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

|                           |                                                                                |
| ------------------------- | -------------------------------------------------------------------------------------------------- |
| /s/ BRADLEY D\. TILDEN    | Chairman and Chief Executive Officer

(Principal Executive Officer)                         |
| **Bradley D\. Tilden**    | Chairman and Chief Executive Officer

(Principal Executive Officer)                         |
| /s/ BRANDON S\. PEDERSEN  | Executive Vice President/Finance and Chief Financial Officer

(Principal Financial Officer) |
| **Brandon S\. Pedersen**  | Executive Vice President/Finance and Chief Financial Officer

(Principal Financial Officer) |
| /s/ CHRISTOPHER M\. BERRY | Vice President Finance and Controller

(Principal Accounting Officer)                       |
| **Christopher M\. Berry** | Vice President Finance and Controller

(Principal Accounting Officer)                       |
| /s/ PATRICIA M\. BEDIENT  | Director                                                                                |
| **Patricia M\. Bedient**  |                                                                                |
| /s/ JAMES A\. BEER        | Director                                                                                |
| **James A\. Beer**        |                                                                                |
| /s/ MARION C\. BLAKEY     | Director                                                                                |
| **Marion C\. Blakey**     |                                                                                |
| /s/ PHYLLIS J\. CAMPBELL  | Director                                                                                |
| **Phyllis J\. Campbell**  |                                                                                |
| /s/ RAYMOND L\. CONNER    | Director                                                                                |
| **Raymond L\. Conner**    |                                                                                |
| /s/ DHIREN R\. FONSECA    | Director                                                                                |
| **Dhiren R\. Fonseca**    |                                                                                |
| /s/ DENNIS F\. MADSEN     | Director                                                                                |
| **Dennis F\. Madsen**     |                                                                                |
| /s/ HELVI K\. SANDVIK     | Director                                                                                |
| **Helvi K\. Sandvik**     |                                                                                |
| /s/ J\. KENNETH THOMPSON  | Director                                                                                |
| **J\. Kenneth Thompson**  |                                                                                |
| /s/ ERIC K\. YEAMAN       | Director                                                                                |
| **Eric K\. Yeaman**       |                                                                                |

 100


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

Boeing 787 aircraft and two Boeing 777 aircraft and the purchase of five Boeing 757 aircraft previously being leased\. These cash outflows were offset in part by $391 million in net sales of short\-term investments\.

*Financing Activities*

American’s net cash provided by financing activities was $3\.8 billion and $2\.4 billion in 2016 and 2015, respectively\.

American’s principal financing activities in 2016 included net proceeds of $7\.7 billion from the issuance of debt, including the issuance of $2\.8 billion of EETCs, $2\.3 billion provided under the April 2016 and December 2016 Term Loan Facilities and $1\.8 billion borrowed in connection with the financing of certain aircraft\. These cash inflows were offset in part by $3\.8 billion in debt repayments, including the repayment of $588 million and $970 million in remaining principal of the 2013 Citicorp Credit Facility Tranche B\-2 and Tranche B\-1 term loans, respectively\.

American’s principal financing activities in 2015 included net proceeds of $4\.5 billion from the issuance of debt, including the issuance of $2\.3 billion of EETCs and $1\.9 billion borrowed in connection with the financing of certain aircraft\. These cash inflows were offset in part by $2\.2 billion in debt repayments, including the $400 million repayment of the AAdvantage loan with Citibank\.

***Collateral\-Related Covenants***

Certain of our debt financing agreements contain loan to value ratio covenants and require us to appraise the related collateral annually\. Pursuant to such agreements, if the loan to value ratio exceeds a specified threshold, we are required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash collateral), or pay down such financing, in whole or in part\. As of December 31, 2017, we were in compliance with the collateral coverage tests for the 2013 Credit Facilities, the 2014 Credit Facilities, the April 2016 Credit Facilities and the December 2016 Credit Facilities as of the most recent measurement dates\. For further information regarding our collateral\-related covenants, see Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B\.

***Credit Ratings***

The following table details AAG and American’s credit ratings as of December 31, 2017:

|                                        |                    |
| -------------------------------------- | ------------------ |
|                                        | **Current Rating** |
| S&P Local Issuer Credit Rating         | BB\-               |
| Fitch Issuer Default Credit Rating     | BB\-               |
| Moody’s Corporate Family Rating  ^(1)^ | Ba3                |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------ |
| ^(1)^ | This rating is for AAG only\. The credit agency does not rate this category for American\. |

A decrease in our credit ratings could cause our borrowing costs to increase, which would increase our interest expense and could affect our net income, and our credit ratings could adversely affect our ability to obtain additional financing\. If our financial performance or industry conditions worsen, we may face future downgrades, which could negatively impact our borrowing costs and the prices of our equity or debt securities\. In addition, any downgrade of our credit ratings may indicate a decline in our business and in our ability to satisfy our obligations under our indebtedness\.

**Commitments**

For further information regarding our commitments, see the Notes to AAG’s Consolidated Financial Statements in Part II, Item 8A and the Notes to American’s Consolidated Financial Statements in Part II, Item 8B at the referenced footnotes below\.

|                                           |         |              |
| ----------------------------------------- | ------- | ------------ |
|                                           | **AAG** | **American** |
| Long\-term debt and debt covenants        | Note 5  | Note 3       |
| Employee benefit plans                    | Note 9  | Note 7       |
| Commitments, contingencies and guarantees | Note 11 | Note 9       |

69


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

**AAG’s Results of Operations**

***Operating Statistics***

The table below sets forth selected operating data for the years ended December 31, 2018, 2017 and 2016\.

