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

Property, Equipment and Depreciation

Property and equipment are recorded at cost and depreciated using the straight\-line method over their estimated useful lives less an estimated salvage value, which are as follows:

|                                                 |                                                 |                                                 |                                                               |                                                               |                                                               |                         |                         |
|:----------------------------------------------- |:----------------------------------------------- |:----------------------------------------------- |:-------------------------------------------------------------:|:-------------------------------------------------------------:|:-------------------------------------------------------------:|:-----------------------:|:-----------------------:|
|                                                 |                                                 |                                                 |                     Estimated Useful Life                     |                     Estimated Useful Life                     |                     Estimated Useful Life                     | Estimated Salvage Value | Estimated Salvage Value |
| Aircraft and other flight equipment:            | Aircraft and other flight equipment:            | Aircraft and other flight equipment:            |                                                               |                                                               |                                                               |                         |                         |
| Boeing 737, Airbus A319/A320, and E175 aircraft | Boeing 737, Airbus A319/A320, and E175 aircraft | Boeing 737, Airbus A319/A320, and E175 aircraft |                         20\-25 years                          |                         20\-25 years                          |                         20\-25 years                          |          10%            |          10%            |
| Bombardier Q400 aircraft                        | Bombardier Q400 aircraft                        | Bombardier Q400 aircraft                        |                           15 years                            |                           15 years                            |                           15 years                            |           5%            |           5%            |
| Buildings                                       | Buildings                                       | Buildings                                       |                        25 \- 40 years                         |                        25 \- 40 years                         |                        25 \- 40 years                         |          10%            |          10%            |
| Minor building and land improvements            | Minor building and land improvements            | Minor building and land improvements            |                           10 years                            |                           10 years                            |                           10 years                            |           —%            |           —%            |
| Capitalized leases and leasehold improvements   | Capitalized leases and leasehold improvements   | Capitalized leases and leasehold improvements   | Generally shorter of lease term or
estimated useful life | Generally shorter of lease term or
estimated useful life | Generally shorter of lease term or
estimated useful life |           —%            |           —%            |
| Computer hardware and software                  | Computer hardware and software                  | Computer hardware and software                  |                          3\-10 years                          |                          3\-10 years                          |                          3\-10 years                          |           —%            |           —%            |
| Other furniture and equipment                   | Other furniture and equipment                   | Other furniture and equipment                   |                          5\-10 years                          |                          5\-10 years                          |                          5\-10 years                          |           —%            |           —%            |

Near the end of an asset's estimated useful life, management updates the salvage value estimates based on current market conditions and expected use of the asset\. Repairable and rotable aircraft parts are included in Aircraft and other flight equipment, and are depreciated over the associated fleet life\.

Capitalized interest, based on the Company’s weighted\-average borrowing rate, is added to the cost of the related asset, and is depreciated over the estimated useful life of the asset\.

Maintenance and repairs, other than engine maintenance on B737\-800 engines, are expensed when incurred\. Major modifications that extend the life or improve the usefulness of aircraft are capitalized and depreciated over their estimated period of use\. Maintenance on B737\-800 engines is covered under a power\-by\-the\-hour agreement with a third party, whereby the Company pays a determinable amount, and transfers risk, to a third party\. The Company expenses the contract amounts based on engine usage\.

The Company evaluates long\-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the total carrying amount of an asset or asset group may not be recoverable\. The Company groups assets for purposes of such reviews at the lowest level at which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities, which is generally the fleet level\. An impairment loss is considered when estimated future undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition are less than its carrying amount\. If the asset or asset group is not considered recoverable, a write\-down equal to the excess of the carrying amount over the fair value will be recorded\.

Goodwill

Goodwill represents the excess of purchase price over the fair value of the related net assets acquired in the Company's acquisition of Virgin America and is not amortized\. The total balance of goodwill is associated with the Mainline reporting unit\. The Company reviews goodwill for impairment annually in Q4, or more frequently if events or circumstances indicate than an impairment may exist\. If fair value of the reporting unit does not exceed the carrying amount, an impairment charge may be recorded\. In 2019, the fair value of the reporting unit with goodwill substantially exceeded its carrying value\.

Intangible Assets

Intangible assets recorded in conjunction with the acquisition of Virgin America consist primarily of indefinite\-lived airport slots, finite\-lived airport gates and finite\-lived customer relationships\. Finite\-lived intangibles are amortized over their estimated useful lives\. Indefinite\-lived intangibles are not amortized, but are tested at least annually for impairment using a similar methodology to property, equipment and goodwill, as described above\.

Aircraft Maintenance Deposits

Certain Airbus leases include contractually required maintenance deposit payments to the lessor, which collateralize the lessor for future maintenance events should the Company not perform required maintenance\. Most of the lease agreements provide that maintenance deposits are reimbursable upon completion of the major maintenance event in an amount equal to the lesser of

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

**FUEL**

Our business and financial results are highly affected by the price and the availability of aircraft fuel\. The cost of aircraft fuel is volatile and outside of our control, and it can have a significant and immediate impact on our operating results\. Over the past five years, aircraft fuel expense ranged from 18% to 32% of operating expenses\. Fuel prices are impacted by changes in both the price of crude oil and refining costs and can vary by region in the U\.S\.

The price of crude oil on an average annual basis for the past five years have ranged from a low of $43 per barrel in 2016 to a high of $93 in 2014\. For us, a $1 per barrel change in the price of oil equates to approximately $20 million of fuel cost annually\. Said another way, a one\-cent change in our fuel price per gallon will impact our expected annual fuel cost by approximately $8 million per year\.

Refining margins, which represent the price of refining crude oil into aircraft fuel, are a smaller portion of the overall price of jet fuel, but have also contributed to the price volatility in recent years\. Over the last five years, average annual West Coast refining margin prices have fluctuated between $13 per barrel to a high of $24 per barrel in 2018\.

Generally, West Coast jet fuel prices are somewhat higher and more volatile than prices in the Gulf Coast or on the East Coast\. Our average raw fuel cost per gallon increased28% in 2018, after increasing21% in 2017 and decreasing19% in 2016\.

The percentages of our aircraft fuel expense by crude oil and refining margins, as well as the percentage of our aircraft fuel expense of operating expenses, are as follows:

|                       |          |          |                    |          |          |
| --------------------- | -------- | -------- | ------------------ | -------- | -------- |
|                       | **2018** | **2017** | **2016** **^(a)^** | **2015** | **2014** |
| Crude oil             | 68%      | 66%      | 69%                | 62%      | 72%      |
| Refining margins      | 25%      | 23%      | 20%                | 26%      | 18%      |
| Other ^(b)^           | 7%       | 11%      | 11%                | 12%      | 10%      |
| Total                 | 100%     | 100%     | 100%               | 100%     | 100%     |
| Aircraft fuel expense | 25%      | 22%      | 18%                | 22%      | 32%      |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------- |
| (a) | Includes information for Virgin America for the period December 14, 2016 through December 31, 2016\. |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------- |
| (b) | Other includes gains and losses on settled fuel hedges, unrealized mark\-to\-market fuel hedge gains or losses, taxes and other into\-plane costs\. |

We use crude oil call options as hedges to decrease our exposure to the volatility of jet fuel prices\. Call options effectively cap our pricing for crude oil, limiting our exposure to increasing fuel prices for about half of our planned fuel consumption\. With call options, we are hedged against spikes in crude oil prices, and during a period of decline in crude oil prices, we only forfeit cash previously paid for hedge premiums\. We begin hedging approximately 18 months in advance of consumption\.

