                                  |                                  |                                  |                              45  |                                  |                                  |                                  |                              NM  |                              NM  |
| Total Operating Expenses               | Total Operating Expenses               | Total Operating Expenses               |                          $7,718  |                                  |                                  |                                  |                          $7,621  |                                  |                                  |                                  |                           1\.3 % |                           1\.3 % |

Significant operating expense variances from 2018 are more fully described below\.

Aircraft Fuel

Aircraft fuel expense includes both  raw fuel expense  (as defined below) and the effect of mark\-to\-market adjustments to our fuel hedge portfolio included in our consolidated statement of operations as the value of that portfolio increases and decreases\. Aircraft fuel expense can be volatile, even between quarters, because it includes these gains or losses in the value of the underlying instrument as crude oil prices and refining margins increase or decrease\.

Raw fuel expense  is defined as the price that we generally pay at the airport, or the “into\-plane” price, including taxes and fees\. Raw fuel prices are impacted by world oil prices and refining costs, which can vary by region in the U\.S\.  Raw fuel expense  approximates cash paid to suppliers and does not reflect the effect of our fuel hedges\.

37


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

**PART II**

|              |                                                                                |
| ------------ | ---------------------------------------------------------------------------------------------------------------------------- |
| **ITEM 5\.** | **MARKET FOR AMERICAN AIRLINES GROUP’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES** |

**Stock Exchange Listing**

Our common stock is listed on the NASDAQ Global Select Market (NASDAQ) under the symbol “AAL\.” There is no trading market for the common stock of American, which is a wholly\-owned subsidiary of AAG\.

As of February 16, 2018, the closing price of our common stock was $51\.58 and there were 10,921 holders of record\.

Information on securities authorized for issuance under our equity compensation plans will be set forth in our Proxy Statement for the 2018 Annual Meeting of Stockholders of American Airlines Group Inc\. (the Proxy Statement) under the caption “Equity Compensation Plan Information” and is incorporated by reference into this Annual Report on Form 10\-K\.

**Market Prices and Dividends of Common Stock**

The following table sets forth, for the periods indicated, the high and low sale prices of our common stock on NASDAQ and cash dividends declared by our Board of Directors:

|                                       |                |                         |                         |                                                    |
| ------------------------------------- | -------------- | ----------------------- | ----------------------- | -------------------------------------------------- |
|                                       |                | **Common Stock Prices** | **Common Stock Prices** |                                                    |
| **Year Ended**

**December 31** | **Period**     | **High**                | **Low**                 | **Cash Dividends**

**Declared (Per share)** |
| **2017**                              | First Quarter  | $50\.00                 | $39\.21                 | $0\.10                                             |
|                                       | Second Quarter | 51\.95                  | 40\.82                  | 0\.10                                              |
|                                       | Third Quarter  | 54\.48                  | 42\.61                  | 0\.10                                              |
|                                       | Fourth Quarter | 53\.74                  | 45\.27                  | 0\.10                                              |
| **2016**                              | First Quarter  | 43\.78                  | 34\.76                  | 0\.10                                              |
|                                       | Second Quarter | 41\.76                  | 24\.85                  | 0\.10                                              |
|                                       | Third Quarter  | 39\.52                  | 27\.12                  | 0\.10                                              |
|                                       | Fourth Quarter | 50\.64                  | 36\.33                  | 0\.10                                              |

In January 2018, we announced that our Board of Directors declared a $0\.10 per share dividend for stockholders of record on February 6, 2018, and payable on February 20, 2018\.

The total cash payment for dividends during the years ended December 31, 2017 and 2016 was $198 million and $224 million, respectively\. Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors\. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended at any time at our discretion\.

**Stock Performance Graph**

*The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing\.*

The following stock performance graph compares our cumulative total stockholder returns of our common stock to the Standard and Poor’s (S&P) 500 Stock Index and the New York Stock Exchange (NYSE) ARCA Airline Index from December 9, 2013 (the first trading day of our common stock, AAL) through December 31, 2017\. The comparison assumes $100 was invested on December 9, 2013 in our common stock and in each of the foregoing indices and assumes that all dividends were reinvested\. The stock performance shown on the following graph represents historical stock performance and is not necessarily indicative of future stock price performance\.