|                                                                          |                             |                             |                             |                                    |                                    |
| ------------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- | ---------------------------------- | ---------------------------------- |
|                                                                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Increase (Decrease) 2018\-2017** | **Increase (Decrease) 2017\-2016** |
|                                                                          | **2018**                    | **2017**                    | **2016**                    | **Increase (Decrease) 2018\-2017** | **Increase (Decrease) 2017\-2016** |
| Revenue passenger miles (millions)  ^(a)^                                | 231,160                     | 226,346                     | 223,477                     | 2\.1%                              | 1\.3%                              |
| Available seat miles (millions)  ^(b)^                                   | 282,054                     | 276,493                     | 273,410                     | 2\.0%                              | 1\.1%                              |
| Passenger load factor (percent)  ^(c)^                                   | 82\.0                       | 81\.9                       | 81\.7                       | 0\.1pts                            | 0\.2pts                            |
| Yield (cents)  ^(d)^                                                     | 17\.60                      | 17\.29                      | 16\.58                      | 1\.8%                              | 4\.3%                              |
| Passenger revenue per available seat mile (cents)  ^(e)^                 | 14\.42                      | 14\.15                      | 13\.55                      | 1\.9%                              | 4\.5%                              |
| Total revenue per available seat mile (cents)  ^(f)^                     | 15\.79                      | 15\.42                      | 14\.68                      | 2\.4%                              | 5\.0%                              |
| Aircraft at end of period                                                | 1,551                       | 1,545                       | 1,536                       | 0\.4%                              | 0\.6%                              |
| Fuel consumption (gallons in millions)                                   | 4,447                       | 4,352                       | 4,347                       | 2\.2%                              | 0\.1%                              |
| Average aircraft fuel price including related taxes (dollars per gallon) | 2\.23                       | 1\.73                       | 1\.42                       | 29\.0%                             | 21\.4%                             |
| Full\-time equivalent employees at end of period                         | 128,900                     | 126,600                     | 122,300                     | 1\.8%                              | 3\.5%                              |
| Operating cost per available seat mile (cents)  ^(g)^                    | 14\.85                      | 13\.88                      | 12\.83                      | 6\.9%                              | 8\.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)^ | Total revenue per available seat mile (TRASM) – Total revenues divided by ASMs\. |

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

***Results of Operations –*** ***2018*** ***Compared to*** ***2017***

Pre\-tax income and net income were $1\.9 billion and $1\.4 billion in 2018, respectively\. This compares to 2017 pre\-tax income and net income of $3\.4 billion and $1\.3 billion, respectively\. Excluding the effects of pre\-tax net special items, pre\-tax income was $2\.8 billion and $4\.2 billion in 2018 and 2017, respectively\. For reconciliation of pre\-tax income excluding special items to their comparable measures on a GAAP basis, see Part II, Item 6\. Selected Consolidated Financial Data –*“Reconciliation of GAAP to Non\-GAAP Financial Measures*\.*”*

The year\-over\-year declines in our pre\-tax income on both a GAAP basis and excluding pre\-tax net special items were principally driven by an increase in fuel costs, which was offset in part by higher revenues driven by strong demand\.

*Operating Revenues*

|                          |                                              |                                              |                                              |                                                       |
| ------------------------ | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----------------------------------------------------- |
|                          | **Year Ended December 31,**                  | **Year Ended December 31,**                  | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                          | **2018**                                     | **2017**                                     | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                          | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Passenger                | $40,676                                      | $39,131                                      | $1,545                                       | 3\.9                                                  |
| Cargo                    | 1,013                                        | 890                                          | 123                                          | 13\.8                                                 |
| Other                    | 2,852                                        | 2,601                                        | 251                                          | 9\.7                                                  |
| Total operating revenues | $44,541                                      | $42,622                                      | $1,919                                       | 4\.5                                                  |

51


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

***Consolidated Nonoperating Income (Expense)***

During 2016, we recorded nonoperating expense of $4 million, compared to nonoperating income of $14 million in 2015\. In 2016, we incurred more interest expense associated with the financing obtained to fund the acquisition of Virgin America\. This expense was partially offset by additional interest income earned during the period we held those funds in advance of the acquisition close date\.

***ADDITIONAL SEGMENT INFORMATION***

Refer to Note 12 of the consolidated financial statements for a detailed description of each segment\. Below is a summary of each segments' profitability\.

***Mainline***

Pretax profit for Mainline was $1\.3 billion in 2016 compared to $1\.2 billion in 2015\. This segment includes financial results of Virgin America from the date of acquisition through December 31, 2016\. The $135 million increase was due to an increase in operating revenues of $277 million, offset by an increase in operating expenses of $126 million\. Revenue growth was primarily driven by the $159 million increase in passenger revenues and the $100 million increase in Mileage Plan™ revenue, both described previously\. Growth in operating expenses was due to higher wages to support our network growth, higher ramp and passenger handling due to increased flying and higher wage rates at stations where we use vendors to assist us, higher depreciation related to our fleet growth, and selling expenses related to increased advertising\. Economic fuel cost, as defined above, decreased due to lower raw fuel costs and increased fuel efficiency, slightly offset by an 8% increase in consumption\.

***Regional***

Pretax profit for Regional was $93 million in 2016 compared to $105 million in 2015\. The $12 million decrease in pretax profit was driven by a $74 million increase in non\-fuel operating expenses in 2016 to support additional departures, partially offset by a $56 million increase in revenue and a $6 million decrease in fuel expense when compared to the prior year period\.

***Horizon***

Pretax profit for Horizon was $14 million in 2016 compared to $28 million in 2015\. CPA Revenues (100% of which are from Alaska and eliminated in consolidation) increased due to additional capacity added in 2016\. The $32 million increase in Horizon's non\-fuel operating expenses was largely driven by higher medical costs due to an increased number of large medical claims, increased volume of engine overhaul and heavy airframe work, employee signing bonuses and overhead restructuring costs\.

**LIQUIDITY AND CAPITAL RESOURCES**

Our primary sources of liquidity are:

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------- |
| • | Our existing cash and marketable securities balance of  $1\.6 billion , and our expected cash from operations; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------- |
| • | Our  72  unencumbered aircraft in the operating fleet as of  December 31, 2017 , that could be financed, if necessary; and |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Our combined bank line\-of\-credit facilities, with no outstanding borrowings, of  $400 million \. Information about these facilities can be found in Note 5 to the consolidated financial statements\. |

In 2017, we took delivery of 14 B737\-900ER and 10 E175 aircraft and made debt payments totaling $397 million\. We also continued to return capital to our shareholders by paying dividends totaling $148 million and repurchasing $75 million of our common stock\. Because of our strong balance sheet and financial performance, we are one of only three airlines in the U\.S\. with investment grade credit ratings\.

We believe that our current cash and marketable securities balance combined with future cash flows from operations and other sources of liquidity will be sufficient to fund our operations and meet our debt payment obligations for the foreseeable future\.

 51


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

The expected amortization of prior service credit and net loss from AOCL in 2018 is $1 million and $31 million, respectively, for the qualified defined\-benefit pension plans\.

Net pension expense for the qualified defined\-benefit plans included the following components (in millions):

|                                      |           |          |          |
| ------------------------------------ | --------- | -------- | -------- |
|                                      | **2017**  | **2016** | **2015** |
| Service cost                         | **$39**   | $37      | $41      |
| Interest cost                        | **74**    | 73       | 84       |
| Expected return on assets            | **(106)** | (108)    | (122)    |
| Amortization of prior service credit | **(1)**   | (1)      | (1)      |
| Recognized actuarial loss            | **26**    | 25       | 26       |
| Settlement expense  *(special item)* | **—**     | —        | 14       |
| Net pension expense                  | **$32**   | $26      | $42      |

In 2015, the Company recognized a settlement charge of $14 million related to lump sum settlements offered to terminated, vested plan participants\. The result was a reduction in the projected benefit obligation of $62 million\. The settlement charge reflects the remaining unamortized actuarial loss in AOCL associated with the settled obligation\.