We believe that operating fuel\-efficient aircraft is the best hedge against high fuel prices\. Air Group's fuel\-efficiency rate expressed in available seat miles flown per gallon (ASMs/g) improved from 76\.9 ASMs/g in 2014 to 77\.9 ASMs/g in 2018\. Maintaining a young, fuel\-efficient fleet has not only reduced our fuel consumption rate, but also the amount of greenhouse gases and other pollutants that our aircraft emit\.

**COMPETITION**

Competition in the airline industry is intense and unpredictable\. Our competitors consist primarily of other airlines and, to a lesser extent, other forms of transportation\. Competition can be direct, in the form of another carrier flying the exact non\-stop route, or indirect, where a carrier serves the same two cities non\-stop from an alternative airport in that city or via an itinerary requiring a connection at another airport\. We compete with other domestic airlines and a limited number of international airlines on nearly all of our scheduled routes\. Our largest competitor is Delta Airlines Inc\. (Delta), who has significantly increased its capacity in Seattle over the past several years\. Approximately 77% of our capacity to and from Seattle competes with Delta\. As we have grown in California and have expanded our transcontinental route offerings, United Airlines and Southwest Airlines have also become large competitors and have increased their capacity in markets we serve\. Our California and transcontinental routes have a higher concentration of competitors when compared to our historical route structure, which was predominately concentrated in the Pacific Northwest\. Based on schedules filed with the U\.S\. Department of Transportation, we expect the amount of competitive capacity overlap with all carriers to increase by more than 4% in the first quarter of 2019, weighted based on our network\.

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

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

|                          |          |
| ------------------------ | -------- |
| /s/ Walter Isaacson      | Director |
| Walter Isaacson          |          |
| /s/ James A\.C\. Kennedy | Director |
| James A\.C\. Kennedy     |          |
|                          | Director |
| William R\. Nuti         |          |
| /s/ Sito Pantoja         | Director |
| Sito Pantoja             |          |
| /s/ Edward M\. Philip    | Director |
| Edward M\. Philip        |          |
| /s/ Edward L\. Shapiro   | Director |
| Edward L\. Shapiro       |          |
| /s/ David J\. Vitale     | Director |
| David J\. Vitale         |          |
| /s/ James M\. Whitehurst | Director |
| James M\. Whitehurst     |          |

|       |                   |
| ----- | ----------------- |
| Date: | February 28, 2019 |

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

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**UNITED AIRLINES, INC\.**

**CONSOLIDATED BALANCE SHEETS**

**(In millions, except shares)**

|                                                                                |                     |                     |
| ------------------------------------------------------------------------------------------- | ------------------- | ------------------- |
|                                                                                | **At December 31,** | **At December 31,** |
| **ASSETS**                                                                                | **2018**            | **2017 (a)**        |
| Current assets:                                                                             |                     |                     |
| Cash and cash equivalents                                                                   | $1,688              | $1,476              |
| Short\-term investments                                                                     | 2,256               | 2,316               |
| Receivables, less allowance for doubtful accounts (2018—$8; 2017—$7)                        | 1,346               | 1,340               |
| Aircraft fuel, spare parts and supplies, less obsolescence allowance (2018—$412; 2017—$354) | 985                 | 924                 |
| Prepaid expenses and other                                                                  | 913                 | 1,071               |
| Total current assets                                                                        | 7,188               | 7,127               |
| Operating property and equipment:                                                           |                     |                     |
| Owned—                                                                                |                     |                     |
| Flight equipment                                                                            | 31,607              | 28,692              |
| Other property and equipment                                                                | 7,919               | 6,946               |
| Total owned property and equipment                                                          | 39,526              | 35,638              |
| Less—Accumulated depreciation and amortization                                              | (12,760)            | (11,159)            |
| Total owned property and equipment, net                                                     | 26,766              | 24,479              |
| Purchase deposits for flight equipment                                                      | 1,177               | 1,344               |
| Capital leases—                                                                             |                     |                     |
| Flight equipment                                                                            | 1,029               | 1,151               |
| Other property and equipment                                                                | 11                  | 11                  |
| Total capital leases                                                                        | 1,040               | 1,162               |
| Less—Accumulated amortization                                                               | (654)               | (777)               |
| Total capital leases, net                                                                   | 386                 | 385                 |
| Total operating property and equipment, net                                                 | 28,329              | 26,208              |
| Other assets:                                                                               |                     |                     |
| Goodwill                                                                                | 4,523               | 4,523               |
| Intangibles, less accumulated amortization (2018—$1,380; 2017—$1,313)                       | 3,159               | 3,539               |
| Restricted cash                                                                             | 105                 | 91                  |
| Notes receivable, net                                                                       | 516                 | 46                  |
| Investments in affiliates and other, net                                                    | 966                 | 806                 |
| Total other assets                                                                          | 9,269               | 9,005               |
| Total assets                                                                                | $44,786             | $42,340             |

(continued on next page)

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

• The  Operational Performance Rewards Program  entitles the majority of Alaska and Horizon employees to quarterly payouts of up to $450 per person if certain monthly operational and customer service objectives are met\.

NOTE 9\. COMMITMENTS AND CONTINGENCIES

Future minimum payments for commitments as of December 31, 2019 (in millions):

|            |            |            |  |  |  |                           |  |  |  |                                   |  |  |  |                               |
|:---------- |:---------- |:---------- |:- |:- |:- | -------------------------:|:- |:- |:- | ---------------------------------:|:- |:- |:- | -----------------------------:|
|            |            |            |  |  |  | Aircraft Commitments^(a)^ |  |  |  | Capacity Purchase Agreements^(b)^ |  |  |  | Aircraft Maintenance Deposits |
| 2020       | 2020       | 2020       |  |  |  |                     $ 531 |  |  |  |                             $ 145 |  |  |  |                          $ 73 |
| 2021       | 2021       | 2021       |  |  |  |                       487 |  |  |  |                               166 |  |  |  |                            62 |
| 2022       | 2022       | 2022       |  |  |  |                       347 |  |  |  |                               174 |  |  |  |                            51 |
| 2023       | 2023       | 2023       |  |  |  |                       206 |  |  |  |                               179 |  |  |  |                            26 |
| 2024       | 2024       | 2024       |  |  |  |                        31 |  |  |  |                               184 |  |  |  |                             6 |
| Thereafter | Thereafter | Thereafter |  |  |  |                        26 |  |  |  |                               880 |  |  |  |                             2 |
| Total      | Total      | Total      |  |  |  |                   $ 1,628 |  |  |  |                           $ 1,728 |  |  |  |                         $ 220 |

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

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

Aircraft Commitments

Aircraft purchase commitments include non\-cancelable contractual commitments for aircrafts and engines\. As of December 31, 2019, Alaska had commitments to purchase 32 Boeing 737 MAX9 aircraft with deliveries in 2020 through 2023\. Future minimum contractual payments for these aircraft have been updated to reflect the most current anticipated delivery timing for 737 MAX aircraft, which has been delayed as a result of the grounding order mandated by the FAA on March 13, 2019, and is subject to change\. Horizon also has commitments to purchase three E175 aircraft with deliveries in 2023 and has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2023 through 2025\. In addition, Alaska has options to purchase 37 737 MAX aircraft and Horizon has options to purchase 30 E175 aircraft\. Alaska has an option to increase capacity flown by Skywest with eight additional E175 aircraft with deliveries in 2022\. The cancelable purchase commitments and option payments are not reflected in the table above\.

