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

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

Because we acquire a large amount of our jet fuel from Monroe, the disruption or interruption of production at the refinery could have an impact on our ability to acquire jet fuel needed for our operations\. Disruptions or interruptions of production at the refinery could result from various sources including a major accident or mechanical failure, interruption of supply or delivery of crude oil, work stoppages relating to organized labor issues, or damage from severe weather or other natural or man\-made disasters, including acts of terrorism\. If the refinery were to experience an interruption in operations, disruptions in fuel supplies could have negative effects on our results of operations and financial condition\. In addition, the financial benefits from the operation of the refinery could be materially adversely affected (to the extent not recoverable through insurance) because of lost production and repair costs\.

If Monroe's cost of producing non\-jet fuel products exceeds the value it receives for those products, the financial benefits we expect to achieve through the ownership of the refinery and our consolidated results of operations could be materially adversely affected\.

Our significant investments in airlines in other parts of the world and the commercial relationships that we have with those carriers may not produce the returns or results we expect\.

An important part of our strategy to expand our global network has been to make significant investments in airlines in other parts of the world and expand our commercial relationships with these carriers\. We expect to continue exploring ways to expand our relationships with other carriers as part of our global business strategy\. These investments and relationships involve significant challenges and risks, including that we may not realize a satisfactory return on our investment, that they may distract management from our operations or that they may not generate the expected revenue synergies\. These events could have a material adverse effect on our operating results or financial condition\.

In addition, we are dependent on these other carriers for significant aspects of our network in the regions in which they operate\. While we work closely with these carriers, we do not have control over their operations or business methods\. To the extent that the operations of any of these carriers are disrupted over an extended period of time or their actions subject us to the consequences of failure to comply with laws and regulations, our results of operations may be adversely affected\. We also may be subject to consequences from any improper behavior of joint venture partners, including for failure to comply with anti\-corruption laws such as the United States Foreign Corrupt Practices Act\.

We are at risk of losses and adverse publicity stemming from a serious accident involving our aircraft or aircraft of our airline partners\.

An aircraft crash or other serious accident could expose us to significant liability\. Although we believe that our insurance coverage is appropriate, we may be forced to bear substantial losses from an accident in the event that the coverage was not sufficient\.

In addition, any accident involving an aircraft that we operate or an aircraft that is operated by an airline that is one of our regional carriers or codeshare, alliance or joint venture partners could create a negative public perception about safety, which could harm our reputation, resulting in air travelers being reluctant to fly on our aircraft and therefore harm our business\.

Breaches or lapses in the security of our technology systems and the data we store could compromise passenger or employee information and expose us to liability, possibly having a material adverse effect on our business\.

As a regular part of our ordinary business operations, we collect and store sensitive data, including personal information of our passengers and employees and information of our business partners\. The secure operation of the networks and systems on which this type of information is stored, processed and maintained is critical to our business operations and strategy\.

 13


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

Income Tax Rate Reconciliation

Income tax expense reconciles to the amount computed by applying the 2019 U\.S\. federal rate of 21% to income before income tax and for deferred taxes as follows (in millions):

|                          |                          |                          |         |  |  |  |         |  |  |  |         |
|:------------------------ |:------------------------ |:------------------------ | -------:|:- |:- |:- | -------:|:- |:- |:- | -------:|
|                          |                          |                          |    2019 |  |  |  |    2018 |  |  |  |    2017 |
| Income before income tax | Income before income tax | Income before income tax | $ 1,016 |  |  |  |   $ 585 |  |  |  | $ 1,159 |
| Expected tax expense     | Expected tax expense     | Expected tax expense     |     213 |  |  |  |     123 |  |  |  |     406 |
| Nondeductible expenses   | Nondeductible expenses   | Nondeductible expenses   |       9 |  |  |  |       9 |  |  |  |       5 |
| State income taxes       | State income taxes       | State income taxes       |      36 |  |  |  |      21 |  |  |  |      28 |
| State income sourcing    | State income sourcing    | State income sourcing    |       1 |  |  |  |       — |  |  |  |       9 |
| Tax law changes          | Tax law changes          | Tax law changes          |     (9) |  |  |  |     (7) |  |  |  |   (237) |
| Other \- net             | Other \- net             | Other \- net             |     (3) |  |  |  |       2 |  |  |  |    (12) |
| Actual tax expense       | Actual tax expense       | Actual tax expense       |   $ 247 |  |  |  |   $ 148 |  |  |  |   $ 199 |
| Effective tax rate       | Effective tax rate       | Effective tax rate       | 24\.3 % |  |  |  | 25\.3 % |  |  |  | 17\.2 % |

As a result of the ASC 606 full retrospective adoption, 2017 tax expense increased by $26 million\.

As a result of tax changes signed into law during 2017, with final regulations issued in 2019, the Company recorded a deferred tax benefit of $9 million in the current year\.

In 2017, adjustments were made to the Company's position on income sourcing in various states due to updated guidance from state taxing authorities\. The impact of this guidance is reflected as an increase in income tax expense of approximately $9 million for the year ended December 31, 2017\.

Uncertain Tax Positions

The Company has identified its federal tax return and its state tax returns in Alaska, Oregon and California as “major” tax jurisdictions\. A summary of the Company's jurisdictions and the periods that are subject to examination are as follows:

|              |              |              |              |              |              |
|:------------ |:------------ |:------------ |:------------:|:------------:|:------------:|
| Jurisdiction | Jurisdiction | Jurisdiction |    Period    |    Period    |    Period    |
| Federal      | Federal      | Federal      | 2007 to 2018 | 2007 to 2018 | 2007 to 2018 |
| Alaska       | Alaska       | Alaska       | 2015 to 2018 | 2015 to 2018 | 2015 to 2018 |
| California   | California   | California   | 2007 to 2018 | 2007 to 2018 | 2007 to 2018 |
| Oregon       | Oregon       | Oregon       | 2003 to 2018 | 2003 to 2018 | 2003 to 2018 |

Certain tax years are open to the extent of net operating loss carryforwards\.

Changes in the liability for gross unrecognized tax benefits during 2019, 2018 and 2017 are as follows (in millions):

|                                                 |                                                 |                                                 |      |  |  |  |      |  |  |  |      |
|:----------------------------------------------- |:----------------------------------------------- |:----------------------------------------------- | ----:|:- |:- |:- | ----:|:- |:- |:- | ----:|
|                                                 |                                                 |                                                 | 2019 |  |  |  | 2018 |  |  |  | 2017 |
| Balance at January 1,                           | Balance at January 1,                           | Balance at January 1,                           | $ 40 |  |  |  | $ 43 |  |  |  | $ 40 |
| Additions related to prior years                | Additions related to prior years                | Additions related to prior years                |    — |  |  |  |    1 |  |  |  |   16 |
| Releases related to prior years                 | Releases related to prior years                 | Releases related to prior years                 |  (1) |  |  |  |  (4) |  |  |  |  (2) |
| Additions related to current year activity      | Additions related to current year activity      | Additions related to current year activity      |    2 |  |  |  |    2 |  |  |  |    2 |
| Releases due to settlements                     | Releases due to settlements                     | Releases due to settlements                     |    — |  |  |  |  (1) |  |  |  | (11) |
| Releases due to lapse of statute of limitations | Releases due to lapse of statute of limitations | Releases due to lapse of statute of limitations |  (1) |  |  |  |  (1) |  |  |  |  (2) |
| Balance at December 31,                         | Balance at December 31,                         | Balance at December 31,                         | $ 40 |  |  |  | $ 40 |  |  |  | $ 43 |

As of December 31, 2019, the Company had $40 million of accrued tax contingencies, of which $34 million, if fully recognized, would decrease the effective tax rate\. As of December 31, 2019, 2018 and 2017, the Company has accrued interest and penalties, net of federal income tax benefit, of $7 million, $6 million, and $5 million\. In 2019, 2018, and 2017, the

72


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

**2016** **COMPARED WITH** **2015**

Our consolidated net income for 2016 was $814 million, or $6\.54 per diluted share, compared to net income of $848 million, or $6\.56 per diluted share, in 2015\. Our financial results include results of Virgin America for the period from December 14, 2016 through December 31, 2016 and the impact of purchase accounting as of December 14, 2016\. Refer to the "Critical Accounting Estimates" section for further information regarding purchase accounting\.