There are no current statutory funding requirements for the Company’s plans in 2018\.

Future benefits expected to be paid over the next ten years under the qualified defined\-benefit pension plans from the assets of those plans (in millions):

|            |           |
| ---------- | --------- |
|            | **Total** |
| 2018       | $97       |
| 2019       | 101       |
| 2020       | 116       |
| 2021       | 116       |
| 2022       | 130       |
| 2023– 2027 | 723       |

***Nonqualified Defined\-Benefit Pension Plan***

Alaska also maintains an unfunded, noncontributory defined\-benefit plan for certain elected officers\. This plan uses a December 31 measurement date\. The assumptions used to determine benefit obligations and the net period benefit cost for the nonqualified defined\-benefit pension plan are similar to those used to calculate the qualified defined\-benefit pension plan\. The plan's unfunded status, PBO and accumulated benefit obligation are immaterial\. The net pension expense in prior year and expected future expense is also immaterial\.

***Postretirement Medical Benefits***

The Company allows certain retirees to continue their medical, dental and vision benefits by paying all or a portion of the active employee plan premium until eligible for Medicare, currently age 65\. This results in a subsidy to retirees, because the premiums received by the Company are less than the actual cost of the retirees’ claims\. The accumulated postretirement benefit obligation for this subsidy is unfunded\. The accumulated postretirement benefit obligation was $85 million and $76 million at December 31, 2017 and 2016, respectively\. The net periodic benefit cost was not material in 2017 or 2016\.

***Defined\-Contribution Plans***

The seven defined\-contribution plans are deferred compensation plans under section 401(k) of the Internal Revenue Code\. All of these plans require Company contributions\. Total expense for the defined\-contribution plans was $103 million, $67 million and $60 million in 2017, 2016, and 2015, respectively\.

 85


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2019

[Table of Contents](https://www.example.com#s1B306C2BC5705F95B83EC9EC687675EF)

|          |                 |                                                                                |
| -------- | --------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|  †10\.8  | UAL  <br>United | [Stock Option Award Notice, dated as of December 4, 2019, to J\. Scott Kirby pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan (filed as Exhibit 10\.2 to UAL's Current Report on Form 8\-K filed on December 6, 2019, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000110465919070590/tm1924595d1_ex10-2.htm)                                                                                |
|  †10\.9  | UAL             | [Form of Stock Option Award Notice pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (filed as Exhibit 10\.1 to UAL's Form 10\-Q for the quarter ended September 30, 2016, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312516739859/d259980dex101.htm)                                                                                |
|  †10\.10 | UAL             | [Form of Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (filed as Exhibit 10\.2 to UAL's Form 10\-Q for the quarter ended September 30, 2016, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312516739859/d259980dex102.htm)                                                                                |
|  †10\.11 | UAL             | [Description of Benefits for Officers of United Airlines Holdings, Inc\. and United Airlines, Inc\. ](https://www.example.com/ual12311910kex1011.htm)                                                                                |
|  †10\.12 | UAL             | [United Continental Holdings, Inc\. Officer Travel Policy (filed as Exhibit 10\.24 to UAL's Form 10\-K for the year ended December 31, 2010, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312511042335/dex1024.htm)                                                                                |
|  †10\.13 | UAL             | [United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (filed as Annex A to UAL Corporation's 2013 Definitive Proxy Statement filed on April 26, 2013, Commission file number 1\-6033, and incorporated herein by reference) (now named the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan)](http://www.sec.gov/Archives/edgar/data/100517/000104746913004972/a2214585zdef14a.htm#la45701_annex_a)                                                                                |
|  †10\.14 | UAL             | [First Amendment to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (changing the name to United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Annex A to UAL's Definitive Proxy Statement filed on April 26, 2013, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000104746913004972/a2214585zdef14a.htm#la45701_annex_a)                                                                                |
|  †10\.15 | UAL             | [Second Amendment to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (filed as Exhibit 10\.19 to UAL's Form 10\-K for the year ended December 31, 2016, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517054129/d300268dex1019.htm)                                                                                |
|  †10\.16 | UAL             | [Form of Stock Option Award Notice pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (filed as Exhibit 10\.5 to UAL's Form 10\-Q for the quarter ended June 30, 2008, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000104746908008342/a2186941zex-10_5.htm)                                                                                |
|  †10\.17 | UAL             | [Form of Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan (stock settled) (filed as Exhibit 10\.21 to UAL's Form 10\-K for the year ended December 31, 2016, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517054129/d300268dex1021.htm)                                                                                |
|  †10\.18 | UAL             | [United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Exhibit 10\.31 to UAL's Form 10\-K for the year ended December 31, 2010, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312511042335/dex1031.htm)                                                                                |
|  †10\.19 | UAL             | [First Amendment to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (effective with respect to performance periods beginning on or after January 1, 2012) (filed as Exhibit 10\.33 to UAL's Form 10\-K for the year ended December 31, 2011, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312512073010/d260625dex1033.htm) |
|  †10\.20 | UAL             | [Second Amendment to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Exhibit 10\.29 to UAL's Form 10\-K for the year ended December 31, 2012, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312513074391/d436512dex1029.htm)                                                                                |
|  †10\.21 | UAL             | [Third Amendment to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Exhibit 10\.1 to UAL's Form 10\-Q for the quarter ended March 31, 2015, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312515144255/d891332dex101.htm)                                                                                |
|  †10\.22 | UAL             | [Fourth Amendment to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (adopted pursuant to the United Continental Holdings, Inc\. 2008 Incentive Compensation Plan) (filed as Exhibit 10\.22 to UAL's Form 10\-K for the year ended December 31, 2015, Commission file number 1\-6033 and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312516468479/d13806dex1022.htm)                                                                                |

97


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

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

transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided\. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate\. When necessary, the Company records a reserve against its billings and payables with other airlines based on historical experience\.

The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partners\. For segments operated by its other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlines as they are responsible for their portion of the contract (i\.e\. transportation of the passenger)\. The Company, as the agent, recognizes revenue within Other operating revenue at the time of the travel for the net amount representing commission to be retained by the Company for any segments flown by other airlines\.