Aircraft Maintenance and Parts Management

Through its acquisition of Virgin America, the Company has a separate maintenance\-cost\-per\-hour contract for management and repair of certain rotable parts to support Airbus airframe and engine maintenance and repair\. In 2017, Alaska entered into a similar contract for maintenance on its B737\-800 aircraft engines\. These agreements require monthly payments based upon utilization, such as flight hours, cycles and age of the aircraft, and, in turn, the agreement transfers certain risks to the third\-party service provider\. There are minimum payments under both agreements, which are reflected in the table above\. Accordingly, payments could differ materially based on actual aircraft utilization\.

Aircraft Maintenance Deposits

Certain Airbus leases include contractually required maintenance deposit payments to the lessor, which collateralize the lessor for future maintenance events should the Company not perform required maintenance\. Most of the lease agreements provide that maintenance deposits are reimbursable upon completion of the major maintenance event in an amount equal to the lesser of (i) the amount qualified for reimbursement from maintenance deposits held by the lessor associated with the specific major maintenance event or (ii) the qualifying costs related to the specific major maintenance event\.

Contingencies

The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected\. Liabilities for litigation related contingencies are recorded when a loss is determined to be probable and estimable\.

In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws\. The court certified a class of

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

**CONSOLIDATED BALANCE SHEETS** ***(continued)***

|                                                                                |             |          |
| --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | -------- |
| **As of December 31**  ***(in millions except share amounts)***                                                                                | **2018**    | **2017** |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                                |             |          |
| **Current Liabilities**                                                                                |             |          |
| Accounts payable                                                                                | **$132**    | $120     |
| Accrued wages, vacation and payroll taxes                                                                                | **415**     | 418      |
| Air traffic liability                                                                                | **788**     | 806      |
| Other accrued liabilities                                                                                | **416**     | 400      |
| Deferred revenue                                                                                | **705**     | 635      |
| Current portion of long\-term debt                                                                                | **486**     | 307      |
| **Total Current Liabilities**                                                                                | **2,942**   | 2,686    |
| **Long\-Term Debt, Net of Current Portion**                                                                                | **1,617**   | 2,262    |
| **Other Liabilities and Credits**                                                                                |             |          |
| Deferred income taxes                                                                                | **512**     | 370      |
| Deferred revenue                                                                                | **1,169**   | 1,090    |
| Obligation for pension and postretirement medical benefits                                                                                | **503**     | 453      |
| Other liabilities                                                                                | **418**     | 425      |
| **Total Other Liabilities and Credits**                                                                                | **2,602**   | 2,338    |
| **Commitments and Contingencies (Note 9)**                                                                                |
      |
   |
| **Shareholders' Equity**                                                                                |             |          |
| Preferred stock, $0\.01 par value, Authorized: 5,000,000 shares, none issued or outstanding                                                                                | **—**       | —        |
| Common stock, $0\.01 par value, Authorized: 400,000,000 shares, Issued: 2018 \- 130,813,476 shares; 2017 \- 129,903,498 shares, Outstanding: 2018 \- 123,194,430 shares; 2017 \- 123,060,638 shares | **1**       | 1        |
| Capital in excess of par value                                                                                | **232**     | 164      |
| Treasury stock (common), at cost: 2018 \- 7,619,046 shares; 2017 \- 6,842,860 shares                                                                                | **(568)**   | (518)    |
| Accumulated other comprehensive loss                                                                                | **(448)**   | (380)    |
| Retained earnings                                                                                | **4,534**   | 4,193    |
|                                                                                | **3,751**   | 3,460    |
| **Total Liabilities and Shareholders' Equity**                                                                                | **$10,912** | $10,746  |

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

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

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conditions\. Financing may be necessary to satisfy the Company’s capital commitments for its firm order aircraft and other related capital expenditures\.

***Legal and Environmental\.*** The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business\. As of December 31, 2017, management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation and claims will not materially affect the Company’s consolidated financial position or results of operations\. The Company records liabilities for legal and environmental claims when a loss is probable and reasonably estimable\. These amounts are recorded based on the Company’s assessments of the likelihood of their eventual disposition\.

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

As of December 31, 2017, United is the guarantor of approximately $1\.8 billion in aggregate principal amount of tax\-exempt special facilities revenue bonds and interest thereon\. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long\-term agreements with the respective governing bodies\. The leasing arrangements associated with $1\.4 billion of these obligations are accounted for as operating leases with the associated expense recorded on a straight\-line basis resulting in ratable accrual of the lease obligation over the expected lease term\. These tax\-exempt special facilities revenue bonds are included in our lease commitments disclosed in Note 11 of this report\. The leasing arrangements associated with approximately $441 million of these obligations are accounted for as capital leases\. All of these bonds are due between 2019 and 2038\.

***Increased Cost Provisions\.*** In United’s financing transactions that include loans, United typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on LIBOR, for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs\. At December 31, 2017, the Company had $3\.4 billion of floating rate debt and $60 million of fixed rate debt, with remaining terms of up to 11 years, that are subject to these increased cost provisions\. In several financing transactions involving loans or leases from non\-U\.S\. entities, with remaining terms of up to 11 years and an aggregate balance of $3\.3 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non\-U\.S\. entities to withholding taxes, subject to customary exclusions\.

As of December 31, 2017, United is the guarantor of $157 million of aircraft mortgage debt issued by one of United’s regional carriers\. The aircraft mortgage debt is subject to similar increased cost provisions as described above for the Company’s debt, and the Company would potentially be responsible for those costs under the guarantees\.

***Fuel Consortia\.*** United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage\. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage\. The consortia (and in limited cases, the participating carriers) have entered into long\-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax\-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities\. In

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

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**UNITED AIRLINES, INC\.**

**STATEMENTS OF CONSOLIDATED OPERATIONS**

**(In millions)**

|                                                    |                             |                             |                             |
| -------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                    | **2018**                    | **2017 (a)**                | **2016 (a)**                |
| Operating revenue:                                 |                             |                             |                             |
| Passenger revenue                                  | $37,706                     | $34,460                     | $33,429                     |
| Cargo                                              | 1,237                       | 1,114                       | 934                         |
| Other operating revenue                            | 2,360                       | 2,210                       | 2,195                       |
| Total operating revenue                            | 41,303                      | 37,784                      | 36,558                      |
| Operating expense:                                 |                             |                             |                             |
| Salaries and related costs                         | 11,458                      | 10,941                      | 10,176                      |
| Aircraft fuel                                      | 9,307                       | 6,913                       | 5,813                       |
| Regional capacity purchase                         | 2,601                       | 2,232                       | 2,197                       |
| Landing fees and other rent                        | 2,359                       | 2,240                       | 2,165                       |
| Depreciation and amortization                      | 2,240                       | 2,149                       | 1,977                       |
| Aircraft maintenance materials and outside repairs | 1,767                       | 1,856                       | 1,749                       |
| Distribution expenses                              | 1,558                       | 1,435                       | 1,395                       |
| Aircraft rent                                      | 433                         | 621                         | 680                         |
| Special charges                                    | 487                         | 176                         | 745                         |
| Other operating expenses                           | 5,799                       | 5,548                       | 5,315                       |
| Total operating expense                            | 38,009                      | 34,111                      | 32,212                      |
| Operating income                                   | 3,294                       | 3,673                       | 4,346                       |
| Nonoperating income (expense):                     |                             |                             |                             |
| Interest expense                                   | (729)                       | (671)                       | (674)                       |
| Interest capitalized                               | 70                          | 84                          | 72                          |
| Interest income                                    | 101                         | 57                          | 42                          |
| Miscellaneous, net                                 | (76)                        | (101)                       | (11)                        |
| Total nonoperating expense, net                    | (634)                       | (631)                       | (571)                       |
| Income before income taxes                         | 2,660                       | 3,042                       | 3,775                       |
| Income tax expense                                 | 529                         | 879                         | 1,541                       |
| Net income                                         | $2,131                      | $2,163                      | $2,234                      |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2014\-09, *Revenue from Contracts with Customers (Topic 606)* andAccounting Standards Update No\. 2017\-07, *Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost\.* See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information\.