Excluding the impact of mark\-to\-market fuel hedge adjustments and special items, our adjusted consolidated net income for 2016 was $911 million, or $7\.32 per diluted share, compared to an adjusted consolidated net income of $842 million, or $6\.51 per share, in 2015\. The following tables reconcile our adjusted net income and earnings per diluted share (EPS) during the full year 2016 and 2015 to amounts as reported in accordance with GAAP\.

|                                                     |                                      |                                      |                                      |                                      |
| --------------------------------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                                                     | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|                                                     | **2016**                             | **2016**                             | **2015**                             | **2015**                             |
| ***(in millions, except per\-share amounts)***      | **Dollars**                          | **Diluted EPS**                      | **Dollars**                          | **Diluted EPS**                      |
| Reported GAAP net income and diluted EPS            | **$814**                             | **$6\.54**                           | $848                                 | $6\.56                               |
| Mark\-to\-market fuel hedge (benefit) expense       | **(13)**                             | **(0\.11)**                          | —                                    | —                                    |
| Special items—merger\-related costs and other ^(a)^ | **117**                              | **0\.94**                            | 32                                   | 0\.25                                |
| Income tax effect of special items ^(b)^            | **(24)**                             | **(0\.19)**                          | (12)                                 | (0\.10)                              |
| Special income tax (benefit) expense ^(c)^          | **17**                               | **0\.14**                            | (26)                                 | (0\.20)                              |
| Non\-GAAP adjusted net income and diluted EPS       | **$911**                             | **$7\.32**                           | $842                                 | $6\.51                               |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------- |
| (a) | Refer to Note 10 to the consolidated financial statement for the description of special items\. |

|     |                                                                                |
| --- | ---------------------------------------------------------------------------------------------------------------------------------- |
| (b) | Certain merger\-related costs are non\-deductible for tax purposes, resulting in a smaller income tax effect for adjusting items\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------- |
| (c) | Special tax benefit represents the discrete impacts of adjustments to our position on income sourcing in various states\. |

CASM is summarized below:

|                                                     |                                      |                                      |                                      |
| --------------------------------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                                                     | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|                                                     | **2016**                             | **2015**                             | **% Change**                         |
| **Consolidated:**                                   |                                      |                                      |                                      |
| Total operating expenses per ASM (CASM)             | **10\.38¢**                          | 10\.77¢                              | (3\.6)%                              |
| Less the following components:                      |                                      |                                      |                                      |
| Aircraft fuel, including hedging gains and losses   | **1\.88**                            | 2\.39                                | (21\.3)%                             |
| Special items—merger\-related costs and other ^(a)^ | **0\.27**                            | 0\.08                                | 237\.5 %                             |
| CASM, excluding fuel and special items              | **8\.23¢**                           | 8\.30¢                               | (0\.8)%                              |
| **Mainline:**                                       |                                      |                                      |                                      |
| Total operating expenses per ASM (CASM)             | **9\.39¢**                           | 9\.77¢                               | (3\.9)%                              |
| Less the following components:                      |                                      |                                      |                                      |
| Aircraft fuel, including hedging gains and losses   | **1\.79**                            | 2\.29                                | (21\.8)%                             |
| Special items—merger\-related costs and other ^(a)^ | **0\.30**                            | 0\.09                                | 233\.3 %                             |
| CASM, excluding fuel and special items              | **7\.30¢**                           | 7\.39¢                               | (1\.2)%                              |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------- |
| (a) | Refer to Note 11 to the consolidated financial statement for the description of special items\. |

 47


Annual Report of Southwest Airlines Co\. for year 2019

As of  December 31, 2019 , the Company had firm deliveries and options for Boeing 737 MAX 7 and 737 MAX 8 aircraft as follows:

|      |                            |                            |                        |                        |                       |     |           |     |
| ---- | -------------------------- | -------------------------- | ---------------------- | ---------------------- | --------------------- | --- | --------- | --- |
|      | **The Boeing Company**     | **The Boeing Company**     | **The Boeing Company** | **The Boeing Company** |                       |     |           |     |
|      | **MAX 7
Firm Orders** | **MAX 8
Firm Orders** |                        | **MAX 8 Options**      | **Additional MAX 8s** |     | **Total** |     |
| 2020 | 7                          | 55                         |                        | —                      | 16                    |     | 78        | (a) |
| 2021 | —                          | 45                         |                        | —                      | —                     |     | 45        | (b) |
| 2022 | —                          | 27                         |                        | 14                     | —                     |     | 41        |     |
| 2023 | 12                         | 22                         |                        | 23                     | —                     |     | 57        |     |
| 2024 | 11                         | 30                         |                        | 23                     | —                     |     | 64        |     |
| 2025 | —                          | 40                         |                        | 36                     | —                     |     | 76        |     |
| 2026 | —                          | —                          |                        | 19                     | —                     |     | 19        |     |
|      | 30                         | 219                        | (c)                    | 115                    | 16                    | (d) | 380       |     |

(a) 2020 Contractual Detail

|                             |                            |                            |                       |           |
| --------------------------- | -------------------------- | -------------------------- | --------------------- | --------- |
|                             | **The Boeing Company**     | **The Boeing Company**     |                       |           |
|                             | **MAX 7
Firm Orders** | **MAX 8
Firm Orders** | **Additional MAX 8s** | **Total** |
| 2019 Contractual Deliveries | 7                          | 20                         | 13                    | 40        |
| 2020 Contractual Deliveries | —                          | 35                         | 3                     | 38        |
| 2020 Contractual Total      | 7                          | 55                         | 16                    | 78        |

2020 total contractual deliveries include 40 contractual aircraft that the Company expected to be delivered in 2019, but were not received due to the MAX groundings\.

(b) Includes one contractual aircraft delivery that shifted from 2019 to 2021\.

(c) The Company has flexibility to substitute 737 MAX 7 in lieu of 737 MAX 8 firm orders, upon written advance notification as stated in the contract\.

(d) To be acquired in leases from various third parties\.

Ground Facilities and Services

Southwest either leases or pays a usage fee for terminal passenger service facilities at each of the airports it serves, to which various leasehold improvements have been made\. The Company leases the land and/or structures on a long\-term basis for its aircraft maintenance centers (located at Dallas Love Field, Houston Hobby, Phoenix Sky Harbor, Chicago Midway, Hartsfield\-Jackson Atlanta International Airport, and Orlando International Airport) and its main corporate headquarters building, also located near Dallas Love Field\. The Company also leases a warehouse and engine repair facility in Atlanta\. In 2018, the Company announced its intent to build a new aircraft maintenance facility, expected to be completed in 2022, at Baltimore\-Washington International Airport\. In 2019, the Company announced its intent to build a new aircraft maintenance facility, scheduled to be completed by the end of 2020, at Denver International Airport\.

The Company has commitments associated with various airport improvement projects, including ongoing construction at Los Angeles International Airport\. These projects include the construction of new facilities and the rebuilding or modernization of existing facilities\. Additional information regarding these projects is provided below under "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in Note 4 to the Consolidated Financial Statements\.

30


Annual Report of Southwest Airlines Co\. for year 2017

United States and Cuba as a result of changes in diplomatic relations between the two governments, as well as travel and trade restrictions implemented by the U\.S\. government in 2017\. There are also capacity limitations at certain airports in Mexico and the Caribbean, which could impact future service levels\. In general, bilateral agreements between the United States and foreign countries the Company currently serves, or may serve in the future, may be subject to renegotiation or reinterpretation from time to time\. While the U\.S\. government has negotiated "open skies" agreements with many countries, which allow for unrestricted access between the United States and respective foreign destinations, agreements with other countries may restrict the Company's entry and/or growth opportunities\.