38


Annual Report of Southwest Airlines Co\. for year 2019

program, the TSA requires airlines to collect a passenger's full name (as it appears on a government\-issued ID), date of birth, gender, and Redress Number (if applicable)\. Airlines must transmit this information to Secure Flight, which uses the information to perform matching against terrorist watch lists\. After matching passenger information against the watch lists, Secure Flight transmits the matching results back to airlines\. This serves to identify individuals for more extensive security screening and to prevent individuals on watch lists from boarding an aircraft\. It also helps prevent the misidentification of passengers who have names similar to individuals on watch lists\. The TSA's multi\-layered approach to airport security also includes physical pat down procedures at security checkpoints\. These procedures have raised privacy concerns by some air travelers, and have caused delays at screening checkpoints\.

Pursuant to the Reauthorization Act, the FAA is required to issue an order requiring installation of a physical secondary cockpit barrier on "each new aircraft that is manufactured" for delivery to a passenger air carrier\. The FAA has formed a working group comprised of industry technical experts to provide advice and recommendations on the most effective ways to implement the physical secondary cockpit barrier requirement\. Depending on the advice and recommendations of the working group, as well as the FAA's interpretation and application of the statutory requirement, compliance with the future FAA order could impose a substantial cost on the Company\.

The Company, in conjunction with the TSA, participates in TSA PreCheck™, a pre\-screening initiative that allows a select group of low risk passengers to move through security checkpoints with greater efficiency and ease when traveling\. Eligible passengers may use dedicated screening lanes at certain airports the Company serves for screening benefits, which include leaving on shoes, light outerwear, and belts, as well as leaving laptops and permitted liquids in carryon bags\. A similar CBP\-administered program, Global Entry ^®^ , allows expedited clearance for pre\-approved, low\-risk international travelers upon arrival in the United States\. The TSA has expressed its plans to leverage advanced transportation security screening technologies, including biometric solutions, to improve security effectiveness and operational efficiency, while also enhancing the passenger experience\. The advanced technologies have prompted privacy, cost, and legal concerns from air carriers, travelers, and advocacy groups, which could affect the timing and viability of the TSA's plans\.

The Company also participates in the TSA Known Crewmember ^®^  program, which is a risk\-based screening system that enables TSA security officers to positively verify the identity and employment status of flight\-crew members\. The program expedites flight crew member access to sterile areas of airports\.

The Company works collaboratively with TSA, foreign national governments, and airports to provide risk\-based security measures at international locations served by the Company\.

The Department of Homeland Security has granted the Company designation coverage under the Support Anti\-Terrorism by Fostering Effective Technologies Act of 2002 (the "SAFETY Act") through September 29, 2022\. Designation coverage affords the Company certain limitations of liability for claims arising out of an "act of terrorism," as defined under the SAFETY Act\. The designation is based on the security program used by the Company to protect its Employees, Customers, and assets from terrorists and other criminal activities\.

The Company has made significant investments in facilities, equipment, and technology to process Customers, checked baggage, and cargo efficiently in compliance with applicable security regulations; however, the Company is not able to predict the impact, if any, that various security measures or the lack of TSA resources at certain airports will have on Passenger revenues and the Company’s costs, either in the short\-term or the long\-term\.

Environmental Regulation

The Company is subject to various federal laws and regulations relating to the protection of the environment, including the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act, as well as state and local laws and regulations\. These laws and regulations govern aircraft drinking water, emissions, storm water discharges from operations, and the disposal of materials such as jet fuel, chemicals, hazardous waste, and aircraft deicing fluid\.

Additionally, in conjunction with airport authorities, other airlines, and state and local environmental regulatory agencies, the Company, as a normal course of business, undertakes voluntary investigation or remediation of soil or groundwater contamination at various airport sites\. The Company does not believe that any environmental liability associated with these airport sites will have a material adverse effect on the Company's operations, costs, or profitability,