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements\.

48


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

Ancillary Businesses

We have several other businesses arising from our airline operations\. In  2018 , the total revenue from these businesses was approximately $1 billion\.

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | In addition to providing maintenance and engineering support for our fleet of over 1,000 aircraft, our aircraft maintenance, repair and overhaul ("MRO") operation, known as Delta TechOps, serves aviation and airline customers from around the world\.  |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------- |
| • | Our vacation wholesale business, Delta Vacations, provides vacation packages to third\-party consumers\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Our private jet operations, Delta Private Jets, provides aircraft charters, aircraft management and programs allowing members to purchase flight time by the hour\. |

In December 2018, we sold DAL Global Services, LLC (“DGS”), which provides aviation\-related, ground support equipment maintenance and professional security services, to a new subsidiary of Argenbright Holdings, LLC\. We received a non\-controlling 49% equity stake in the new company and $40 million cash\. The new company will continue to service our customers and third parties, and is expected to continue operating at the same airport locations it currently serves\.

Competition

The airline industry is highly competitive, marked by significant competition with respect to routes, fares, schedules (both timing and frequency), services, products, customer service and loyalty programs\. The industry has evolved through mergers and new entry, both domestically and internationally, and changes in international alliances\. Consolidation in the airline industry, the rise of subsidized government sponsored international carriers, changes in international alliances and the creation of immunized joint ventures have altered, and will continue to alter, the competitive landscape in the industry, resulting in the formation of airlines and alliances with significant financial resources, more extensive global networks and more competitive cost structures\.

Domestic

Our domestic operations are subject to competition from traditional network carriers, including American Airlines and United Airlines, national point\-to\-point carriers, including Alaska Airlines, JetBlue Airways and Southwest Airlines, and other discount or ultra low\-cost carriers, including Spirit Airlines and Allegiant Air, some of which may have lower costs than we do and provide service at low fares to destinations served by us\. Point\-to\-point, discount and ultra low\-cost carriers place significant competitive pressure on network carriers in the domestic market\. In particular, we face significant competition at our domestic hub and key airports either directly at those airports or at the hubs of other airlines that are located in close proximity to our hubs and key airports\. We also face competition in smaller to medium\-sized markets from regional jet operations of other carriers\.

International

Our international operations are subject to competition from both foreign and domestic carriers\. Competition from government\-owned and subsidized carriers in the Gulf region, including Emirates, Etihad Airways and Qatar Airways, is significant\. These carriers have large numbers of international widebody aircraft on order and have increased service to the U\.S\. These carriers' government subsidies have allowed them to grow quickly, reinvest in their product and expand their global presence at the expense of U\.S\. airlines\.

Through alliance and other marketing and codesharing agreements with foreign carriers, U\.S\. carriers have increased their ability to sell international transportation, such as services to and beyond traditional European and Asian gateway cities\. Similarly, foreign carriers have obtained increased access to interior U\.S\. passenger traffic beyond traditional U\.S\. gateway cities through these relationships\. In particular, alliances formed by domestic and foreign carriers, including SkyTeam, the Star Alliance (among United Airlines, Lufthansa German Airlines, Air Canada and others) and the oneworld alliance (among American Airlines, British Airways, Qantas and others) have enhanced competition in international markets\.

 6


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

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

ITEM 7\. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS  OF OPERATIONS

Financial Highlights \-  2017  Compared to  2016

Our pre\-tax income for  2017  was  $5\.7 billion , representing a  $935 million  decrease compared to the prior year primarily due to higher fuel costs, salaries and related costs and depreciation expense, which were partially offset by increased operating revenue\. Pre\-tax income, adjusted for special items (a non\-GAAP financial measure) was  $5\.5 billion ,  a decrease  of  $621 million , or  10\.2% \. Special items were primarily related to fuel hedge MTM adjustments and settlements of  $259 million  in 2017 compared to  $450 million  in 2016\.

Revenue\.  Compared to 2016, our operating revenue  increased  $1\.6 billion , or  4\.0% , on  1\.0%  higher  capacity combined with robust demand and strong revenue momentum, closing 2017 with three consecutive quarters of year\-over\-year passenger unit revenue growth\. Passenger revenue per available seat mile ("PRASM")  increased  2\.1%  led by (1) strong domestic leisure yields, (2) expanded distribution of Branded Fares, (3) an improving business fare environment, (4) strength in the Atlantic region leveraged through U\.S\. point\-of\-sale traffic gains, along with business cabin traffic and yield growth, and (5) strong performance in the Caribbean, Central America, Brazil and Mexico leisure markets\. Other revenue increased  9\.7%  partially resulting from growth in our co\-brand credit card partnership with American Express\.

Operating Expense\.  Total operating expense  increased  $2\.4 billion  and our consolidated operating cost per available seat mile ("CASM")  increased  6\.4%  compared to 2016 to  13\.81 cents , primarily due to higher fuel costs, salaries and related costs and depreciation expense\.  Including our regional carriers, fuel expense increased  $771 million  compared to the prior year due to a 22\.3% increase in the market price per gallon of fuel, partially offset by reduced fuel hedge losses compared to the prior year and profits generated within our refinery segment\.  Salaries and related costs were higher  due to increases for eligible merit, ground and flight attendant employees implemented in the June 2017 quarter\.  The increase in depreciation expense primarily results from new aircraft deliveries, including B\-737\-900ER, A321\-200, A330\-300 and A350\-900 aircraft, fleet modifications and accelerated depreciation due to the planned retirement of our MD\-88 fleet and two B\-767\-300ER aircraft\.

Non\-fuel unit costs ("CASM\-Ex, including profit sharing" a non\-GAAP financial measure) increased  4\.3%  to  10\.57 cents  due to the pay rate increases and depreciation expense discussed above, which were partially offset by productivity gains from our fleet, technology and supply chain initiatives\.

The non\-GAAP financial measures for pre\-tax income, adjusted for special items, and CASM\-Ex, including profit sharing, both used above, are defined and reconciled in "Supplemental Information" below\.

 27


Annual Report of DELTA AIR LINES, INC\.  for year 2019

• Interest Rate Contracts\.  Our interest rate derivatives are swap contracts, which are valued based on data readily observable in public markets\.

• Foreign Currency Exchange Contracts\.  Our foreign currency derivatives consist of forward contracts and are valued based on data readily observable in public markets\.

NOTE 4\. INVESTMENTS

Long\-Term Investments

We have developed strategic relationships with a number of airlines and airline services companies through equity investments and other forms of cooperation and support\. Our equity investments reinforce our commitment to these relationships and provide us with the ability to participate in strategic decision\-making, often through representation on the boards of directors of the investee\.

During the years ended December 31, 2019 and 2018, we recorded net gains on our equity investments of $119 million and $38 million, respectively, which were recorded in gain/(loss) on investments in our income statement within non\-operating expense\. These net gains were primarily driven by changes in stock prices and foreign currency fluctuations as well as the sale of certain investments, as described below\. During 2017, before we adopted the new financial instruments accounting standard in 2018, we recorded unrealized gains and losses on available\-for\-sale investments in AOCI\.