The CBP is the federal agency of the U\.S\. Department of Homeland Security charged with facilitating international trade, collecting import duties, and enforcing U\.S\. regulations with respect to trade, customs, and immigration\. As the Company expands its international flight offerings, CBP and its requirements and resources will also become increasingly important considerations to the Company\. For instance, with the exception of flights from a small number of foreign "preclearance" locations, arriving international flights may only land at CBP\-designated airports, and CBP officers must be present and in sufficient quantities at those airports to effectively process and inspect arriving international passengers and cargo\. Thus, CBP personnel and CBP\-mandated procedures can affect the Company's operations, costs, and Customer experience\. The Company has made and expects to continue to make significant investments in facilities, equipment, and technologies at certain airports in order to improve the Customer experience and to assist CBP with its inspection and processing duties; however, the Company is not able to predict the impact, if any, that various CBP measures or the lack of CBP resources will have on Company revenues and costs, either in the short\-term or the long\-term\.

**Insurance**

The Company carries insurance of types customary in the airline industry and in amounts the Company deems adequate to protect the Company and its property and to comply both with federal regulations and certain of the Company's credit and lease agreements\. The policies principally provide coverage for public and passenger liability, property damage, cargo and baggage liability, loss or damage to aircraft, engines, and spare parts, and workers’ compensation\. In addition, the Company carries a cyber\-security insurance policy with regards to data protection and business interruption associated with both security breaches from malicious parties and from certain system failures\.

Although the Company has been able to purchase aviation, property, liability, and professional insurance via the commercial insurance marketplace, available commercial insurance could be more expensive in the future and/or have material differences in coverage than insurance that has historically been provided and may not be adequate to protect the Company's risk of loss from future events, including acts of terrorism\. Further, available cyber\-security insurance with regards to data protection and business interruption could be more expensive in the future and/or have material differences in coverage than insurance that has historically been provided and may not be adequate to protect the Company's risk of loss\.

**Competition**

Competition within the airline industry is intense and highly unpredictable, and Southwest currently competes with other airlines on virtually all of its scheduled routes\. As a result of moderately improved economic conditions and an increased focus by airlines on costs, the airline industry has become increasingly competitive in recent years with a healthier financial condition and improved profitability\.

Key competitive factors within the airline industry include (i) pricing and cost structure; (ii) routes, frequent flyer programs, and schedules; and (iii) customer service, operational reliability, and amenities\. Southwest also competes for customers with other forms of transportation, as well as alternatives to travel\. In recent years, the majority of domestic airline service has been provided by Southwest and the other largest major U\.S\. airlines, including American Airlines, Delta Air Lines, and United Airlines\. The DOT defines major U\.S\. airlines as those airlines with annual revenues of at least $1 billion; there are currently 14 passenger airlines offering scheduled service, including Southwest, that meet this standard\.

**Pricing and Cost Structure**

Pricing is a significant competitive factor in the airline industry, and the availability of fare information on the Internet allows travelers to easily compare fares and identify competitor promotions and discounts\. During 2017, the Company experienced additional competitive challenges associated with industry changes from both a fare level and product

17


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

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

launched investigations or claimed rulemaking authority to regulate commercial agreements among carriers or between carriers and third parties in a wide variety of contexts\.

Airlines are also regulated by the Federal Aviation Administration (the “FAA”), an agency within the DOT, primarily in the areas of flight safety, air carrier operations and aircraft maintenance and airworthiness\. The FAA issues air carrier operating certificates and aircraft airworthiness certificates, prescribes maintenance procedures, oversees airport operations, and regulates pilot and other employee training\. From time to time, the FAA issues directives that require air carriers to inspect or modify aircraft and other equipment, potentially causing the Company to incur substantial, unplanned expenses\. The airline industry is also subject to numerous other federal laws and regulations\. The U\.S\. Department of Homeland Security (“DHS”) has jurisdiction over virtually every aspect of civil aviation security\. The Antitrust Division of the U\.S\. Department of Justice (“DOJ”) has jurisdiction over certain airline competition matters\. The U\.S\. Postal Service has authority over certain aspects of the transportation of mail by airlines\. Labor relations in the airline industry are generally governed by the Railway Labor Act (“RLA”), a federal statute\. The Company is also subject to investigation inquiries by the DOT, FAA, DOJ, DHS, the U\.S\. Food and Drug Administration (“FDA”), the U\.S\. Department of Agriculture (“USDA”) and other U\.S\. and international regulatory bodies\.

*Airport Access\.* Access to landing and take\-off rights, or “slots,” at several major U\.S\. airports served by the Company are, or recently have been, subject to government regulation\. Federally\-mandated domestic slot restrictions that limit operations and regulate capacity currently apply at three airports: Reagan National Airport in Washington, D\.C\. (“Reagan National”), John F\. Kennedy International Airport and LaGuardia Airport in the New York City metropolitan region (“LaGuardia”)\. Of these three airports, United currently operates at two: Reagan National and LaGuardia\. Additional restrictions on takeoff and landing slots at these and other airports may be implemented in the future and could affect the Company’s rights of ownership and transfer as well as its operations\.

*Legislation*\. The airline industry is subject to legislative activity that may have an impact on operations and costs\. In 2018, the U\.S\. Congress will continue to consider legislation to reauthorize the FAA, which encompasses all significant aviation tax and policy\-related issues\. As with previous reauthorization legislation, the U\.S\. Congress may consider a range of policy changes that could impact operations and costs\. Finally, aviation security continues to be the subject of legislative and regulatory action, requiring changes to the Company’s security processes, potentially increasing the cost of its security procedures and affecting its operations\.

*Catering Operations*\. The Company owns and operates catering kitchens at airports in Denver, Cleveland, Newark, Houston, and Honolulu, which prepare ready\-to\-eat food for United flights, as well as other domestic and international airlines\. In addition, the Cleveland flight kitchen produces a small volume of food products for retail sale\. These operations are subject to regulation by the FDA and the USDA, as well as other regulatory agencies\. The FDA recently began implementing the Federal Food Safety Modernization Act which requires all food manufacturers to implement more stringent preventive controls\. As a result, airline catering operations have recently become the focus of enhanced scrutiny by the FDA with inspections and greater enforcement\.

***International Regulation***

International air transportation is subject to extensive government regulation\. In connection with the Company’s international services, the Company is regulated by both the U\.S\. government and the governments of the foreign countries the Company serves\. In addition, the availability of international routes to U\.S\. carriers is regulated by aviation agreements between the U\.S\. and foreign governments, and in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign governments\.

*Legislation\.* Foreign countries are increasingly enacting passenger protection laws, rules and regulations that meet or exceed U\.S\. requirements\. In cases where this activity exceeds U\.S\. requirements, additional burden and liability may be placed on the Company\. Certain countries have regulations requiring passenger compensation and/or enforcement penalties from the Company in addition to changes in operating procedures due to canceled and delayed flights\.

7


Annual Report of Southwest Airlines Co\. for year 2018

adequate food and potable drinking water no later than two hours after the aircraft leaves the gate (in the case of departure) or touches down (in the case of arrival) if the aircraft remains on the tarmac, unless the pilot\-in\-command determines that safety or security considerations preclude such service; and (iii) an assurance of operable lavatories, as well as adequate medical attention, if needed\. Air carriers are required to publish their contingency plans on their websites\.

The Passenger Protection Rules also subject airlines to potential DOT enforcement action for unfair and deceptive practices in the event of chronically delayed domestic flights (i\.e\., domestic flights that operate at least ten times a month and arrive more than 30 minutes late more than 50 percent of the time during that month)\. In addition, airlines are required to (i) display ontime performance on their websites; (ii) adopt customer service plans, publish those plans on their website, and audit their own compliance with their plans; (iii) designate an employee to monitor the performance of their flights; (iv) provide information to passengers on how to file complaints; and (v) respond in a timely and substantive fashion to consumer complaints\.