13


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

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

|                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |
| -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------------------------------------- |
| **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** | **Statements of Consolidated Operations for the Years Ended December 31,** |
|                                                                            | **As Reported**                                                            | **As Reported**                                                            | **New Lease Standard Adjustments**                                         | **New Lease Standard Adjustments**                                         | **As Adjusted**                                                            | **As Adjusted**                                                            |
|                                                                            | **2018**                                                                   | **2017**                                                                   | **2018**                                                                   | **2017**                                                                   | **2018**                                                                   | **2017**                                                                   |
| Operating expense:                                                         |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |
| Regional capacity purchase                                                 | $2,601                                                                     | $2,232                                                                     | $48                                                                        | $36                                                                        | $2,649                                                                     | $2,268                                                                     |
| Landing fees and other rent                                                | 2,359                                                                      | 2,240                                                                      | 90                                                                         | 70                                                                         | 2,449                                                                      | 2,310                                                                      |
| Depreciation and amortization                                              | 2,240                                                                      | 2,149                                                                      | (75)                                                                       | (53)                                                                       | 2,165                                                                      | 2,096                                                                      |
| Total operating expenses                                                   | 38,011                                                                     | 34,113                                                                     | 63                                                                         | 53                                                                         | 38,074                                                                     | 34,166                                                                     |
| Operating income                                                           | 3,292                                                                      | 3,671                                                                      | (63)                                                                       | (53)                                                                       | 3,229                                                                      | 3,618                                                                      |
| Nonoperating income (expense):                                             |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |                                                                            |
| Interest expense                                                           | (729)                                                                      | (671)                                                                      | 59                                                                         | 45                                                                         | (670)                                                                      | (626)                                                                      |
| Interest capitalized                                                       | 70                                                                         | 84                                                                         | (5)                                                                        | (10)                                                                       | 65                                                                         | 74                                                                         |
| Total nonoperating expense, net                                            | (634)                                                                      | (631)                                                                      | 53                                                                         | 36                                                                         | (581)                                                                      | (595)                                                                      |
| Income before income taxes                                                 | 2,658                                                                      | 3,040                                                                      | (10)                                                                       | (17)                                                                       | 2,648                                                                      | 3,023                                                                      |
| Income tax expense                                                         | 529                                                                        | 896                                                                        | (3)                                                                        | (16)                                                                       | 526                                                                        | 880                                                                        |
| Net income                                                                 | $2,129                                                                     | $2,144                                                                     | $(7)                                                                       | $(1)                                                                       | $2,122                                                                     | $2,143                                                                     |
| Earnings per share, basic                                                  | $7\.73                                                                     | $7\.08                                                                     | $(0\.03)                                                                   | $—                                                                         | $7\.70                                                                     | $7\.08                                                                     |
| Earnings per share, diluted                                                | $7\.70                                                                     | $7\.06                                                                     | $(0\.03)                                                                   | $—                                                                         | $7\.67                                                                     | $7\.06                                                                     |

The expense for leases under the New Lease Standard will continue to be classified in their historical income statement captions (primarily in Aircraft rent, Landing fees and other rent and Regional capacity purchase in our statements of consolidated operations)\. The adoption of the New Lease Standard also resulted in the recharacterization of certain leases from capital leases under Topic 840 to operating leases under the New Lease Standard\. This change will result in less depreciation and amortization and interest expense associated with capital leases offset by higher lease expense associated with operating leases\. The change is associated with leases of aircraft under certain CPAs and certain airport facilities\. The reduction in capitalized interest is also associated with the same airport facilities\.

63


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

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS**

|                                                                                |          |          |          |
| ------------------------------------------------------------------------------------------------------------ | -------- | -------- | -------- |
| **Year Ended December 31**  ***(in millions)***                                                              | **2018** | **2017** | **2016** |
| **Net Income**                                                                                | **$437** | $960     | $797     |
| **Other Comprehensive Income (Loss):**                                                                       |          |          |          |
| Related to marketable securities:                                                                            |          |          |          |
| Unrealized holding gains (losses) arising during the period                                                  | **(14)** | (4)      | 1        |
| Reclassification of (gains) losses into Other\-net nonoperating income (expense)                             | **8**    | 1        | (1)      |
| Income tax benefit                                                                                | **2**    | 1        | —        |
| Total                                                                                | **(4)**  | (2)      | —        |
| Related to employee benefit plans:                                                                           |          |          |          |
| Actuarial losses related to pension and other postretirement benefit plans                                   | **(34)** | (123)    | (43)     |
| Reclassification of net pension expense into Wages and benefits and Other\-net nonoperating income (expense) | **28**   | 22       | 20       |
| Income tax benefit                                                                                | **2**    | 24       | 12       |
| Total                                                                                | **(4)**  | (77)     | (11)     |
| Related to interest rate derivative instruments:                                                             |          |          |          |
| Unrealized holding gains (losses) arising during the period                                                  | **—**    | 1        | 8        |
| Reclassification of losses into Aircraft rent                                                                | **3**    | 5        | 6        |
| Income tax expense                                                                                | **(1)**  | (2)      | (5)      |
| Total                                                                                | **2**    | 4        | 9        |
| **Other Comprehensive Loss**                                                                                | **(6)**  | (75)     | (2)      |
| **Comprehensive Income**                                                                                | **$431** | $885     | $795     |

Certain historical information has been adjusted to reflect the adoption of new accounting standards\. See accompanying notes to consolidated financial statements\.