Fair Value Investments

Our investments accounted for at fair value are summarized in the following table:

|                              |                              |                              |                    |                    |                    |                    |  |  |                   |                   |                |                |                |  |  |  |
|:---------------------------- |:---------------------------- |:---------------------------- | ------------------:| ------------------:| ------------------:| ------------------:| -:| -:| -----------------:| -----------------:|:--------------:|:--------------:|:--------------:|:- |:- |:- |
|                              |                              |                              | Ownership Interest | Ownership Interest | Ownership Interest | Ownership Interest |  |  |                   |    Carrying Value | Carrying Value | Carrying Value | Carrying Value |  |  |  |
| (in millions)                | (in millions)                | (in millions)                |  December 31, 2019 |  December 31, 2019 |  December 31, 2018 |  December 31, 2018 |  |  | December 31, 2019 | December 31, 2018 |
| Air France\-KLM              | Air France\-KLM              | Air France\-KLM              |                9 % |                9 % |                9 % |                9 % |  |  |             $ 418 |             $ 408 |
| China Eastern                | China Eastern                | China Eastern                |                3 % |                3 % |                3 % |                3 % |  |  |               258 |               259 |
| Hanjin\-KAL                  | Hanjin\-KAL                  | Hanjin\-KAL                  |               10 % |               10 % |                — % |                — % |  |  |               205 |                 — |
| GOL                          | GOL                          | GOL                          |                — % |                — % |                9 % |                9 % |  |  |                 — |               213 |
| Other investments            | Other investments            | Other investments            |                    |                    |                    |                    |  |  |               218 |               210 |
| Total fair value investments | Total fair value investments | Total fair value investments |                    |                    |                    |                    |  |  |           $ 1,099 |           $ 1,090 |

During 2019, we acquired 10% of the outstanding shares of Hanjin\-KAL, the largest shareholder of Korean Air\.

In the December 2019 quarter we sold our 9% ownership stake of GOL Linhas Aéreas Inteligentes, the parent company of VRG Linhas Aéreas (operating as GOL), for $278 million\. The gain on sale of our investment in GOL is recorded in gain/(loss) on investments within non\-operating expense in our income statement\.

Additionally, GOL has a $300 million  five\-year term loan facility with third parties maturing in 2020, which we have guaranteed\. Our guaranty is secured by GOL's ownership interest in Smiles, GOL's publicly\-traded loyalty program\. Because GOL remains in compliance with the terms of its loan facility, we have not recorded a liability on our balance sheet as of December 31, 2019\.

68


Annual Report of Southwest Airlines Co\. for year 2017

Other operating expenses for 2016 increased by $272 million, or 12\.1 percent, compared with 2015\. On a per ASM basis, Other operating expenses for 2016 increased 6\.9 percent, compared with 2015\. On both a dollar and per ASM basis, approximately 30 percent of the increases were due to higher contract programming and consulting expenses associated with large technology projects and approximately 15 percent of the increases were due to increased personnel expenses\. Other operating expenses for 2016 also increased as the result of a $37 million litigation settlement received during 2015 which reduced 2015 Other operating expenses, a $22 million lease termination expense as a result of the Company acquiring five of its Boeing 737\-300 aircraft off operating leases, and a $21 million increase due to an impairment charge related to leased slots at Newark Liberty International Airport\. The remainder of the increases were due to revenue related costs driven by the 5\.5 percent increase in Revenue Passengers Carried\.

**Other**

Other expenses (income) include interest expense, capitalized interest, interest income, and other gains and losses\.

Interest expense for 2016 increased by $1 million, or 0\.8 percent, compared with 2015, primarily due to the timing of debt issuances and payoffs in 2015 and 2016\.

Capitalized interest for 2016 increased by $16 million, or 51\.6 percent, compared with 2015, primarily due to an increase in average progress payment balances for scheduled future aircraft deliveries\.

Interest income for 2016 increased by $15 million, or 166\.7 percent, compared with 2015, primarily due to higher interest rates coupled with a greater amount of interest earned on cash collateral held by counterparties\. See Note 10 to the Consolidated Financial Statements for further information on the Company's derivatives\.

Other (gains) losses, net, primarily includes amounts recorded as a result of the Company's hedging activities\. See Note 10 to the Consolidated Financial Statements for further information on the Company's hedging activities\. The following table displays the components of Other (gains) losses, net, for the years ended December 31, 2016, and 2015:

|                                                                        |                             |                             |
| ---------------------------------------------------------------------- | --------------------------- | --------------------------- |
|                                                                        | **Year ended December 31,** | **Year ended December 31,** |
| (in millions)                                                          | **2016**                    | **2015**                    |
| Mark\-to\-market impact from fuel contracts settling in future periods | $9                          | $373                        |
| Ineffectiveness from fuel hedges settling in future periods            | (11)                        | (9)                         |
| Realized ineffectiveness and mark\-to\-market (gains) or losses        | 5                           | 72                          |
| Premium cost of fuel contracts                                         | 153                         | 124                         |
| Other                                                                  | 6                           | (4)                         |
|                                                                        | $162                        | $556                        |

**Income Taxes**

The Company's effective tax rate was 36\.8 percent for 2016, compared with 37\.3 percent for 2015\.

49


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

***We are expected to incur substantial expenses related to the integration of Virgin America\.***

We are expected to continue to incur substantial integration and transition expenses in connection with the acquisition of Virgin America, including the necessary costs associated with integrating the operations of Alaska and Virgin America\. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including ticketing/distribution, maintenance and flight operations\. While we have assumed that a certain level of expenses will be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration expenses\. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately\. These expenses could, particularly in the near term, exceed the financial benefits we expect to achieve from the acquisition, including the elimination of duplicative expenses and the realization of economies of scale and cost savings\. These integration expenses likely will continue to result in us taking charges against earnings in future periods, and the amount and timing of such charges are uncertain at present\.

***The application of the acquisition method of accounting resulted in us recording a significant amount of goodwill, which could result in significant future impairment charges and negatively affect our financial results\.***

In accordance with applicable acquisition accounting rules, we recorded goodwill on our consolidated balance sheet to the extent the Virgin America acquisition purchase price exceeded the net fair value of Virgin America’s tangible and identifiable intangible assets and liabilities as of the acquisition date\. Goodwill is not amortized, but is tested for impairment at least annually\. We could record impairment charges in our results of operations as a result of, among other items, extreme fuel price volatility, a significant decline in the fair value of certain tangible or intangible assets, unfavorable trends in forecasted results of operations and cash flows, uncertain economic environment and other uncertainties\. We can provide no assurance that a significant impairment charge will not occur in one or more future periods\. Any such charges may materially negatively affect our financial results\.

***We obtain our rights to use the Virgin brand under agreements with certain entities affiliated with the Virgin Group, and we would lose those rights if these agreements are terminated or not renewed\.***

Virgin America is a party to license agreements with certain entities affiliated with the Virgin Group pursuant to which we obtain rights to use the Virgin brand\. The licensor may terminate the agreements upon the occurrence of a number of specified events including if Virgin America commits a material breach of its obligations under the agreements that is uncured for more than 10 business days or if it materially damages the Virgin brand\. If we lose our rights to use the Virgin brand, our current plan to discontinue use of the Virgin America trademarks gradually would need to be accelerated, which could have an adverse impact on our financial condition\.