The Passenger Protection Rules also require airlines to (i) pay up to four times the passenger's one\-way fare to their final destination that day in compensation to each passenger denied boarding involuntarily from an oversold flight; (ii) refund any checked bag fee for permanently lost luggage; (iii) prominently disclose all potential fees for optional ancillary services on their websites; and (iv) refund passenger fees paid for ancillary services if a flight cancels or oversells and a passenger is unable to take advantage of such services\. The FAA Reauthorization Act of 2018, described below, directs the DOT to revise regulations to clarify there is no maximum level of compensation for involuntary denied boarding as a result of an oversold flight\.

The Passenger Protection Rules also require that (i) advertised fares include all government\-mandated taxes and fees; (ii) passengers be allowed to either hold a reservation for up to 24 hours without making a payment or cancel a paid reservation without penalty for 24 hours after the reservation is made, as long as the reservation is made at least seven days in advance of travel; (iii) fares may not increase after purchase; (iv) baggage fees must be disclosed to thepassenger at the time of booking; (v) the same baggage allowances and fees must apply throughout a passenger’s trip; (vi) baggage fees must be disclosed on e\-ticket confirmations; and (vii) passengers must be promptly notified in the event of delays of more than 30 minutes or if there is a cancellation or diversion of their flight\.

The DOT has expressed its intent to aggressively investigate alleged violations of its consumer protection rules\. Airlines that violate any DOT regulation are subject to potential fines of up to $33,333 per occurrence\.

The Company is also monitoring other potential rulemakings that could impact its business\. The DOT is preparing a proposed rule for the purpose of improving accessibility of lavatories on single\-aisle aircraft and of in\-flight entertainment\. The proposed rule may require both short\-term and long\-term measures be taken to fully address the challenges persons with mobility impairments face when traveling on single\-aisle aircraft, including the eventual requirement that accessible lavatories be available for individuals who use wheelchairs\. The future proposed rule is also expected to address the improvement of accessibility of in\-flight entertainment by requiring certain movies and shows displayed on such aircraft to be captioned to provide access to deaf and hard of hearing passengers\. In addition, audio described entertainment would be available to enable people who are blind to listen to the visual narration of movies and shows\.

The DOT is also contemplating a proposed rule to consider, among other things, (i) whether carriers should be required to supply in\-flight medical oxygen for a fee to passengers who require it to access air transportation; and (ii) whether to broaden the scope of passengers with disabilities who must be afforded seats with extra leg room, and whether carriers should be required to provide seating accommodations with extra leg room in all classes of service\.

The FAA Reauthorization Act of 2018 was passed by Congress on October 3, 2018, and signed into law on October 5, 2018 (the "Reauthorization Act")\. The Reauthorization Act includes various provisions requiring additional potential DOT rulemaking\. For example:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | the DOT has been directed to begin a rulemaking to re\-define permissible "service animals" on commercial aircraft, including considering whether to adopt the same definition of "service animal" contained in the Department of Justice rules implementing the Americans with Disabilities Act, in order to reduce the likelihood of passengers falsely claiming that their pets are service animals; |

11


Annual Report of Southwest Airlines Co\. for year 2018

***Contingencies***

The Company is from time to time subject to various legal proceedings and claims arising in the ordinary course of business, including, but not limited to, examinations by the Internal Revenue Service ("IRS")\. The Company's management does not expect that the outcome of any of its currently ongoing legal proceedings or the outcome of any adjustments presented by the IRS, individually or collectively, will have a material adverse effect on the Company's financial condition, results of operations, or cash flow\.

**5****\. REVENUE**

**Passenger Revenues**

The Company’s contracts with its Customers primarily consist of its tickets sold, which are initially deferred as Air traffic liability\. Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided\.

Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow\. The following table provides the components of Passenger revenue recognized for the years ended December 31, 2018, 2017, and 2016:

|                                         |                             |                             |                             |
| --------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                         | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
| **(in millions)**                       | **2018**                    | **2017**                    | **2016**                    |
|                                         |                             | **As Recast**               | **As Recast**               |
| Passenger non\-loyalty                  | $17,506                     | $16,934                     | $16,534                     |
| Passenger loyalty \- air transportation | 2,307                       | 2,263                       | 1,997                       |
| Passenger ancillary sold separately     | 642                         | 566                         | 537                         |
|  **Total passenger revenues**           | $20,455                     | $19,763                     | $19,068                     |

Passenger non\-loyalty includes all revenues recognized from Passengers related to flights paid for primarily with cash or credit card\. All Customers purchasing a ticket on Southwest Airlines are generally able to check up to two bags at no extra charge (with certain exceptions as stated in the Company's published Contract of Carriage), and the Company also does not charge a fee for a Customer to make a change to their flight after initial purchase, although fare differences may apply\. Passenger loyalty \- air transportation primarily consists of the revenue recognized associated with award flights taken by loyalty program members upon redemption of loyalty points\. Passenger ancillary sold separately includes any revenue recognized associated with ancillary fees charged separately, such as in\-flight purchases, EarlyBird Check\-In^®^, and Upgraded Boarding\.

Air traffic liability primarily represents tickets sold for future travel dates, funds that are past flight date and remain unused, but are expected to be used in the future, and the Company’s liability for loyalty benefits that are expected to be redeemed in the future\. The majority of the Company’s tickets sold are nonrefundable\. Southwest has a No Show policy that applies to fares that are not canceled or changed by a Customer at least ten minutes prior to a flight's scheduled departure\. Refundable tickets that are sold but not flown on the travel date and canceled in accordance with the No Show policy can also be reused for another flight, up to a year from the date of sale\. A small percentage of tickets (or partial tickets) expire unused\. The Company estimates the amount of tickets that expire unused and recognizes such amounts in Passenger revenue once the scheduled flight date has lapsed in proportion to the pattern of flights taken by the Customer\. Based on the Company's revenue recognition policy, revenue is recorded at the flight date for a Customer who does not change his/her itinerary and loses his/her funds as the Company has then fulfilled its performance obligation\. Amounts collected from passengers for ancillary services are also recognized when the service is provided, which is typically the flight date\.

86


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

In particular, under the Energy Independence and Security Act of 2007, the EPA has adopted RFS that mandate the blending of renewable fuels into Transportation Fuels\. RINs are assigned to renewable fuels produced or imported into the U\.S\. that are blended into Transportation Fuels to demonstrate compliance with this obligation\. A refinery may meet its obligation under RFS by blending the necessary volumes of renewable fuels with Transportation Fuels or by purchasing RINs in the open market or through a combination of blending and purchasing RINs\.

Because Monroe blends only a small amount of renewable fuels, it must purchase the majority of its RINs requirement in the secondary market or obtain a waiver from the EPA\. As a result, Monroe is exposed to the market price of RINs\. Market prices for RINs have been volatile, marked by periods of sharp increases and decreases\. We cannot predict the future prices of RINs\. Purchasing RINs at elevated prices could have a material impact on our results of operations and cash flows\.

Existing laws or regulations could change, and the minimum volumes of renewable fuels that must be blended with refined petroleum products may increase\. Increases in the volume of renewable fuels that must be blended into Monroe's products could limit the refinery's production if sufficient numbers of RINs are not available for purchase or relief from this requirement is not obtained, which could have an adverse effect on our consolidated financial results\.

If we lose senior management and other key employees and they are not replaced by individuals with comparable skills, our operating results could be adversely affected\.

We are dependent on the experience and industry knowledge of our officers and other key employees to design and execute our business plans\. If we experience a substantial turnover in our leadership and other key employees, and these persons are not replaced by individuals with comparable skills, our performance could be materially adversely impacted\. Furthermore, we may be unable to attract and retain additional qualified executives as needed in the future\.

Our reputation and brand could be damaged if we are exposed to significant adverse publicity through social media\.

We operate in a highly visible, public environment with significant exposure to social media\. Adverse publicity, whether justified or not, can rapidly spread through social or digital media\. In particular, passengers can use social media to provide feedback about their interaction with us in a manner that can be quickly and broadly disseminated\. To the extent we are unable to respond timely and appropriately to adverse publicity, our brand and reputation may be damaged\. Significant damage to our overall reputation and brand image could have a negative impact on our financial results\.