 59


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

We cannot assure that our security measures, change control procedures or disaster recovery plans will be adequate to prevent disruptions or delays in connection with systems integration or replacement\. Disruptions in or changes to these systems could result in a disruption to our business and the loss of important data\. Any of the foregoing could result in a material adverse effect on our business, results of operations and financial condition\.

Evolving data security and privacy requirements could increase our costs, and any significant data security incident could disrupt our operations, harm our reputation, expose us to legal risks and otherwise materially adversely affect our business, results of operations and financial condition\.

Our business requires the secure processing and storage of sensitive information relating to our customers, employees, business partners and others\. However, like any global enterprise operating in today’s digital business environment, we are subject to threats to the security of our networks and data, including threats potentially involving criminal hackers, hacktivists, state\-sponsored actors, corporate espionage, employee malfeasance, and human or technological error\. These threats continue to increase as the frequency, intensity and sophistication of attempted attacks and intrusions increase around the world\. We have been the target of cybersecurity attacks in the past and expect that we will continue to be in the future\.

Furthermore, in response to these threats there has been heightened legislative and regulatory focus on data privacy and cybersecurity in the U\.S\., the EU and elsewhere, particularly with respect to critical infrastructure providers, including those in the transportation sector\. As a result, we must comply with a proliferating and fast\-evolving set of legal requirements in this area, including substantive cybersecurity standards as well as requirements for notifying regulators and affected individuals in the event of a data security incident\. This regulatory environment is increasingly challenging and may present material obligations and risks to our business, including significantly expanded compliance burdens, costs and enforcement risks\. For example, in May 2018, the EU’s new General Data Protection Regulation, commonly referred to as GDPR, came into effect, which imposes a host of new data privacy and security requirements, imposing significant costs on us and carrying substantial penalties for non\-compliance\.

In addition, many of our commercial partners, including credit card companies, have imposed data security standards that we must meet\. In particular, we are required by the Payment Card Industry Security Standards Council, founded by the credit card companies, to comply with their highest level of data security standards\. While we continue our efforts to meet these standards, new and revised standards may be imposed that may be difficult for us to meet and could increase our costs\.

A significant cybersecurity incident could result in a range of potentially material negative consequences for us, including unauthorized access to, disclosure, modification, misuse, loss or destruction of company systems or data; theft of sensitive, regulated or confidential data, such as personal identifying information or our intellectual property; the loss of functionality of critical systems through ransomware, denial of service or other attacks; a deterioration in our relationships with business partners and other third parties; and business delays, service or system disruptions, damage to equipment and injury to persons or property\. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to detect for long periods of time\. The constantly changing nature of the threats means that we may not be able to prevent all data security breaches or misuse of data\. Similarly, we depend on the ability of our key commercial partners, including our regional carriers, distribution partners and technology vendors, to conduct their businesses in a manner that complies with applicable security standards and assures their ability to perform on a timely basis\. A security failure, including a failure to meet relevant payment security standards, breach or other significant cybersecurity incident affecting one of our partners could result in potentially material negative consequences for us\.

In addition, the costs and operational consequences of defending against, preparing for, responding to and remediating an incident of cybersecurity breach may be substantial\. As cybersecurity threats become more frequent, intense and sophisticated, costs of proactive defense measures are increasing\. Further, we could be exposed to litigation, regulatory enforcement or other legal action as a result of an incident, carrying the potential for damages, fines, sanctions or other penalties, as well as injunctive relief and enforcement actions requiring costly compliance measures\. A significant number of recent privacy and data security incidents, including those involving other large airlines, have resulted in very substantial adverse financial consequences to those companies\. A cybersecurity incident could also impact our brand, harm our reputation and adversely impact our relationship with our customers, employees and stockholders\. Accordingly, failure to appropriately address these issues could result in material financial and other liabilities and cause significant reputational harm to our company\.

28


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

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

date of issuance of the 2016\-3 Class B EETCs to acquire Series B equipment notes issued by American in connection with the financing of the 2016\-3 Aircraft\.