Refundable tickets expire after one year from the date of issuance\. Non\-refundable tickets generally expire on the date of the intended travel, unless the date is extended by notification from the customer on or before the intended travel date\.The Company records breakage revenue on the travel date for its estimate of tickets that will expire unused\. To determine breakage, the Company uses its historical experience with refundable and nonrefundable expired tickets and other facts, such as recent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets\. Fees charged in association with changes or extensions to non\-refundable tickets are considered part of the Company's passenger travel obligation\. As such, those fees are deferred at the time of collection and recognized at the time the travel is provided\.

United initially capitalizes the costs of selling airline travel tickets and then recognizes those costs as Distribution expense at the time of travel\. Passenger ticket costs include credit card fees, travel agency and other commissions paid, as well as global distribution systems booking fees\.

***Long\-Lived Assets\.*** The net book value of operating property and equipment for the Company was $28 billion and $26 billion at December 31, 2018 and 2017, respectively\. The assets' recorded value is impacted by a number of accounting policy elections, including the estimation of useful lives and residual values and, when necessary, the recognition of asset impairment charges\.

The Company records assets acquired, including aircraft, at acquisition cost\. Depreciable life is determined through economic analysis, such as reviewing existing fleet plans, obtaining appraisals and comparing estimated lives to other airlines that operate similar fleets\. The Company has generally estimated the lives of those aircraft to be between 25 and 30 years\. Residual values are estimated based on historical experience with regard to the sale of both aircraft and spare parts and are established in conjunction with the estimated useful lives of the related fleets\. Residual values are based on when the aircraft are acquired and typically reflect asset values that have not reached the end of their physical life\. Both depreciable lives and residual values are revised periodically as facts and circumstances arise to recognize changes in the Company's fleet plan and other relevant information\. A one\-year increase in the average depreciable life of the Company's flight equipment would reduce annual depreciation expense on flight equipment by approximately $85 million\.

The Company evaluates the carrying value of long\-lived assets and intangible assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist\. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows for purposes of testing aircraft for impairment\. An impairment charge is recognized when the asset's carrying value exceeds its net undiscounted future cash flows and its fair market value\. The amount of the charge is the difference between the asset's carrying value and fair market value\.

See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information\.

***Indefinite\-lived intangible assets\.*** The Company has indefinite\-lived intangible assets, including goodwill\. Goodwill and indefinite\-lived intangible assets are not amortized but are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs\. An impairment occurs when the fair value of an intangible asset is less than its carrying value\.

See Note 2 to the financial statements included in Part II, Item 8 of this report for additional information\.

***Defined Benefit Plan Accounting\.*** We sponsor defined benefit pension plans for eligible employees and retirees\. The most critical assumptions impacting our defined benefit pension plan obligations and expenses are the weighted average discount rate and the expected long\-term rate of return on the plan assets\.

United's pension plans' under\-funded status was $1\.6 billion at December 31, 2018\. Funding requirements for tax\-qualified defined benefit pension plans are determined by government regulations\. In 2019, we anticipate contributing at least $318 million to our pension plans\. The fair value of the plans' assets was $3\.8 billion at December 31, 2018\.

36


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

*AAG’s* *2017* *Results*

The selected financial data presented below is derived from AAG’s audited consolidated financial statements included in Part II, Item 8A of this report and should be read in conjunction with those financial statements and the related notes thereto\.

|                                                       |                                              |                                              |                                              |                                                       |
| ----------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----------------------------------------------------- |
|                                                       | **Year Ended**

**December 31,**       | **Year Ended**

**December 31,**       | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                                                       | **2017**                                     | **2016**                                     | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                                                       | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Mainline and regional passenger revenues              | $36,133                                      | $34,579                                      | $1,554                                       | 4\.5                                                  |
| Other operating revenues                              | 5,274                                        | 4,901                                        | 373                                          | 7\.6                                                  |
| Total operating revenues                              | 42,207                                       | 40,180                                       | 2,027                                        | 5\.0                                                  |
| Mainline and regional aircraft fuel and related taxes | 7,510                                        | 6,180                                        | 1,330                                        | 21\.5                                                 |
| Salaries, wages and benefits                          | 11,816                                       | 10,890                                       | 926                                          | 8\.5                                                  |
| Total operating expenses                              | 38,149                                       | 34,896                                       | 3,253                                        | 9\.3                                                  |
| Operating income                                      | 4,058                                        | 5,284                                        | (1,226)                                      | (23\.2)                                               |
| Pre\-tax income                                       | 3,084                                        | 4,299                                        | (1,215)                                      | (28\.3)                                               |
| Income tax provision                                  | 1,165                                        | 1,623                                        | (458)                                        | (28\.2)                                               |
| Net income                                            | 1,919                                        | 2,676                                        | (757)                                        | (28\.3)                                               |
| Pre\-tax income – GAAP                                | $3,084                                       | $4,299                                       | $(1,215)                                     | (28\.3)                                               |
| Adjusted for: Pre\-tax special items  ^(1)^           | 756                                          | 772                                          | (16)                                         | (2\.1)                                                |
| Pre\-tax income excluding special items               | $3,840                                       | $5,071                                       | $(1,231)                                     | (24\.3)                                               |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | See Part II, Item 6\. Selected Consolidated Financial Data –  *“Reconciliation of GAAP to Non\-GAAP Financial Measures”*  and Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for details on the components of special items\. |

***Pre\-Tax Income and Net Income***

Pre\-tax income and net income were $3\.1 billion and $1\.9 billion in 2017, respectively\. This compares to 2016 pre\-tax income and net income of $4\.3 billion and $2\.7 billion, respectively\. Excluding the effects of pre\-tax special items, we recognized pre\-tax income of $3\.8 billion in 2017 as compared to $5\.1 billion in 2016\. The year\-over\-year declines in our pre\-tax income on both a GAAP basis and excluding pre\-tax special items were principally driven by higher fuel costs and wage rates\. Fuel costs increased driven by a 21\.4% increase in the average price per gallon of fuel\. Wage rates were higher primarily due to mid\-contract pay increases for pilots and flight attendants effective in the second quarter of 2017, as well as increases for maintenance and fleet service work groups, which became effective in the third quarter of 2016\. These increases were offset in part by higher revenues\.

***Revenue***

In 2017, we reported total operating revenues of $42\.2 billion, an increase of $2\.0 billion, or 5\.0%, as compared to 2016\. Mainline and regional passenger revenues were $36\.1 billion, an increase of $1\.6 billion, or 4\.5%, as compared to 2016\. The increase in mainline and regional passenger revenues was due to a 3\.2% year\-over\-year increase in consolidated yields driven by strong demand\. Domestic consolidated yields increased 3\.5% and international yields rose 3\.2%, due principally to improved performance in Latin America\.

Additionally, other revenues increased $373 million primarily due to higher revenues associated with our loyalty program\. Our mainline and regional total revenue per available seat mile (TRASM) was 15\.27 cents in 2017, a 3\.9% increase as compared to 14\.70 cents in 2016\.