 16


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

AMERICAN AIRLINES, INC\.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

|                                    |                             |                             |                             |
| ---------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                    | **2019**                    | **2018**                    | **2017**                    |
| **Operating revenues:**            |                             |                             |                             |
| Passenger                          | $42,010                     | $40,676                     | $39,131                     |
| Cargo                              | 863                         | 1,013                       | 890                         |
| Other                              | 2,888                       | 2,841                       | 2,589                       |
| Total operating revenues           | 45,761                      | 44,530                      | 42,610                      |
| **Operating expenses:**            |                             |                             |                             |
| Aircraft fuel and related taxes    | 7,526                       | 8,053                       | 6,128                       |
| Salaries, wages and benefits       | 12,600                      | 12,240                      | 11,942                      |
| Regional expenses                  | 7,518                       | 7,064                       | 6,572                       |
| Maintenance, materials and repairs | 2,380                       | 2,050                       | 1,959                       |
| Other rent and landing fees        | 2,055                       | 1,900                       | 1,806                       |
| Aircraft rent                      | 1,326                       | 1,264                       | 1,197                       |
| Selling expenses                   | 1,602                       | 1,520                       | 1,477                       |
| Depreciation and amortization      | 1,982                       | 1,839                       | 1,702                       |
| Special items, net                 | 635                         | 787                         | 712                         |
| Other                              | 5,090                       | 5,090                       | 4,910                       |
| Total operating expenses           | 42,714                      | 41,807                      | 38,405                      |
| **Operating income**               | 3,047                       | 2,723                       | 4,205                       |
| **Nonoperating income (expense):** |                             |                             |                             |
| Interest income                    | 515                         | 330                         | 215                         |
| Interest expense, net              | (1,109

)             | (1,028

)             | (988

)               |
| Other income, net                  | 152                         | 167                         | 123                         |
| Total nonoperating expense, net    | (442

)               | (531

)               | (650

)               |
| **Income before income taxes**     | 2,605                       | 2,192                       | 3,555                       |
| Income tax provision               | 633                         | 534                         | 2,270                       |
| **Net income**                     | $1,972                      | $1,658                      | $1,285                      |

See accompanying notes to consolidated financial statements\.

117


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

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

**UNITED CONTINENTAL HOLDINGS, INC\.**

**UNITED AIRLINES, INC\.**

 **COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Overview**

United Continental Holdings, Inc\. (together with its consolidated subsidiaries, “UAL” or the “Company”) is a holding company and its principal, wholly\-owned subsidiary is United Airlines, Inc\. (together with its consolidated subsidiaries, “United”)\. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted\. United’s operating revenues and operating expenses comprise nearly 100% of UAL’s revenues and operating expenses\. In addition, United comprises approximately the entire balance of UAL’s assets, liabilities and operating cash flows\. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained\. We sometimes use the words “we,” “our,” “us,” and the “Company” in this report for disclosures that relate to all of UAL and United\.

**NOTE 1 \- SIGNIFICANT ACCOUNTING POLICIES**

|      |                                                                                |
| ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| (a)  | **Use of Estimates—**The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes\. Actual results could differ from those estimates\. |

|      |                                                                                |
| ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (b)  | **Revenue Recognition—**The Company records passenger ticket sales and tickets sold by other airlines for use on United as passenger revenue when the transportation is provided or upon estimated breakage\. The value of unused passenger tickets is included in current liabilities as Advance ticket sales\. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines\. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate\. When necessary, the Company records a reserve against its interline billings and payables if historical experience indicates that these amounts are different\.  Non\-refundable tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date\. Basic Economy tickets cannot be extended and refunds are not allowed except for ticket cancellations that are within 24 hours of purchase and one week or more prior to the original scheduled departure flight\. |

Fees charged in association with changes or extensions to non\-refundable tickets are recorded as other revenue at the time the fee is incurred\. The fare on the changed ticket, including any additional collection of fare, is deferred and recognized in accordance with our transportation revenue recognition policy at the time the transportation is provided\. Change fees related to non\-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company’s additional service to modify a previous sale\. Therefore, the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes\.

The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused\. These estimates are based on the evaluation of actual historical results and forecasted trends\. Refundable tickets expire after one year from the date of issuance\.

The Company recognizes cargo and other revenue as service is provided\.

Under our capacity purchase agreements (“CPAs”) with regional carriers, we purchase all of the capacity related to aircraft covered by the contracts and are responsible for selling all of the related seat inventory\. We record the passenger revenue and related expenses as separate operating revenue and expense in the consolidated statement of operations\.

61


Annual Report of Southwest Airlines Co\. for year 2017

**QUARTERLY FINANCIAL DATA**

**(unaudited)**

|                                            |                        |                        |                        |                        |     |
| ------------------------------------------ | ---------------------- | ---------------------- | ---------------------- | ---------------------- | --- |
|                                            | **Three months ended** | **Three months ended** | **Three months ended** | **Three months ended** |     |
| **(in millions except per share amounts)** | **March 31**           | **June 30**            | **Sept\. 30**          | **Dec\. 31**           |     |
| **2017**                                   |                        |                        |                        |                        |     |
| Operating revenues                         | $4,883                 | $5,744                 | $5,271                 | $5,274                 |     |
| Operating income                           | 658                    | 1,250                  | 834                    | 773                    |     |
| Income before income taxes                 | 553                    | 1,170                  | 791                    | 737                    |     |
| Net income                                 | 351                    | 746                    | 503                    | 1,888                  | (a) |
| Net income per share, basic                | 0\.57                  | 1\.24                  | 0\.84                  | 3\.19                  | (a) |
| Net income per share, diluted              | 0\.57                  | 1\.23                  | 0\.84                  | 3\.18                  | (a) |
|                                            | **March 31**           | **June 30**            | **Sept\. 30**          | **Dec\. 31**           |     |
| **2016**                                   |                        |                        |                        |                        |     |
| Operating revenues                         | $4,826                 | $5,384                 | $5,139                 | $5,076                 |     |
| Operating income                           | 944                    | 1,276                  | 695                    | 846                    |     |
| Income before income taxes                 | 816                    | 1,304                  | 618                    | 809                    |     |
| Net income                                 | 513                    | 820                    | 388                    | 522                    |     |
| Net income per share, basic                | 0\.80                  | 1\.30                  | 0\.63                  | 0\.85                  |     |
| Net income per share, diluted              | 0\.79                  | 1\.28                  | 0\.62                  | 0\.84                  |     |

(a) Includes a $1\.4 billion reduction in Provision for income taxes related to the Tax Cuts and Jobs Act legislation enacted in December 2017, which resulted in a re\-measurement of the Company's deferred tax assets and liabilities at the new federal corporate tax rate of 21 percent\. See Note 14 to the Consolidated Financial Statements for further information\.

112


Annual Report of Southwest Airlines Co\. for year 2019

revenue flights and qualifying purchases with Rapid Rewards Partners, Members also have the ability to purchase, gift, and transfer points, as well as the ability to donate points to selected charities\.

Southwest's Rapid Rewards loyalty program features tier and Companion Pass programs for the most active Members, including "A\-List" and "A\-List Preferred" status\. Both A\-List and A\-List Preferred Members enjoy benefits such as "Fly By ^®^ " priority check\-in and security lane access, where available, as well as dedicated phone lines, standby priority, and an earnings bonus on eligible revenue flights (25 percent for A\-List and 100 percent for A\-List Preferred)\.  In addition, A\-List Preferred Members enjoy free inflight satellite internet service on WiFi\-enabled aircraft\. Members who attain A\-List or A\-List Preferred status receive priority boarding privileges for an entire year\. When these Customers purchase travel at least 36 hours prior to flight time, they receive the best boarding pass number available (generally, an "A" boarding pass)\. During the day of travel, if an A\-List or A\-List Preferred Member's plans change, they have free same\-day standby privileges, which allow them to fly on earlier flights between the same city pairs if space is available\. Beginning January 1, 2021, A\-List and A\-List Preferred Members will have the same standby privileges free of airline charges, but will be required to pay any additional government taxes and fees associated with changes in their itinerary\. Members who fly 100 qualifying one\-way flights or earn 125,000 qualifying points in a calendar year automatically receive a Companion Pass, which provides for unlimited travel for the designated Companion free of airline charges (does not include taxes and fees from $5\.60 one\-way)\. The Companion Pass is valid for the remainder of the calendar year in which status was earned and for the following full calendar year to any destination available on Southwest for a designated Companion of the qualifying Member\. The Member and designated Companion must travel together on the same flight\.