Interest and principal payments on equipment notes issued in connection with the 2016\-3 EETCs are payable semi\-annually in April and October of each year, with interest payments that began in April 2017 and principal payments that began in October 2017 for the Class AA and Class A EETCs and interest and principal payments beginning in April 2018 for the Class B EETCs\. These equipment notes are secured by liens on the 2016\-3 Aircraft\.

Certain information regarding the 2016\-3 EETC equipment notes, as of December 31, 2017, is set forth in the table below\.

|                               |                   |                   |                   |
| ----------------------------- | ----------------- | ----------------- | ----------------- |
|                               | **2016\-3 EETCs** | **2016\-3 EETCs** | **2016\-3 EETCs** |
|                               | **Series AA**     | **Series A**      | **Series B**      |
| Aggregate principal issued    | $558 million      | $256 million      | $193 million      |
| Fixed interest rate per annum | 3\.00%            | 3\.25%            | 3\.75%            |
| Maturity date                 | October 2028      | October 2028      | October 2025      |

*2017\-1 EETCs*

In January 2017, American created three pass\-through trusts which issued approximately $983 million aggregate principal amount of Series 2017\-1 Class AA, Class A and Class B EETCs (the 2017\-1 EETCs) in connection with the financing of 24 aircraft delivered to American through May 2017 (the 2017\-1 Aircraft)\.

During the first six months of 2017, all of the net proceeds received from the sale of the 2017\-1 EETCs were used to purchase equipment notes issued by American in connection with the financing of the 2017\-1 Aircraft\. Interest and principal payments on equipment notes issued in connection with the 2017\-1 EETCs are payable semi\-annually in February and August of each year, with interest payments that began in August 2017 and principal payments beginning in February 2018\. These equipment notes are secured by liens on the 2017\-1 Aircraft\.

Certain information regarding the 2017\-1 EETC equipment notes, as of December 31, 2017, is set forth in the table below\.

|                               |                   |                   |                   |
| ----------------------------- | ----------------- | ----------------- | ----------------- |
|                               | **2017\-1 EETCs** | **2017\-1 EETCs** | **2017\-1 EETCs** |
|                               | **Series AA**     | **Series A**      | **Series B**      |
| Aggregate principal issued    | $537 million      | $248 million      | $198 million      |
| Fixed interest rate per annum | 3\.65%            | 4\.00%            | 4\.95%            |
| Maturity date                 | February 2029     | February 2029     | February 2025     |

*2017\-2 EETCs*

In August 2017, American created two pass\-through trusts which issued approximately $797 million aggregate principal amount of Series 2017\-2 Class AA and Class A EETCs (the 2017\-2 EETCs) in connection with the financing of 30 aircraft previously delivered to American or scheduled to be delivered to American through April 2018 (the 2017\-2 Aircraft)\. A portion of the net proceeds received from the sale of the 2017\-2 EETCs has been used to acquire Series AA and A equipment notes issued by American to the pass\-through trusts and the balance of such proceeds is being held in escrow for the benefit of the holders of the 2017\-2 EETCs until such time as American issues additional Series AA and A equipment notes to the pass\-through trusts, which trusts will purchase such additional equipment notes with the escrowed funds\. These escrowed funds are not guaranteed by American and are not reported as debt on American’s consolidated balance sheet because the proceeds held by the depository are not American’s assets\.

143


Annual Report of DELTA AIR LINES, INC\.  for year 2017

[Table of Contents](http://ir.delta.com/.#s38B278257A885660AB93394F5F0EFBED)

Economic conditions and regulatory changes leading up to and following the United Kingdom’s exit from the European Union could have a material adverse effect on our business and results of operations\.

Following a referendum in June 2016 in which voters in the U\.K\. approved an exit from the European Union ("EU"), the

U\.K\. government has initiated a process to leave the EU (often referred to as Brexit) and begun negotiating the terms of the U\.K\.’s future relationship with the EU\. The airline industry faces substantial uncertainty regarding the impact of the exit of the U\.K\. from the EU\. Adverse consequences such as deterioration in economic conditions, volatility in currency exchange rates or adverse changes in regulation of the airline industry or bilateral agreements governing air travel could have a negative impact on our operations, financial condition and results of operations\.

The rapid spread of contagious illnesses can have a material adverse effect on our business and results of operations\.