***The Virgin brand is not under our control, and negative publicity related to the Virgin brand name could materially adversely affect our business\.***

Virgin America licenses rights to the Virgin brand from certain entities affiliated with the Virgin Group on a non\-exclusive basis\. The Virgin brand is also licensed to and used by a number of other companies, including two airlines, Virgin Atlantic Airways and Virgin Australia Airlines, operating in other geographies\. We rely on the general goodwill of consumers and our employees towards the Virgin brand\. Consequently, any adverse publicity in relation to the Virgin brand name, its principals, particularly Sir Richard Branson who is closely associated with the brand, or another Virgin\-branded company over which we have no control or influence could have a material adverse effect on our business\.

***STRATEGY***

***The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on our business\. If we cannot successfully compete in the marketplace, our business, financial condition, and operating results will be materially adversely affected\.***

The U\.S\. airline industry is characterized by substantial price competition\. In recent years, the market share held by low\-cost carriers and ultra low\-cost carriers has increased significantly and is expected to continue to increase\. Airlines also compete for market share by increasing or decreasing their capacity, route systems, and the number of markets served\. Several of our competitors have increased their capacity in markets we serve, particularly in our key West Coast markets\. The resulting increased competition in both domestic and international markets may have a material adverse effect on our results of operations, financial condition, or liquidity\.

 23


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

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

**UNITED CONTINENTAL HOLDINGS, INC\.**

**STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY**

**(In millions)**

|                                                               |                             |                             |                                            |                    |                                             |                                                              |           |
| ------------------------------------------------------------- | --------------------------- | --------------------------- | ------------------------------------------ | ------------------ | ------------------------------------------- | ------------------------------------------------------------ | --------- |
|                                                               | **Common**

**Stock** | **Common**

**Stock** | **Additional**

**Capital Invested** | **Treasury Stock** | **Retained Earnings (Accumulated Deficit)** | **Accumulated**

**Other Comprehensive Income (Loss)** | **Total** |
|                                                               | **Shares**                  | **Amount**                  | **Additional**

**Capital Invested** | **Treasury Stock** | **Retained Earnings (Accumulated Deficit)** | **Accumulated**

**Other Comprehensive Income (Loss)** | **Total** |
| Balance at December 31, 2015                                  | 364\.6                      | $4                          | $7,946                                     | $(1,610)           | $3,457                                      | $(831)                                                       | $8,966    |
| Net income (a)                                                | —                           | —                           | —                                          | —                  | 2,234                                       | —                                                            | 2,234     |
| Other comprehensive income                                    | —                           | —                           | —                                          | —                  | —                                           | 2                                                            | 2         |
| Stock\-settled share\-based compensation                      | —                           | —                           | 32                                         | —                  | —                                           | —                                                            | 32        |
| Proceeds from exercise of stock options                       | 0\.3                        | —                           | 6                                          | —                  | —                                           | —                                                            | 6         |
| Repurchases of common stock                                   | (50\.3)                     | —                           | —                                          | (2,607)            | —                                           | —                                                            | (2,607)   |
| Treasury stock retired                                        | —                           | (1)                         | (1,415)                                    | 3,709              | (2,293)                                     | —                                                            | —         |
| Other (a)                                                     | —                           | —                           | —                                          | (3)                | (56)                                        | —                                                            | (59)      |
| Balance at December 31, 2016                                  | 314\.6                      | 3                           | 6,569                                      | (511)              | 3,342                                       | (829)                                                        | 8,574     |
| Net income (a)                                                | —                           | —                           | —                                          | —                  | 2,144                                       | —                                                            | 2,144     |
| Other comprehensive loss                                      | —                           | —                           | —                                          | —                  | —                                           | (200)                                                        | (200)     |
| Stock\-settled share\-based compensation                      | —                           | —                           | 56                                         | —                  | —                                           | —                                                            | 56        |
| Proceeds from exercise of stock options                       | —                           | —                           | 2                                          | —                  | —                                           | —                                                            | 2         |
| Repurchases of common stock                                   | (27\.8)                     | —                           | —                                          | (1,844)            | —                                           | —                                                            | (1,844)   |
| Treasury stock retired                                        | —                           | —                           | (508)                                      | 1,576              | (1,068)                                     | —                                                            | —         |
| Net treasury stock issued for share\-based awards             | 0\.2                        | —                           | (21)                                       | 10                 | (1)                                         | —                                                            | (12)      |
| Excess tax benefits from share\-based awards                  | —                           | —                           | —                                          | —                  | 14                                          | —                                                            | 14        |
| Reclassification of stranded tax effects                      | —                           | —                           | —                                          | —                  | 118                                         | (118)                                                        | —         |
| Balance at December 31, 2017                                  | 287\.0                      | 3                           | 6,098                                      | (769)              | 4,549                                       | (1,147)                                                      | 8,734     |
|  Net income                                                   | —                           | —                           | —                                          | —                  | 2,129                                       | —                                                            | 2,129     |
| Other comprehensive loss                                      | —                           | —                           | —                                          | —                  | —                                           | 338                                                          | 338       |
| Stock\-settled share\-based compensation                      | —                           | —                           | 60                                         | —                  | —                                           | —                                                            | 60        |
| Repurchases of common stock                                   | (17\.5)                     | —                           | —                                          | (1,250)            | —                                           | —                                                            | (1,250)   |
| Net treasury stock issued for share\-based awards             | 0\.4                        | —                           | (38)                                       | 26                 | (4)                                         | —                                                            | (16)      |
| Adoption of accounting standard related to equity investments | —                           | —                           | —                                          | —                  | (6)                                         | 6                                                            | —         |
| Balance at December 31, 2018                                  | 269\.9                      | $3                          | $6,120                                     | $(1,993)           | $6,668                                      | $(803)                                                       | $9,995    |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2014\-09, *Revenue from Contracts with Customers (Topic 606)\.* See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information\.

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements\.

47


Annual Report of Southwest Airlines Co\. for year 2019

(a) The Company’s hedge position can vary significantly at different price levels, including prices at which the Company considers "catastrophic" coverage\. The percentages provided are not indicative of the Company's hedge coverage at every price, but represent the highest level of coverage at a single price\. See Note  10  to the Consolidated Financial Statements for further information\.

As a result of applying hedge accounting in prior periods, the Company has amounts in Accumulated other comprehensive income (loss) ("AOCI") that will be recognized in earnings in future periods when the underlying fuel derivative contracts settle\. The following table displays the Company's estimated fair value of remaining fuel derivative contracts (not considering the impact of the cash collateral provided to or received from counterparties \- see  Note 10  to the Consolidated Financial Statements for further information), as well as the amount of deferred gains/losses in AOCI at  December 31, 2019 , and the expected future periods in which these items are expected to settle and/or be recognized in earnings (in millions):

|             |                                                                                |                                                                                |
| ----------- | -------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |
| **Year**    | **Fair value of fuel**

**derivative contracts**

**at December 31, 2019** | **Amount of losses deferred**

**in AOCI at December 31,**

**2019 (net of tax)** |
| 2020        | $48                                                                                | $(36)                                                                                |
| 2021        | 33                                                                                | (43)                                                                                |
| 2022        | 27                                                                                | (17)                                                                                |
| Beyond 2022 | 2                                                                                | —                                                                                |
| Total       | $110                                                                                | $(96)                                                                                |

 Assuming no changes to the Company's current fuel derivative portfolio, but including all previous hedge activity for fuel derivatives that have not yet settled, and considering only the expected net cash receipts related to hedges that will settle, the Company is providing the below sensitivity table for  first quarter 2020  and full year  2020  jet fuel prices at different crude oil assumptions as of  January 17, 2020 , and for expected premium costs associated with settling contracts each period, respectively\.