***Fuel***

Our mainline and regional fuel expense totaled $7\.5 billion in 2017, which was $1\.3 billion, or 21\.5%, higher as compared to 2016\. This increase was driven by a 21\.4% increase in the average price per gallon of fuel to $1\.73 in 2017 from $1\.42 in 2016\.

47


Annual Report of Southwest Airlines Co\. for year 2018

major enhancements to offer corporate travel managers helpful tools including Unused Funds Reports, Hotel Booking, additional reporting, mobile changes, and shared confirmation receipt emails\.

In 2018, the Company also continued to invest in broadening mobile capabilities for Customers\. The mobile shopping and booking experiences were updated to allow Customers to book, change, and check in for international trips, as well as sign up for the Rapid Rewards credit card while making a booking\. The Company also enhanced the day of travel experience with an improved multi\-passenger boarding experience, more intuitive trip cards, Google Pay\-enabled mobile boarding passes for Android users, and a mobile standby list\. The Company added additional Customer experience enhancements with in\-app ratings and review technology, personalization technology, and an iPad optimized version of the iOS application\.

In 2018, the Company also invested in major updates to its messaging platforms with a complete overhaul of its e\-mail experiences\. All confirmation emails were updated with a new modern look and feel, including personalized information and clearer itinerary information, as well as enhanced travel tips and promotional areas\. This overhaul also extended into EarlyBird, Gift Card, LUV Voucher, and SWABIZ Account notifications\. Promotional messaging emails were also updated with new personalization technology designed to increase click\-through rates\.

For the year ended December 31, 2018, approximately 80 percent of the Company’s Passenger revenues originated from its website (including revenues from SWABIZ^®^)\.

**Marketing**

During 2018, the Company continued to aggressively market and benefit from Southwest's points of differentiation from its competitors\. For example, the Company's Trans**fare**ncy^SM^ campaign emphasizes Southwest's approach totreating Customers fairly, honestly, and respectfully, with its low fares and no unexpected bag fees, change fees, or hidden fees\.

Southwest continues to be the only major U\.S\. airline that offers to all ticketed Customers up to two checked bags that fly free (subject to weight and size limits)\. Through both its national and local marketing campaigns, Southwest has continued to aggressively promote this point of differentiation from its competitors with its "Bags Fly Free^®^" message\. The Company believes its decision not to charge for first and second checked bags, as reinforced by the Company's related marketing, has driven an increase in the Company's market share and a resulting net increase in revenues\.

Southwest also does not charge a fee on any of its fares for a Customer change in flight reservations\. The Company has continued to incorporate this key point of differentiation in its marketing campaigns\. The campaigns highlight the importance to Southwest of Customer Service by showing that Southwest understands plans can change and therefore does not charge a change fee\. While a Customer may pay a difference in airfare, the Customer will not be charged a change fee on top of any difference in airfare\.

Also unlike many of its competitors, Southwest does not impose additional fees for items such as seat selection, snacks, curb\-side check\-in, and telephone reservations\. In addition, Southwest allows each ticketed Customer to check one stroller and one car seat free of charge, in addition to the two free checked bags\.

The Company also continues to promote all of the many other reasons to fly Southwest such as its low fares, network size, Customer Service, free movies\-on\-demand and live and on\-demand television, free messaging via iMessage or WhatsApp, the iHeartRadio service, and its Rapid Rewards loyalty program\.

The Company's visual expression of its brand is its Heart\. The Company believes its Heart sets it apart from the industry standard\. The Company's Heart symbol is purposely placed on the Company's aircraft livery, airport experience, and logo, and symbolizes the Company's care, trust, and belief in providing exceptional Hospitality and its Employees' dedication to connecting Customers with what is important in their lives\. The Company's 737\-800 and 737 MAX 8 aircraft include a Heart cabin interior, which gives Southwest Customers a look and feel of the future, with bold blue seats and additional seat width and legroom, an adjustable headrest, enhanced back comfort, and extra room for personal belongings\. In addition, front\-line Employees wear Employee\-designed uniforms that highlight the Company's red, yellow, and blue Heart brand\.

**Technology Initiatives**

9


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

susceptible to congested air space and Air Traffic Control delays due to our heavy concentration of departures from Seattle and San Francisco\.

No material part of our business, or that of our subsidiaries, is dependent upon a single customer, or upon a few high\-volume customers\.

**EMPLOYEES**

Our business is labor intensive\. As of December 31, 2018, we employed 23,376 (17,520 at Alaska, 4,052 at Horizon, and 1,804 at McGee Air Services) active full\-time and part\-time employees\. Wages and benefits, including variable incentive pay, represented approximately 41% of our total non\-fuel operating expenses in 2018 and 39% in 2017\. Additionally, in the first quarter of 2018 we paid approximately $25 million in one\-time bonuses to employees as a result of tax reform\.

Most major airlines, including Alaska and Horizon, have employee groups that are covered by collective bargaining agreements (CBA)\. Airlines with unionized work forces generally have higher labor costs than carriers without unionized work forces, and they may not have the ability to adjust labor costs downward quickly enough to respond to new competition or slowing demand\.

As part of the integration, we have been working to bring represented work groups under single collective bargaining agreements\. The process for combining work groups begins with the union filing a petition with the National Mediation Board (NMB), at which point the NMB performs a review to assess a ‘single carrier determination’ for the airlines\. Following this single carrier determination, the NMB makes a representation determination depending on size of the pre\-merger bargaining units and will either extend the certification if one is significantly larger than the other or require a vote\. Once representation is determined, the NMB certifies the union as the bargaining representative for the work group\. The parties must also work together to achieve agreed upon single collective bargaining agreements\. Integration also requires the pre\-merger work groups to agree upon and finalize integrated seniority lists\. As of December 31, 2018, four of our five unionized groups at Alaska have joint collective agreements and integrated seniority lists in place\. This is a major milestone just 24 months after the official close of the acquisition of Virgin America in December 2016\. A tentative agreement reached with the Aircraft Mechanics Fraternal Association (AMFA) was rejected by Boeing technicians\. We will continue to work with AMFA and our technicians to reach a transition agreement\.

At December 31, 2018, labor unions represented 84% of Alaska’s, 45% of Horizon’s, and 87% of McGee Air Services' employees\.

Our relations with U\.S\. labor organizations are governed by the Railway Labor Act (RLA)\. Under the RLA, collective bargaining agreements do not expire but instead become amendable as of a stated date\. If either party wishes to modify the terms of any such agreement, it must notify the other party in the manner prescribed by the RLA and/or described in the agreement\. After receipt of such notice, the parties must meet for direct negotiations, and if no agreement is reached, either party may request the NMB to initiate a process including mediation, arbitration, and a potential “cooling off” period that must be followed before either party may engage in self\-help\.