Southwest's Rapid Rewards loyalty program has been designed to drive more revenue by (i) bringing in new Customers, including new Members, as well as new holders of Southwest's co\-branded Chase Visa credit card; (ii) increasing business from existing Customers; and (iii) strengthening the Company's Rapid Rewards hotel, rental car, credit card, and other partnerships\.

For 2019, Customers of Southwest redeemed approximately 10\.7 million flight awards, accounting for approximately 14\.1 percent of revenue passenger miles flown\. For 2018, Customers of Southwest redeemed approximately 10\.4 million flight awards, accounting for approximately 13\.8 percent of revenue passenger miles flown\. For 2017, Customers of Southwest redeemed approximately 9\.6 million flight awards, accounting for approximately 13\.8 percent of revenue passenger miles flown\. The Company's accounting policies with respect to its loyalty programs are discussed in more detail in Note 1 to the Consolidated Financial Statements\.

Southwest Business ^®^  Initiatives

During 2019, the Company increased its focus on growing the Company's corporate travel business with the goal of making it easier for corporate travel Customers and travel management companies to do business with Southwest\.

In third quarter 2019, the Company entered into an agreement with Amadeus IT Group, S\.A\. ("Amadeus"), and expanded its agreement with Travelport, LP and Travelport International Operations Limited (collectively, "Travelport"), to enable corporate travel Customers and travel management companies to book Southwest products on the Amadeus and Travelport global distribution system ("GDS") platforms\. The Company's expansion into the Travelport and Amadeus GDS channels is intended to facilitate corporate travel managers' ability to book, change, cancel, and modify Southwest reservations\. The Company expects the new capabilities to be ready for bookings in 2020\. The Company also has an agreement with Airlines Reporting Corporation to implement industry\-standard processes to handle the settlement of tickets booked through Travelport and Amadeus channels\.

In 2019, Southwest Business also continued to invest in and enhance its online booking tool SWABIZ ^®^ \. SWABIZ is designed for business Customers who prefer a self\-service and low\-cost solution for booking their air travel on Southwest\. The site also offers car and hotel booking functions\.

Digital Customer Platforms including Southwest\.com

The Company offers a broad suite of digital platforms to support Customers' needs prior to and during the course of their travel, including Southwest\.com ^®^ , mobile\.southwest\.com, an iOS ^TM^  app, an iPadOS ^TM^  app, and an Android app\. These digital platforms help Customers to learn, shop, book, and manage their Southwest air travel and also facilitate the purchase of the Company’s ancillary products, including EarlyBird, Business Select, vacation packages, rental car

8


Annual Report of Southwest Airlines Co\. for year 2019

lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors, as of the cease\-use date\. As of December 31, 2018, the remaining amounts associated with the cease\-use liability had been paid in full\.

8 \. COMMON STOCK

The Company has one class of capital stock, its common stock\. Holders of shares of common stock are entitled to receive dividends when and if declared by the Board of Directors and are entitled to one vote per share on all matters submitted to a vote of the Shareholders\. At  December 31, 2019 , the Company had   60 million  shares of common stock reserved for issuance pursuant to Employee equity plans (of which   27 million  shares had not been granted) through various share\-based compensation arrangements\. See Note  9  to the Consolidated Financial Statements for information regarding the Company's equity plans\.

9 \. STOCK PLANS

Share\-based Compensation

The Company accounts for share\-based compensation utilizing fair value, which is determined on the date of grant for all instruments\. The Consolidated Statement of Income for the years ended  December 31, 2019 ,  2018 , and  2017 , reflects share\-based compensation expense of   $55 million ,   $46 million , and   $37 million , respectively\. The total tax benefit recognized in earnings from share\-based compensation arrangements for the years ended  December 31, 2019 ,  2018 , and  2017 , was  not material \. As of  December 31, 2019 , there was   $64 million  of total unrecognized compensation cost related to share\-based compensation arrangements, which is expected to be recognized over a weighted\-average period of   1\.8  years\. The Company expects substantially all unvested awards to vest\.

Restricted Stock Units and Stock Grants

Under the Company’s Amended and Restated 2007 Equity Incentive Plan ("2007 Equity Plan"), which has been approved by Shareholders, the Company granted restricted stock units ("RSUs") and performance\-based restricted stock units ("PBRSUs") to certain Employees during  2019 ,  2018 , and  2017 \. Outstanding RSUs vest over   three years , subject generally to the individual’s continued employment or service\. The PBRSUs granted in February 2017 are subject to the Company’s performance with respect to a three\-year simple average of Return on Invested Capital, before taxes and excluding special items, for the defined performance period and are also subject generally to the individual’s continued employment or service\. The PBRSUs granted in January 2018 and January 2019 are subject to the Company’s performance with respect to a three\-year simple average of Return on Invested Capital, after taxes and excluding special items, for the defined performance period and are also subject generally to the individual’s continued employment or service\. The number of PBRSUs vesting on the vesting date will be interpolated based on the Company's Return on Invested Capital performance and ranges from   zero  PBRSUs to   200  percent of granted PBRSUs\. Forfeiture rates are estimated at the time of grant based on historical actuals for similar grants, and are trued\-up to actuals over the vesting period\. The Company recognizes all expense on a straight\-line basis over the vesting period, with any changes in expense due to the number of PBRSUs expected to vest being modified on a prospective basis\.