|                                                         |                                                                                |                                                                                |                                                                                |                                                                                |
| ------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- |
|                                                         | **Estimated economic fuel price per gallon, including taxes and fuel hedging premiums (e)** | **Estimated economic fuel price per gallon, including taxes and fuel hedging premiums (e)** | **Estimated economic fuel price per gallon, including taxes and fuel hedging premiums (e)** | **Estimated economic fuel price per gallon, including taxes and fuel hedging premiums (e)** |
| **Average Brent Crude Oil**

**price per barrel** | **First Quarter 2020 (c)**                                                                  | **First Quarter 2020 (c)**                                                                  | **Full Year 2020 (d)**                                                                      | **Full Year 2020 (d)**                                                                      |
| $55                                                     | $1\.85 \- $1\.95                                                                            | $1\.85 \- $1\.95                                                                            | $1\.80 \- $1\.90                                                                            | $1\.80 \- $1\.90                                                                            |
| $60                                                     | $1\.95 \- $2\.05                                                                            | $1\.95 \- $2\.05                                                                            | $1\.95 \- $2\.05                                                                            | $1\.95 \- $2\.05                                                                            |
| **Current Market (a)**                                  | **$2\.05 \- $2\.15**                                                                        | **$2\.05 \- $2\.15**                                                                        | **$2\.00 \- $2\.10**                                                                        | **$2\.00 \- $2\.10**                                                                        |
| $70                                                     | $2\.15 \- $2\.25                                                                            | $2\.15 \- $2\.25                                                                            | $2\.20 \- $2\.30                                                                            | $2\.20 \- $2\.30                                                                            |
| $80                                                     | $2\.25 \- $2\.35                                                                            | $2\.25 \- $2\.35                                                                            | $2\.35 \- $2\.45                                                                            | $2\.35 \- $2\.45                                                                            |
| $90                                                     | $2\.35 \- $2\.45                                                                            | $2\.35 \- $2\.45                                                                            | $2\.50 \- $2\.60                                                                            | $2\.50 \- $2\.60                                                                            |
| Estimated fuel hedging premium expense per gallon (b)   | $0\.05                                                                                | $0\.05                                                                                | $0\.04                                                                                | $0\.04                                                                                |

(a) Brent crude oil average market prices as of  January 17, 2020 , were approximately  $64  and  $62  per barrel for  first quarter 2020  and full year  2020 , respectively\.

(b)  Fuel hedging premium expense per gallon is included in the Company's estimated economic fuel price per gallon estimates above\.

(c) Based on the Company's existing fuel derivative contracts and market prices as of  January 17, 2020 ,  first quarter 2020  GAAP and economic fuel costs are estimated to be in the $2\.05 to $2\.15 per gallon range, including fuel hedging premium expense of approximately  $24 million , or  $\.05  per gallon, and an estimated  $\.01  per gallon in favorable cash settlements from fuel derivative contracts\. See Note Regarding Use of Non\-GAAP Financial Measures for additional information\.

(d) Based on the Company's existing fuel derivative contracts and market prices as of  January 17, 2020 , annual  2020  GAAP and economic fuel costs are estimated to be in the $2\.00 to $2\.10 per gallon range, including fuel hedging premium expense of approximately  $97  million, or  $\.04  per gallon, and no cash settlements from fuel derivative contracts, on a per gallon basis\. See Note Regarding Use of Non\-GAAP Financial Measures for additional information\.

45


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

|                                                                   |                                  |                          |                                  |
| ----------------------------------------------------------------- | -------------------------------- | ------------------------ | -------------------------------- |
| **Union**                                                         | **Class or Craft**               | **Employees**  **^(1)^** | **Contract
Amendable Date** |
| TWU                                                               | Stock Clerks                     | 150                      | 2020                             |
| TWU                                                               | Fleet Service Clerks             | 4,050                    | 2019                             |
| TWU                                                               | Dispatchers                      | 70                       | 2025                             |
| Communications Workers of America (CWA)                           | Passenger Service                | 6,300                    | 2026                             |
| **Piedmont:**                                                     |                                  |                          |                                  |
| ALPA                                                              | Pilots                           | 550                      | 2024                             |
| AFA                                                               | Flight Attendants                | 350                      | 2019                             |
| International Brotherhood of Teamsters (IBT)                      | Mechanics                        | 450                      | 2021                             |
| IBT                                                               | Stock Clerks                     | 60                       | 2021                             |
| CWA                                                               | Fleet and Passenger Service      | 6,550                    | 2023                             |
| IBT                                                               | Dispatchers                      | 30                       | 2019                             |
| ALPA                                                              | Flight Crew Training Instructors | 40                       | 2024                             |
| **PSA:**                                                          |                                  |                          |                                  |
| ALPA                                                              | Pilots                           | 1,950                    | 2023                             |
| AFA                                                               | Flight Attendants                | 1,450                    | 2023                             |
| International Association of Machinists & Aerospace Workers (IAM) | Mechanics                        | 700                      | 2022                             |
| TWU                                                               | Dispatchers                      | 60                       | 2022                             |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------ |
| ^(1)^ | Approximate number of active employees represented as of  December 31, 2019 \. |

Joint collective bargaining agreements (JCBAs) have been reached with post\-Merger employee groups, except for contracts with the TWU\-IAM Association which represents the mechanics and related, fleet service, stock clerks, maintenance control technicians and maintenance training instructors whose contracts became amendable in the third quarter of 2018\. Agreements in principle were reached with the TWU\-IAM Association on January 30, 2020 for JCBAs covering all of these workgroups\. Those agreements are subject to membership ratification vote\. Additionally, the post\-Merger JCBAs covering our pilots and flight attendants became amendable in January 2020 and December 2019, respectively\. Negotiations continue for new agreements\.

Among our wholly\-owned regional subsidiaries, the Envoy fleet service clerks, Piedmont flight attendants and Piedmont dispatchers have agreements that are now amendable and are engaged in traditional RLA negotiations\. Envoy is also in negotiations with the union representing its flight attendants, whose contract becomes amendable in 2020\.

For more discussion, see Part I, Item 1A\. Risk Factors – “ Union disputes, employee strikes and other labor\-related disruptions, or our inability to otherwise maintain labor costs at competitive levels may adversely affect our operations and financial performance \.”

Aircraft Fuel

Our operations and financial results are significantly affected by the availability and price of aircraft fuel, which in  2019  was our second largest expense\. Based on our  2020  forecasted mainline and regional fuel consumption, we estimate that a one cent per gallon increase in the price of aircraft fuel would increase our  2020  annual fuel expense by  $47 million \.