Alaska’s union contracts at December 31, 2018 were as follows:

|                                                                           |                                        |                         |                      |
| ------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | -------------------- |
| **Union**                                                                 | **Employee Group**                     | **Number of Employees** | **Contract Status**  |
| Air Line Pilots Association, International (ALPA)                         | Pilots                                 | 2,871                   | Amendable 4/1/2020   |
| Association of Flight Attendants (AFA)                                    | Flight attendants                      | 5,815                   | Amendable 12/17/2021 |
| International Association of Machinists and Aerospace Workers (IAM) ^(a)^ | Ramp service and stock clerks          | 688                     | Amendable 7/19/2018  |
| IAM                                                                       | Clerical, office and passenger service | 4,506                   | Amendable 1/1/2019   |
| Aircraft Mechanics Fraternal Association (AMFA) ^(a)^                     | Mechanics, inspectors and cleaners     | 725                     | Amendable 10/17/2021 |
| Mexico Workers Association of Air Transport                               | Mexico airport personnel               | 73                      | Amendable 9/29/2019  |
| Transport Workers Union of America (TWU)                                  | Dispatchers                            | 87                      | Amendable 3/24/2019  |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| (a) | Negotiations with AMFA for a transition agreement with our aircraft technicians and with the IAM for an agreement with our ramp service and stock clerks are ongoing as of the date of this filing\. Number of employees under the AMFA agreement shown above are  |

 14


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

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

information relating to these contracts and the DOJ has also sought information concerning certain of the airlines that transport mail on a codeshare basis\. The DOJ has indicated it is investigating potential violations of the False Claims Act or other statutes\. American is cooperating fully with the DOJ with regard to its investigation\.

*General*\. In addition to the specifically identified legal proceedings, American and its subsidiaries are also engaged in other legal proceedings from time to time\. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within American’s control\. Therefore, although American will vigorously defend itself in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on American are uncertain but could be material\. See Part I, Item 1A\. Risk Factors –*“We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity”* for additional discussion\.

***(f) Guarantees and Indemnifications***

American is a party to many routine contracts in which it provides general indemnities in the normal course of business to third parties for various risks\. American is not able to estimate the potential amount of any liability resulting from the indemnities\. These indemnities are discussed in the following paragraphs\.

In its aircraft financing agreements, American generally indemnifies the financing parties, trustees acting on their behalf and other relevant parties against liabilities (including certain taxes) resulting from the financing, manufacture, design, ownership, operation and maintenance of the aircraft regardless of whether these liabilities (including certain taxes) relate to the negligence of the indemnified parties\.

American’s loan agreements and other LIBOR\-based financing transactions (including certain leveraged aircraft leases) generally obligate American to reimburse the applicable lender for incremental costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements\. In addition, American’s loan agreements and other financing arrangements typically contain a withholding tax provision that requires American to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law\.

In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax law, illegality or certain other events or circumstances\. In such a case, American may be required to make a lump sum payment to terminate the relevant transaction\.

American has general indemnity clauses in many of its airport and other real estate leases where American as lessee indemnifies the lessor (and related parties) against liabilities related to American’s use of the leased property\. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties\. In addition, American provides environmental indemnities in many of these leases for contamination related to American’s use of the leased property\.

Under certain contracts with third parties, American indemnifies the third\-party against legal liability arising out of an action by the third\-party, or certain other parties\. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined\. American has liability insurance protecting American for some of the obligations it has undertaken under these indemnities\.

American is required to make principal and interest payments for certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment, which are leased to American\. The payment of principal and interest of certain special facility revenue bonds is guaranteed by American\. As of December 31, 2018, the remaining lease payments through 2035 guaranteeing the principal and interest on these bonds are $588 million and the current carrying amount of the associated operating lease liability in the accompanying consolidated balance sheet is $321 million\.

As of December 31, 2018, American had issued guarantees covering AAG’s $750 million aggregate principal amount of 5\.50% senior notes due 2019 and $500 million aggregate principal amount of 4\.625% senior notes due 2020\.

169


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2019

[Table of Contents](https://www.example.com#s1B306C2BC5705F95B83EC9EC687675EF)

|                                                                          |                             |                             |                             |                             |                             |
| ------------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                          | **2019**                    | **2018**                    | **2017**                    | **2016**                    | **2015**                    |
| **Select operating statistics (a)**                                      |                             |                             |                             |                             |                             |
| Passengers (thousands)  (b)                                              | 162,443                     | 158,330                     | 148,067                     | 143,177                     | 140,369                     |
| Revenue passenger miles ("RPMs") (millions)  (c)                         | 239,360                     | 230,155                     | 216,261                     | 210,309                     | 208,611                     |
| Available seat miles ("ASMs") (millions)  (d)                            | 284,999                     | 275,262                     | 262,386                     | 253,590                     | 250,003                     |
| Cargo revenue ton miles (millions)  (e)                                  | 3,329                       | 3,425                       | 3,316                       | 2,805                       | 2,614                       |
| Passenger load factor  (f)                                               | 84\.0%                      | 83\.6%                      | 82\.4%                      | 82\.9%                      | 83\.4%                      |
| Passenger revenue per available seat mile ("PRASM") (cents)              | 13\.90                      | 13\.70                      | 13\.13                      | 13\.18                      | 13\.11                      |
| Total revenue per available seat mile ("TRASM") (cents)                  | 15\.18                      | 15\.00                      | 14\.40                      | 14\.42                      | 15\.15                      |
| Average yield per revenue passenger mile ("Yield") (cents)  (g)          | 16\.55                      | 16\.38                      | 15\.93                      | 15\.90                      | 15\.72                      |
| Cost per available seat mile ("CASM") (cents)                            | 13\.67                      | 13\.83                      | 13\.02                      | 12\.70                      | 13\.08                      |
| Average price per gallon of fuel, including fuel taxes                   | $2\.09                      | $2\.25                      | $1\.74                      | $1\.49                      | $1\.94                      |
| Fuel gallons consumed (millions)                                         | 4,292                       | 4,137                       | 3,978                       | 3,904                       | 3,886                       |
| Average stage length (miles)  (h)                                        | 1,460                       | 1,446                       | 1,460                       | 1,473                       | 1,487                       |
| Average daily utilization of each mainline aircraft (hours:minutes)  (i) | 10:39                       | 10:45                       | 10:27                       | 10:06                       | 10:24                       |

(a) Includes data from our regional carriers operating under CPAs unless otherwise noted\.