90


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

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

|          |     |                                                                                |
| -------- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|  †10\.23 | UAL | [Form of Performance\-Based Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc\. Performance\-Based Restricted Stock Unit Program (Relative Pre\-tax Margin awards) (for performance periods beginning on or after January 1, 2015) (filed as Exhibit 10\.2 to UAL's Form 10\-Q for the quarter ended March 31, 2015, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312515144255/d891332dex102.htm) |
|  †10\.24 | UAL | [United Air Lines, Inc\. Management Cash Direct & Cash Match Program (amended and restated effective January 1, 2016) (filed as Exhibit 10\.28 to UAL's Form 10\-K for the year ended December 31, 2018 Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000010051719000009/ual_12311810kex1028.htm)                                                                                |
|  †10\.25 | UAL | [United Continental Holdings, Inc\. Executive Severance Plan (effective October 1, 2014) (filed as Exhibit 10\.1 to UAL's Form 8\-K filed June 20, 2014, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312514243977/d743918dex101.htm)                                                                                |
|  †10\.26 | UAL | [United Continental Holdings, Inc\. 2017 Incentive Compensation Plan (filed as Exhibit 10\.1 to UAL's Form 8\-K filed on May 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517187534/d378920dex101.htm)                                                                                |
|  †10\.27 | UAL | [Form of Restricted Stock Unit Award Notice pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan (filed as Exhibit 10\.6 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex106.htm)                                                                                |
|  †10\.28 | UAL | [Form of Stock Option Award Notice pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan (filed as Exhibit 10\.7 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex107.htm)                                                                                |
|  †10\.29 | UAL | [United Continental Holdings, Inc\. Performance\-Based RSU Program (adopted pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan) (filed as Exhibit 10\.8 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex108.htm)                                                                                |
| †10\.30  | UAL | [First Amendment to the United Continental Holdings, Inc\. Performance\-Based RSU Program (adopted pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan) (filed as Exhibit 10\.34 to UAL's Form 10\-K for the year ended December 31, 2018, Commission file number 1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000010051719000009/ual_12311810kex1034.htm)                                                                      |
|  †10\.31 | UAL | [Form of Performance\-Based RSU Award Notice pursuant to the United Continental Holdings, Inc\. Performance\-Based RSU Program (Relative Pre\-tax Margin awards) (stock settled form of award) (filed as Exhibit 10\.35 to UAL's Form 10\-K for the year ended December 31, 2018, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000010051719000009/ual_12311810kex1035.htm)                                                                |
|  †10\.32 | UAL | [Form of Performance\-Based RSU Award Notice pursuant to the United Continental Holdings, Inc\. Performance\-Based RSU Program (Relative Pre\-tax Margin awards) (filed as Exhibit 10\.9 to UAL's Form 10\-Q for the quarter ended June 30, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517231250/d414345dex109.htm)                                                                                |
| †10\.33  | UAL | [United Continental Holdings, Inc\. Annual Incentive Program (cash settled form of award) (adopted pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan) (filed as Exhibit 10\.63 to UAL's Form 10\-K for the year ended December 31, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312518054235/d471340dex1063.htm)                                                                            |
|  †10\.34 | UAL | [Form of Annual Incentive Program Award Notice pursuant to the United Continental Holdings, Inc\. Annual Incentive Program (adopted pursuant to the United Continental Holdings, Inc\. 2017 Incentive Compensation Plan) (filed as Exhibit 10\.64 to UAL's Form 10\-K for the year ended December 31, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312518054235/d471340dex1064.htm)                                           |
|  †10\.35 | UAL | [Form of Performance\-Based RSU Award Notice pursuant to the United Continental Holdings, Inc\. Performance\-Based RSU Program (for performance periods beginning on or after January 1, 2020)](https://www.example.com/ual12311910kex1035.htm)                                                                                |
|  †10\.36 | UAL | [Description of Compensation and Benefits for United Airlines Holdings, Inc\. Non\-Employee Directors](https://www.example.com/ual12311910kex1036.htm)                                                                                |
|  †10\.37 | UAL | [United Continental Holdings, Inc\. 2006 Director Equity Incentive Plan (as amended and restated, effective February 20, 2014, filed as Annex A to UAL's Definitive Proxy Statement filed April 25, 2014, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000104746914004198/a2219797zdef14a.htm#lc42701_annex_a)                                                                                |
| †10\.38  | UAL | [First Amendment to the United Continental Holdings, Inc\. 2006 Director Equity Incentive Plan (as amended and restated on February 20, 2014) (filed as Exhibit 10\.3 to UAL's Form 10\-Q for the quarter ended March 31, 2017, Commission file number 1\-6033, and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/100517/000119312517127429/d334701dex103.htm)                                                                                |

98


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

Future Maturities

The following table summarizes scheduled maturities of our debt for the years succeeding  December 31, 2018 :

|                             |                |                                                                                |        |
| --------------------------- | -------------- | ---------------------------------------------------------------------------------- | ------ |
|

**(in millions)** | **Total Debt** | **Amortization of**

**Debt (Discount) Premium and Debt Issuance Cost, net** |        |
| 2019                        | $1,441         | $

(22

)                                                              |        |
| 2020                        | 2,048          | 2                                                                                |        |
| 2021                        | 1,019          | 7                                                                                |        |
| 2022                        | 1,676          | 11                                                                                |        |
| 2023                        | 929            | 9                                                                                |        |
| Thereafter                  | 2,195          | 53                                                                                |        |
| Total                       | $9,308         | $60                                                                                | $9,368 |

Fair Value of Debt

Market risk associated with our fixed\- and variable\-rate long\-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates\. The fair value of debt, shown below, is principally based on reported market values, recently completed market transactions and estimates based on interest rates, maturities, credit risk and underlying collateral\. Long\-term debt is primarily classified as Level 2 within the fair value hierarchy\.

|                                                            |                  |                  |
| ---------------------------------------------------------- | ---------------- | ---------------- |
|                                                            | **December 31,** | **December 31,** |
| **(in millions)**                                          | **2018**         | **2017**         |
| Total debt at par value                                    | $9,308           | $8,539           |
| Unamortized premium (discount) and debt issuance cost, net | 60               | (99

)     |
| Net carrying amount                                        | $9,368           | $8,440           |
| Fair value                                                 | $9,400           | $8,700           |

NOTE 8 \. LEASES

During the December 2018 quarter, we adopted ASU No\. 2016\-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet\. We adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2018\. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below\. We have recast previously reported 2018 interim periods under the new lease standard as shown in  Note 18 , "Quarterly Financial Data\." We elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs\.

We lease property and equipment under finance and operating leases\. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term\. Many of our leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate\. We do not separate lease and nonlease components of contracts, except for regional aircraft and information technology ("IT") assets as discussed below\.

When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate\. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement\.

Some of our aircraft lease agreements include provisions for residual value guarantees\. These provisions primarily relate to our regional aircraft and the amounts are not significant\. We do not have other forms of variable interests with the lessor of our leased assets, other than at New York\-JFK, as discussed in  Note 9 , "Airport Redevelopment," in which we are not the primary beneficiary\. As a result, we have not consolidated any of our lessors\.

 77


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

Consolidated statements of cash flows for the twelve months ended December 31, 2017 and December 31, 2016 (in millions):

|                                                                                |                                  |                                                  |                                  |                                  |                                        |                                  |
| --------------------------------------------------------------------------------- | -------------------------------- | ------------------------------------------------ | -------------------------------- | -------------------------------- | -------------------------------------- | -------------------------------- |
|                                                                                | **Year Ended December 31, 2017** | **Year Ended December 31, 2017**                 | **Year Ended December 31, 2017** | **Year Ended December 31, 2016** | **Year Ended December 31, 2016**       | **Year Ended December 31, 2016** |
|                                                                                | **As Reported**                  | **Adjustments \- Revenue Recognition** **^(a)^** | **As Adjusted**                  | **As Reported**                  | **Adjustments \- Revenue Recognition** | **As Adjusted**                  |
| **Cash flows from operating activities:**                                         |                                  |                                                  |                                  |                                  |                                        |                                  |
| Net income                                                                        | $1,034                           | $(74)                                            | $960                             | $814                             | $(17)                                  | $797                             |
| Adjustments to reconcile net income to net cash provided by operating activities: |                                  |                                                  |                                  |
                           |
                                 |                                  |
| Depreciation and amortization                                                     | 372                              | —                                                | 372                              | 363                              | —                                      | 363                              |
| Stock\-based compensation and other                                               | 55                               | —                                                | 55                               | 26                               | —                                      | 26                               |
| Changes in certain assets and liabilities:                                        |                                  |                                                  |                                  |
                           |
                                 |
                           |
| Changes in deferred tax provision                                                 | 19                               | 26                                               | 45                               | 94                               | (12)                                   | 82                               |
| Increase in accounts receivable                                                   | (39)                             | —                                                | (39)                             | (46)                             | —                                      | (46)                             |
| Increase in air traffic liability                                                 | 88                               | (43)                                             | 45                               | 9                                | (6)                                    | 3                                |
| Increase in deferred revenue                                                      | 63                               | 128                                              | 191                              | 83                               | 70                                     | 153                              |
| Changes in pension and other postretirement benefits                              | 17                               | —                                                | 17                               | 23                               | —                                      | 23                               |
| Other—net                                                                         | (19)                             | (37)                                             | (56)                             | 20                               | (35)                                   | (15)                             |
| **Net cash provided by operating activities**                                     | 1,590                            | —                                                | 1,590                            | 1,386                            | —                                      | 1,386                            |
| **Net cash used in investing activities**                                         | (1,132)                          | 3                                                | (1,129)                          | (2,622)                          | —                                      | (2,622)                          |
| **Net cash provided by (used in) financing activities**                           | (592)                            | —                                                | (592)                            | 1,491                            | —                                      | 1,491                            |
| Net increase (decrease) in cash, cash equivalents and restricted cash             | (134)                            | 3                                                | (131)                            | 255                              | —                                      | 255                              |
| Cash, cash equivalents and restricted cash at beginning of year                   | 328                              | —                                                | 328                              | 73                               | —                                      | 73                               |
| **Cash, cash equivalents and restricted cash at end of the period**               | $194                             | $3                                               | $197                             | $328                             | $—                                     | $328                             |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | Also includes approximately  $3 million  in adjustments for the adoption of ASU 2016\-18, which are reflected in the Other \- net line item, as discussed further below\.  |

**Other Standards Adopted**

In November 2016, the FASB issued ASU 2016\-18, "Statement of Cash Flows—Restricted Cash (Topic 230)" related to the presentation of restricted cash on the statement of cash flows, and within the accompanying footnotes\. The Company adopted the standard effective January 1, 2018\.