The following table shows annual aircraft fuel consumption and costs, including taxes, for our mainline and regional operations for  2019  and  2018  (gallons and aircraft fuel expense in millions)\.

|          |             |                                         |                                      |                                                    |
| -------- | ----------- | --------------------------------------- | ------------------------------------ | -------------------------------------------------- |
| **Year** | **Gallons** | **Average Price**

**per Gallon** | **Aircraft Fuel**

**Expense** | **Percent of Total**

**Operating Expenses** |
| 2019     | 4,537       | $2\.07                                  | $9,395                               | 22\.0%                                             |
| 2018     | 4,447       |  2\.23                                  |  9,896                               | 23\.6%                                             |

10


Annual Report of Southwest Airlines Co\. for year 2018

**TABLE OF CONTENTS**

|                                                                         |                                                                                |                                                                                |
| ----------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ |
|                                                                         | **PART I**                                                                                |                                                                                |
| Item 1\.                                                                | [Business](https://www.example.com#sC5F96C2468025E74AB4681A7D20948E4)                                                                                |
[3](https://www.example.com#sC5F96C2468025E74AB4681A7D20948E4)             |
| Item 1A\.                                                               | [Risk Factors](https://www.example.com#s5344C52FD2DC54B2B32FDF7E5E3D6723)                                                                                |
[21](https://www.example.com#s5344C52FD2DC54B2B32FDF7E5E3D6723)            |
| Item 1B\.                                                               | [Unresolved Staff Comments](https://www.example.com#sC84CD27107B050B698B147A9C37246A2)                                                                                |
[28](https://www.example.com#sC84CD27107B050B698B147A9C37246A2)            |
| Item 2\.                                                                | [Properties](https://www.example.com#s317CA29BDA3C5B048977CC1DE771D505)                                                                                |
[29](https://www.example.com#s317CA29BDA3C5B048977CC1DE771D505)            |
| Item 3\.                                                                | [Legal Proceedings](https://www.example.com#sDEC1C2A28E435DCC9CE1A2C33B478F51)                                                                                |
[30](https://www.example.com#sDEC1C2A28E435DCC9CE1A2C33B478F51)            |
| Item 4\.                                                                | [Mine Safety Disclosures](https://www.example.com#s649B4E9206C85BCF8B9DFD131CF1C36B)                                                                                |
[31](https://www.example.com#s649B4E9206C85BCF8B9DFD131CF1C36B)            |
|                                                                         | **PART II**                                                                                |                                                                                |
| Item 5\.                                                                | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](https://www.example.com#s21FCCC45C117557DB3416E9BDD8E8FB2) |
[34](https://www.example.com#s21FCCC45C117557DB3416E9BDD8E8FB2)            |
| Item 6\.                                                                | [Selected Financial Data](https://www.example.com#s2DB33F0C533E57B5AACB790AAE6CB99A)                                                                                |
[37](https://www.example.com#s2DB33F0C533E57B5AACB790AAE6CB99A)            |
| Item 7\.                                                                | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](https://www.example.com#s46F28C8C2E7A59BB88CBE46DB857D870)                         |
[39](https://www.example.com#s46F28C8C2E7A59BB88CBE46DB857D870)            |
|                                                                         | [Liquidity and Capital Resources](https://www.example.com#s597952F7C1D852E1A54020C263F45163)                                                                               |
[53](https://www.example.com#s597952F7C1D852E1A54020C263F45163)            |
|                                                                         | [Off\-Balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and Commitments](https://www.example.com#sFE636152E166577CA26393AE066115B1)          |
[55](https://www.example.com#sFE636152E166577CA26393AE066115B1)            |
|                                                                         | [Critical Accounting Policies and Estimates](https://www.example.com#sDD884E9767575B57991007E3E7D2B5F9)                                                                    |
[58](https://www.example.com#sDD884E9767575B57991007E3E7D2B5F9)            |
| Item 7A\.                                                               | [Quantitative and Qualitative Disclosures About Market Risk](https://www.example.com#s0AEDD58057D35C3E85A4500561F333C9)                                                    |
[62](https://www.example.com#s0AEDD58057D35C3E85A4500561F333C9)            |
| Item 8\.                                                                | [Financial Statements and Supplementary Data](https://www.example.com#s54E2DDEF0C685B428B3215B8EC9D8C33)                                                                   |
[67](https://www.example.com#s54E2DDEF0C685B428B3215B8EC9D8C33)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Balance Sheet](https://www.example.com#s33B13B8384B75C7384C1C7F26AF5ECE9)                                                            |
[67](https://www.example.com#s33B13B8384B75C7384C1C7F26AF5ECE9)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Statement of Income](https://www.example.com#sB30730CA82D65531B7511E7219A40686)                                                      |
[68](https://www.example.com#sB30730CA82D65531B7511E7219A40686)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Statement of Comprehensive Income](https://www.example.com#sCECB26A4C6195C8A9E62E912314842ED)                                        |
[69](https://www.example.com#sCECB26A4C6195C8A9E62E912314842ED)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Statement of Stockholders’ Equity](https://www.example.com#s81C95B7A4F8F5D23B24834AB00E2364F)                                        |
[70](https://www.example.com#s81C95B7A4F8F5D23B24834AB00E2364F)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Statement of Cash Flows](https://www.example.com#s2171592FCE48538DAE131A2994B8ED42)                                                  |
[71](https://www.example.com#s2171592FCE48538DAE131A2994B8ED42)            |
|                                                                         | [Notes to Consolidated Financial Statements](https://www.example.com#s20874495F97B5009A542A999E2776F58)                                                                    |
[72](https://www.example.com#s20874495F97B5009A542A999E2776F58)            |
| Item 9\.                                                                | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](https://www.example.com#s25422A4A1D655AA0BA5E7941ED9F08CE)                          |
[119](https://www.example.com#s25422A4A1D655AA0BA5E7941ED9F08CE)           |
| Item 9A\.                                                               | [Controls and Procedures](https://www.example.com#sEBEA4EE99E7953C8A862AD6A34208724)                                                                                |
[119](https://www.example.com#sEBEA4EE99E7953C8A862AD6A34208724)           |
| Item 9B\.                                                               | [Other Information](https://www.example.com#sE2BA0BA4B8E352FCA8A1D15F3F4D458C)                                                                                |
[120](https://www.example.com#sE2BA0BA4B8E352FCA8A1D15F3F4D458C)           |
|                                                                         | **PART III**                                                                                |                                                                                |
| Item 10\.                                                               | [Directors, Executive Officers, and Corporate Governance](https://www.example.com#s3E92A4C731D454F7884BD8AAE6D0BC1A)                                                       |
[121](https://www.example.com#s3E92A4C731D454F7884BD8AAE6D0BC1A)           |
| Item 11\.                                                               | [Executive Compensation](https://www.example.com#s81B546ECEB885F0EBEF80627AEA85D1B)                                                                                |
[121](https://www.example.com#s81B546ECEB885F0EBEF80627AEA85D1B)           |
| Item 12\.                                                               | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](https://www.example.com#sA9EA5FDDF0D35C8D848F7D4510E33935)                |
[121](https://www.example.com#sA9EA5FDDF0D35C8D848F7D4510E33935)           |
| Item 13\.                                                               | [Certain Relationships and Related Transactions, and Director Independence](https://www.example.com#s9AD40753E70A57AEB75B3FE1183616B3)                                     |
[122](https://www.example.com#s9AD40753E70A57AEB75B3FE1183616B3)           |
| Item 14\.                                                               | [Principal Accounting Fees and Services](https://www.example.com#s972182E576BF50C99ECD2CF4004CB5B9)                                                                        |
[122](https://www.example.com#s972182E576BF50C99ECD2CF4004CB5B9)           |
|                                                                         | **PART IV**                                                                                |                                                                                |
| Item 15\.                                                               | [Exhibits and Financial Statement Schedules](https://www.example.com#sBE2F49BC55F859D491FA8E97E22996A8)                                                                    |
[123](https://www.example.com#sBE2F49BC55F859D491FA8E97E22996A8)           |
| Item 16\.                                                               | [Form 10\-K Summary](https://www.example.com#s8F58B16784EB54C58EF8AA1721B6953D)                                                                                | [128](https://www.example.com#s8F58B16784EB54C58EF8AA1721B6953D)

 |
| [Signatures](https://www.example.com#sDCD3099FDB58573A857F2419DD24BF88) | [Signatures](https://www.example.com#sDCD3099FDB58573A857F2419DD24BF88)                                                                                |
[129](https://www.example.com#sDCD3099FDB58573A857F2419DD24BF88)           |

2