(b) The number of revenue passengers measured by each flight segment flown\.

(c) The number of scheduled miles flown by revenue passengers\.

(d) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown\.

(e) The number of cargo revenue tons transported multiplied by the number of miles flown\.

(f) RPM divided by ASM\.

(g) The average passenger revenue received for each revenue passenger mile flown\.

(h) Average stage length equals the average distance a flight travels weighted for size of aircraft\.

(i) The average number of hours per day that an aircraft flown in revenue service is operated (from gate departure to gate arrival)\.

27


Annual Report of Southwest Airlines Co\. for year 2017

**Issuer Repurchases**

|                                                     |                                           |                                           |                                           |                                           |                                           |
| --------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------------------------------------- |
| Issuer Purchases of Equity Securities (1)           | Issuer Purchases of Equity Securities (1) | Issuer Purchases of Equity Securities (1) | Issuer Purchases of Equity Securities (1) | Issuer Purchases of Equity Securities (1) | Issuer Purchases of Equity Securities (1) |
|                                                     | **(a)**                                   | **(b)**                                   |                                           | **(c)**                                   | **(d)**                                   |
|                                                     |                                           |                                           |                                           | **Total number of**                       | **Maximum dollar**                        |
|                                                     |                                           |                                           |                                           | **shares purchased**                      | **value of shares that**                  |
|                                                     | **Total number**                          | **Average**                               |                                           | **as part of publicly**                   | **may yet be purchased**                  |
|                                                     | **of shares**                             | **price paid**                            |                                           | **announced plans**                       | **under the plans**                       |
| **Period**                                          | **purchased**                             | **per share**                             |                                           | **or programs**                           | **or programs**                           |
| October 1, 2017 through

 October 31, 2017   | 1,206,365                                 | $—                                        | (2)                                       | 1,206,365                                 | $1,700,000,000                            |
| November 1, 2017 through

 November 30, 2017 | 670,000                                   | $—                                        | (3)(4)                                    | 670,000                                   | $1,410,017,716                            |
| December 1, 2017 through

 December 31, 2017 | 4,280,204                                 | $—                                        | (3)(5)                                    | 4,280,204                                 | $1,350,032,588                            |
| Total                                               | 6,156,569                                 |                                           |                                           | 6,156,569                                 |                                           |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| (1) | On  May 17, 2017 , the Company’s Board of Directors authorized the repurchase of up to  $2\.0 billion  of the Company’s common stock\. Repurchases are made in accordance with applicable securities laws in open market, private, or accelerated repurchase transactions from time to time, depending on market conditions, and may be discontinued at any time\. |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (2) | Under an accelerated share repurchase program entered into by the Company with a third party financial institution in third quarter 2017 (the "Third Quarter 2017 ASR Program"), the Company paid  $300 million  and received an initial delivery of  4,130,592  shares during August 2017, representing an estimated 75 percent of the shares to be purchased by the Company under the Third Quarter 2017 ASR Program based on a volume\-weighted average price of  $54\.4716  per share, which was the closing price of the Company’s common stock on the New York Stock Exchange during a calculation period between August 1, 2017 and August 24, 2017\. Final settlement of the Third Quarter 2017 ASR Program occurred in October 2017 and was determined based generally on a discount to the volume\-weighted average price per share of the Company's common stock during a calculation period completed in October 2017\. Upon settlement, the third party financial institution delivered  1,206,365  additional shares of the Company’s common stock to the Company\. In total, the average purchase price per share for the  5,336,957  shares repurchased under the Third Quarter 2017 ASR Program, upon completion of the Third Quarter 2017 ASR Program in October 2017, was  $56\.2118 \. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (3) | Under an accelerated share repurchase program entered into by the Company with a third party financial institution in fourth quarter 2017 (the "Fourth Quarter 2017 ASR Program"), the Company paid  $250 million  in November 2017 and received an initial delivery of  3,323,537  shares during December 2017, representing an estimated 75 percent of the shares to be purchased by the Company under the Fourth Quarter 2017 ASR Program based on a volume\-weighted average price of  $56\.4158  per share of the Company’s common stock on the New York Stock Exchange during a calculation period between November 8, 2017 and December 6, 2017\. Final settlement of the Fourth Quarter 2017 ASR Program occurred in January 2018 and was determined based generally on a discount to the volume\-weighted average price per share of the Company's common stock during a calculation period completed in January 2018\. Upon settlement, the third party financial institution delivered  736,838  additional shares of the Company’s common stock to the Company\. In total, the average purchase price per share for the  4,060,375  shares repurchased under the Fourth Quarter 2017 ASR Program, upon completion of the Fourth Quarter 2017 ASR Program in January 2018, was  $61\.5707 \. |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (4) | During the period from November 29, 2017 through November 30, 2017, the Company repurchased  670,000  shares of its common stock on the open market at an average price of  $59\.6751  per share\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (5) | During the period from December 1, 2017 through December 15, 2017, the Company repurchased  956,667  shares of its common stock on the open market at an average price of  $62\.7022  per share\. |

36


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

The following table presents the components of our total net special items and the reconciliation of pre\-tax income and net income (GAAP measures) to pre\-tax income excluding net special items and net income excluding net special items (non\-GAAP measures)\. Management uses pre\-tax income excluding net special items and net income excluding net special items to evaluate our current operating performance and to allow for period\-to\-period comparisons\. As net special items may vary from period\-to\-period in nature and amount, the adjustment to exclude net special items allows management an additional tool to understand our core operating performance\.