In February 2018, the FASB issued ASU 2018\-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income\." The standard allows a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act\. The amount of the reclassification is the difference between the amount initially recorded directly to other comprehensive income at the previously enacted U\.S\. federal corporate income tax rate that remains in AOCI and the amount that would have been recorded directly to other comprehensive income using the newly enacted U\.S\. federal income tax rate\. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted\. The Company elected to early adopt the standard effective January 1, 2018\. As a result, retained earnings increased approximately $62 million in 2018 due to the reclassification of tax effects in AOCI recorded in prior periods at previously enacted tax rates\.

 69


Annual Report of Southwest Airlines Co\. for year 2019

purchase contracts in the Consolidated Balance Sheet until the aircraft is delivered, at which time deposits previously made are deducted from the final purchase price of the aircraft and are reclassified as Flight equipment\. See Part I, Item 2 for a complete table of the Company’s contractual firm deliveries and options for Boeing 737 MAX 7 and 737 MAX 8 aircraft, Note  4  to the Consolidated Financial Statements for the financial commitments related to these firm deliveries, and Note  16  to the Consolidated Financial Statements for further information about the MAX groundings\. Because of the MAX groundings, Boeing is not currently delivering new MAX aircraft and, therefore, not meeting its contractual delivery schedule\. As a result,  27  firm orders for purchased MAX aircraft originally scheduled for delivery in 2019 have shifted into 2020 commitments and one firm order originally scheduled for delivery in 2019 has shifted to 2021\. In addition, commitments for 13 MAX leases from third parties have shifted into 2020\. The FAA will ultimately determine the timing of the MAX return to service, and the Company therefore offers no assurances that current estimations and timelines are correct\.

The leasing of aircraft (including the sale and leaseback of aircraft) provides flexibility to the Company as a source of financing\. Although the Company is responsible for all maintenance, insurance, and expense associated with operating leased aircraft, and retains the risk of loss for these aircraft, it has generally not made guarantees to the lessors regarding the residual value (or market value) of the aircraft at the end of the lease terms\. Assets and obligations under operating leases are included in the Company’s Consolidated Balance Sheet\. See Note  2  and Note  7  to the Consolidated Financial Statements for further information\. Disclosure of the expected contractual obligations associated with the Company’s leased aircraft is included below\.

As of  December 31, 2019 , the Company had  189  leased aircraft, including  67  Boeing 717\-200 aircraft ("B717s") subleased to Delta\. Of these leased aircraft,  117  are under operating leases, including  65  B717s subleased to Delta\. See Note  7  to the Consolidated Financial Statements for further information on this transaction\.

The Company is required to provide standby letters of credit to support certain obligations that arise in the ordinary course of business and may choose to provide letters of credit in place of posting cash collateral related to its fuel hedging positions\. Although the letters of credit are off\-balance sheet, the majority of the obligations to which they relate are reflected as liabilities in the Consolidated Balance Sheet\. Outstanding letters of credit totaled  $148 million  at  December 31, 2019 \.

53


Annual Report of Southwest Airlines Co\. for year 2019

the appropriate U\.S\. Attorney, has the power to bring proceedings for the imposition and collection of civil penalties for violation of the FAA regulations\.

The FAA requires airlines to obtain and maintain an Air Carrier Operating Certificate, as well as other certificates, approvals, and authorities\. These certificates, approvals, and authorities are subject to suspension or revocation for cause\.

The FAA has rules in effect with respect to flight, duty, and rest regulations\. Among other things, the rules (i) require a ten hour minimum rest period prior to a pilot’s flight duty period; (ii) mandate that a pilot must have an opportunity for eight hours of uninterrupted sleep within the rest period; and (iii) impose pilot "flight time" and "duty time" limitations based upon report times, the number of scheduled flight segments, and other operational factors\. The FAA has established flight attendant duty period limitations and rest requirements based on the length of a flight attendant’s scheduled duty period, number of flight attendants assigned to a flight, and other operational factors\. The Reauthorization Act contains a provision requiring a modification to the FAA's rules to increase the required flight attendant rest period between duty periods\. The FAA is soliciting input from the airline industry and other interested parties to obtain more information about current operations with flight attendants and the potential benefits and costs to inform the rulemaking\. Flight, duty, and rest regulations affect the Company’s staffing flexibility, which could impact the Company’s operational performance, costs, and Customer Experience\.

The Reauthorization Act also contains provisions directing the FAA to issue new regulations to establish minimum dimensions for seat size that are necessary for the safety of passengers\. Further, the Reauthorization Act expands human trafficking training requirements beyond flight attendants to include several public\-facing Employee work groups, as well as requires air carriers to implement a plan and develop training with protocols for preventing and responding to verbal or physical assault committed against customer service agents\.

In addition to its role as safety regulator, the FAA operates the nation’s air traffic control system and has continued its lengthy and ongoing effort to implement a multi\-faceted, air traffic control modernization program called "NextGen\." As part of the NextGen initiative, in 2010 the FAA published rules requiring most commercial aircraft operating in the national airspace system to be equipped with Automatic Dependent Surveillance \- Broadcast ("ADS\-B") technology by January 1, 2020\. ADS\-B technology is intended to enhance safety and efficiency by moving from ground\-based radar and navigational aids to precise tracking using satellite signals\. In addition to environmental and efficiency benefits, ADS\-B technology is expected to give pilots and air traffic controllers new tools to reduce the risk of runway incursions and aircraft collisions\. The Company intends to comply with all applicable ADS\-B requirements\.

The Air Traffic Organization ("ATO") is the operational arm of the FAA\. The ATO is responsible for providing safe and efficient air navigation services to all of the United States and large portions of the Atlantic and Pacific Oceans and the Gulf of Mexico\. The Company is subject to any operational changes imposed by the FAA/ATO as they relate to the NextGen program, as well as the day\-to\-day management of the air traffic control system\. The Reauthorization Act directs the FAA to (i) undertake a comprehensive review and prepare a full report on NextGen implementation and (ii) annually report on NextGen progress and return on investment\.

The Company is subject to various other federal, state, and local laws and regulations relating to occupational safety and health, including Occupational Safety and Health Administration and Food and Drug Administration regulations\.

Security Regulation

Pursuant to the Aviation and Transportation Security Act ("ATSA"), the TSA, a federal agency of the U\.S\. Department of Homeland Security, is responsible for certain civil aviation security matters\. ATSA and subsequent TSA regulations and procedures implementing ATSA address, among other things, (i) flight deck security; (ii) the use of federal air marshals onboard flights; (iii) airport and aircraft access security; (iv) airline crew security training; (v) security screening of passengers, baggage, cargo, mail, employees, and vendors; (vi) training and qualifications of security screening personnel; (vii) provision of passenger data to CBP; and (viii) background checks\.

Under ATSA, substantially all security officers at airports are federal employees, and significant other elements of airline and airport security are overseen and performed by federal employees, including federal security managers, federal law enforcement officers, and federal air marshals\. TSA personnel and TSA\-mandated security procedures can affect the Company's operations, costs, and Customer experience\. For example, as part of its security measures, the TSA regulates the types of liquid items that can be carried onboard aircraft\. In addition, as part of its Secure Flight

12