The rapid spread of a contagious illness, or fear of such an event, can have a material adverse effect on the demand for worldwide air travel and therefore have a material adverse effect on our business and results of operations\. Moreover, our operations could be negatively affected if employees are quarantined as the result of exposure to a contagious illness\. Similarly, travel restrictions or operational issues resulting from the rapid spread of contagious illnesses in a part of the world in which we have significant operations may have a materially adverse impact on our business and results of operations\.

ITEM 1B\. UNRESOLVED STAFF COMMENTS

None\.

 19


Annual Report of Southwest Airlines Co\. for year 2019

subject to the risk that cash collateral may be required to be posted to fuel hedge counterparties, which could have a significant impact on the Company's financial position and liquidity\.

In addition, the Company is subject to the risk that its fuel derivatives will no longer qualify for hedge accounting under applicable accounting standards, which can create additional earnings volatility\. Adjustments in the Company's overall fuel hedging strategy, as well as the ability of the commodities used in fuel hedging to qualify for special hedge accounting, could continue to affect the Company's results of operations\. In addition, there can be no assurance that the Company will be able to cost\-effectively hedge against increases in fuel prices\. See Note 2 to the Consolidated Financial Statements for information on changes in applicable standards for hedge accounting\.

The Company's fuel hedging arrangements and the various potential impacts of hedge accounting on the Company's financial position, cash flows, and results of operations are discussed in more detail under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and in Note 1 and Note 10 to the Consolidated Financial Statements\.

The Company is also reliant upon the readily available supply and timely delivery of jet fuel to the airports that it serves\. A disruption in that supply could present significant challenges to the Company's operations and could ultimately cause the cancellation of flights and/or the inability of the Company to provide service to a particular airport\.

The Company's low\-cost structure has historically been one of its primary competitive advantages, and many factors have affected and could continue to affect the Company's ability to control its costs\.

The Company's low\-cost structure has historically been one of its primary competitive advantages, as it has enabled it to offer low fares, drive traffic volume, grow market share, and protect profits\. The Company's low\-cost position has become even more significant with the increased presence of ULCCs and changes to the fare offerings of other carriers, as discussed above; however, it has become increasingly difficult for the Company to improve upon its industry cost position\. For example, labor and fuel costs, as well as other costs such as airport costs and regulatory compliance costs, can negatively affect the Company's ability to control its costs\. Furthermore, the Company has limited control over many of these costs\.

Jet fuel and oil constituted approximately 22 percent of the Company's operating expenses during 2019, and the Company's ability to control the cost of fuel is subject to the external factors discussed in the third Risk Factor above\.

Salaries, wages, and benefits constituted approximately 43 percent of the Company's operating expenses during 2019\. The Company's ability to control labor costs is limited by the terms of its collective\-bargaining agreements, and increased labor costs have negatively impacted the Company's low\-cost competitive position\. As discussed further under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the Company's unionized workforce, which makes up approximately 83 percent of its Employees, has had pay scale increases as a result of contractual rate increases, which has put pressure on the Company's labor costs\. Additionally, as indicated above under "Business \- Employees," the majority of Southwest's unionized Employee work groups, including its Pilots; Flight Attendants; Customer Service Agents, Customer Representatives, and Source of Support Representatives; Aircraft Appearance Technicians; Dispatchers; Flight Crew Training Instructors; and Meteorologists, are in unions currently in negotiations for labor agreements or have labor agreements that become amendable in 2020, which could result in additional pressure on the Company's low\-cost structure\.

As discussed above under "Business \- Regulation," the airline industry is heavily regulated, and the Company's regulatory compliance costs are subject to potentially significant increases from time to time based on actions by regulatory agencies that are out of the Company's control\. Additionally, because of airport infrastructure updates and other factors, the Company has experienced increased space rental rates at various airports in its network\. Further, the Company cannot control decisions by other airlines to reduce their capacity\. When this occurs, certain fixed airport costs are allocated among a fewer number of total flights,  which can result in increased landing fees and other costs for the Company\.

The Company is reliant upon third party vendors and service providers, and the Company's low\-cost advantage is dependent in part on its ability to obtain and maintain commercially reasonable terms with those parties\. Disruptions to capital markets, shortages of skilled personnel, geopolitical developments, and/or adverse economic conditions could subject certain of the Company's third party vendors and service providers to significant financial pressures which could lead to performance problems, ceased operations, or bankruptcies among these third party vendors and

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