|                                                                          |                             |                             |
| ------------------------------------------------------------------------ | --------------------------- | --------------------------- |
|                                                                          | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                          | **2019**                    | **2018**                    |
|                                                                          | **(In millions)**           | **(In millions)**           |
| **Components of Total Special Items, Net:**  **^(1)^**                   |                             |                             |
| Fleet restructuring expenses  ^(2)^                                      | $271                        | $422                        |
| Fleet impairment  ^(3)^                                                  | 213                         | —                           |
| Merger integration expenses  ^(4)^                                       | 191                         | 268                         |
| Litigation reserve adjustments                                           | (53)                        | 45                          |
| Mark\-to\-market adjustments on bankruptcy obligations, net  ^(5)^       | (11)                        | (76)                        |
| Severance expenses  ^(6)^                                                | 11                          | 58                          |
| Intangible asset impairment  ^(7)^                                       | —                           | 26                          |
| Labor contract expenses                                                  | —                           | 13                          |
| Other operating charges, net                                             | 13                          | 31                          |
| Mainline operating special items, net                                    | 635                         | 787                         |
| Regional operating special items, net                                    | 6                           | 6                           |
| Operating special items, net                                             | 641                         | 793                         |
| Debt refinancing and extinguishment charges                              | 16                          | 13                          |
| Mark\-to\-market adjustments on equity and other investments, net  ^(8)^ | (5)                         | 104                         |
| Other nonoperating income, net                                           | (8)                         | (4)                         |
| Nonoperating special items, net                                          | 3                           | 113                         |
| Pre\-tax special items, net                                              | 644                         | 906                         |
| Income tax special items, net  ^(9)^                                     | —                           | 18                          |
| Total special items, net                                                 | $644                        | $924                        |
| **Reconciliation of Pre\-Tax Income Excluding Net Special Items:**       |                             |                             |
| Pre\-tax income – GAAP                                                   | $2,256                      | $1,884                      |
| Adjusted for: Pre\-tax special items, net                                | 644                         | 906                         |
| Pre\-tax income excluding net special items                              | $2,900                      | $2,790                      |
| **Reconciliation of Net Income Excluding Net Special Items:**            |                             |                             |
| Net income – GAAP                                                        | $1,686                      | $1,412                      |
| Adjusted for: Total special items, net                                   | 644                         | 924                         |
| Adjusted for: Net tax effect of net special items                        | (151)                       | (219)                       |
| Net income excluding net special items                                   | $2,179                      | $2,117                      |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information on net special items\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Fleet impairment principally includes a non\-cash write\-down of aircraft related to the planned retirement of our Embraer E190 fleet\. |

46


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

Selected Consolidated Financial Data of American

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended December 31,  2019 ,  2018 ,  2017 ,  2016  and  2015  are derived from American’s audited consolidated financial statements\.

|                                                                     |                             |                             |                             |                             |                             |
| ------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                     | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                     | **2019**                    | **2018**                    | **2017**                    | **2016**                    | **2015**                    |
|                                                                     | **(In millions)**           | **(In millions)**           | **(In millions)**           | **(In millions)**           | **(In millions)**           |
| **Consolidated Statements of Operations data:**                     |                             |                             |                             |                             |                             |
| Total operating revenues                                            | $45,761                     | $44,530                     | $42,610                     | $40,125                     | $40,938                     |
| Total operating expenses                                            | 42,714                      | 41,807                      | 38,405                      | 35,045                      | 34,749                      |
| Operating income                                                    | 3,047                       | 2,723                       | 4,205                       | 5,080                       | 6,189                       |
| Net income                                                          | 1,972                       | 1,658                       | 1,285                       | 2,689                       | 8,120                       |
| **Consolidated Balance Sheet data**

**(at end of period):** |                             |                             |                             |                             |                             |
| Total assets                                                        | $71,890                     | $70,878                     | $61,401                     | $60,428                     | $50,439                     |
| Debt and finance leases                                             | 23,042                      | 23,197                      | 23,294                      | 22,577                      | 18,826                      |
| Pension and postretirement obligations  ^(1)^                       | 6,037                       | 6,893                       | 7,550                       | 7,904                       | 7,526                       |
| Operating lease liabilities                                         | 9,083                       | 9,496                       | —                           | —                           | —                           |
| Stockholder’s equity                                                | 13,422                      | 11,770                      | 9,888                       | 8,578                       | 9,698                       |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Substantially all defined benefit pension plans were frozen effective November 1, 2012\. See Note 8 to American's Consolidated Financial Statements in Part II, Item 8B for further information on pension and postretirement benefits\. |

48


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

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

***Other Investments***

American has an approximate 25% ownership interest in Republic Airways Holdings Inc\. (Republic), which it received in the second quarter of 2017 in consideration for its unsecured claim in Republic’s bankruptcy case\. This ownership interest is accounted for under the equity method and American’s portion of Republic’s financial results is recognized within other, net on the consolidated statements of operations\. In 2017, American recognized $544 million of regional expense from its capacity purchase agreement with Republic\.

Additionally, in the third quarter of 2017, American acquired 2\.7% of the outstanding shares of China Southern Airlines Company Limited for $203 million\. Since American’s subscription agreement restricts the sale or transfer of these shares for three years, American accounts for this investment under the cost method\.

These investments are reflected within other assets on American’s consolidated balance sheets\.

**7\. Employee Benefit Plans**

American sponsors defined benefit and defined contribution pension plans for eligible employees\. The defined benefit pension plans provide benefits for participating employees based on years of service and average compensation for a specified period of time before retirement\. Effective November 1, 2012, substantially all of American’s defined benefit pension plans were frozen and American began providing enhanced benefits under its defined contribution pension plans for certain employee groups\. American uses a December 31 measurement date for all of its defined benefit pension plans\. American also provides certain retiree medical and other postretirement benefits, including health care and life insurance benefits, to retired employees\. Effective November 1, 2012, American modified its retiree medical and other postretirement benefits plans to eliminate the company subsidy for employees who retire on or after November 1, 2012\. As a result of modifications to its retiree medical and other postretirement benefits plans in 2012, American recognized a negative plan amendment of $1\.9 billion, which is included as a component of prior service benefit in OCI and will be amortized over the future service life of the active plan participants for whom the benefit was eliminated, or approximately eight years\. As of December 31, 2017, $631 million of prior service benefit remains to be amortized\.

***Benefit Obligations, Fair Value of Plan Assets and Funded Status***

The following tables provide a reconciliation of the changes in the pension and retiree medical and other postretirement benefits obligations, fair value of plan assets and a statement of funded status as of December 31, 2017 and 2016:

|                                           |                      |                      |                                                                  |                                                                  |
| ----------------------------------------- | -------------------- | -------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------- |
|                                           | **Pension Benefits** | **Pension Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** |
|                                           | **2017**             | **2016**             | **2017**                                                         | **2016**                                                         |
|                                           | **(In millions)**    | **(In millions)**    | **(In millions)**                                                | **(In millions)**                                                |
| Benefit obligation at beginning of period | $17,148              | $16,310              | $990                                                             | $1,129                                                           |
| Service cost                              | 2                    | 2                    | 4                                                                | 3                                                                |
| Interest cost                             | 717                  | 746                  | 39                                                               | 47                                                               |
| Actuarial (gain) loss  ^(1) (2)^          | 1,007                | 725                  | 49                                                               | (104)                                                            |
| Plan amendments                           | —                    | —                    | —                                                                | 7                                                                |
| Settlements                               | (4)                  | (2)                  | —                                                                | —                                                                |
| Benefit payments                          | (723)                | (633)                | (80)                                                             | (92)                                                             |
| Other                                     | 28                   | —                    | 8                                                                | —                                                                |
| Benefit obligation at end of period       | $18,175              | $17,148              | $1,010                                                           | $990                                                             |

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