Annual Report of Southwest Airlines Co\. for year 2019

maintenance and operation of aircraft that require significant expenditures or operational restrictions\. FAA orders and directives can be issued with little or no notice, and in certain instances, require the temporary grounding of aircraft\. Recently, the Company reviewed a draft report from the Office of Inspector General (OIG) for the DOT regarding its audit of the FAA’s oversight of the Company\. The Company strongly disagrees with many of the draft statements and conclusions in the report and is not aware of any action the FAA might take against the Company arising from the OIG’s audit of the FAA; however, the issuance of new FAA regulations, regulatory amendments, or orders or directives could result in flight schedule adjustments and groundings or delays in aircraft deliveries, as well as lower operating revenues, operating income, and net income due to a variety of factors, including, among others, (i) lost revenue due to flight cancellations and disruptions as a result of a smaller operating aircraft fleet, (ii) the lack of ability to make corresponding reductions in expenses because of the fixed nature of many expenses, and (iii) possible negative effects on Customer confidence and airline choice\. Government regulation affecting the Company is discussed in more detail in the below risk factor and above under “Business \- Regulation\.”

Airport capacity constraints and air traffic control inefficiencies have limited and could continue to limit the Company's growth; changes in or additional governmental regulation could increase the Company's operating costs or otherwise limit the Company's ability to conduct business\.

Almost all commercial service airports are owned and/or operated by units of local or state governments\. Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity at an affordable cost\. In order to operate efficiently, as well as to add service in current and new markets, the Company must be able to maintain and/or obtain space and facilities at desirable airports with adequate infrastructure\. As airports become more congested, space, facility, and infrastructure constraints may prevent the Company from maintaining existing service and/or implementing new service in a commercially viable manner\.

Similarly, the federal government singularly controls all U\.S\. airspace, and airlines are dependent on the FAA controlling that airspace in a safe and efficient manner\. The current air traffic control system is mainly radar\-based, supported in large part by antiquated equipment and technologies, and heavily dependent on skilled personnel\. The FAA's protracted transition to a satellite\-based air traffic control system, as well as the implementation of policies and standards that account for the precision of GPS\-supported aircraft technologies, could continue to adversely impact airspace capacity and the overall efficiency of the system, resulting in limited opportunities for the Company to grow, longer scheduled flight times, increased delays and cancellations, and increased fuel consumption and aircraft emissions\. The current air traffic control system faces challenges in supporting the growing demand for U\.S\. air travel and may not be able to effectively keep pace with future air traffic growth\. The continuation of these air traffic control constraints or the FAA's inability to meet staffing needs on a long\-term basis may have a material adverse effect on the Company's operations\.

As discussed above under "Business \- Regulation," airlines are also subject to other extensive regulatory requirements\. These requirements often impose substantial costs on airlines\. The Company's strategic plans and results of operations could be negatively affected by changes in law and future actions taken by domestic and foreign governmental agencies having jurisdiction over its operations, including, but not limited to:

|   |                                         |
| - | --------------------------------------- |
| • | increases in airport rates and charges; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | limitations on airport gate capacity or use of other airport facilities such as the annual reallocation of capacity at John Wayne Airport in Orange County, California, which has caused the Company to reduce service at that airport in each of the last several years;  |

|   |                                    |
| - | ---------------------------------- |
| • | limitations on route authorities;  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | actions and decisions that create difficulties in obtaining access at slot\-controlled airports (a "slot" is the right of an air carrier, pursuant to regulations of the FAA, to operate a takeoff or landing at a specific time at certain airports);  |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------- |
| • | actions and decisions that create difficulties in obtaining operating permits and approvals;  |

|   |                                       |
| - | ------------------------------------- |
| • | changes to environmental regulations; |

|   |                                 |
| - | ------------------------------- |
| • | new or increased taxes or fees; |

26


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

Other Businesses

Cargo

Through our global network, our cargo operations are able to connect the world's major freight gateways\. We generate cargo revenues in domestic and international markets through the use of cargo space on regularly scheduled passenger aircraft\. We are a member of SkyTeam Cargo, a global airline cargo alliance, whose other members are Aeroflot, Aerolíneas Argentinas, Aeroméxico Cargo, Air France\-KLM Cargo, Alitalia Cargo, China Airlines Cargo, China Cargo Airlines, Czech Airlines Cargo, Korean Air Cargo and Saudia Cargo\. SkyTeam Cargo offers a global network spanning six continents\.

Related Businesses

We have several other businesses arising from our airline operations\. In 2019, the total revenue from these businesses was approximately $1\.2 billion\.

• In addition to providing maintenance and engineering support for our fleet of over 1,000 mainline and regional aircraft, our MRO operation, known as Delta TechOps, serves aviation and airline customers from around the world\.

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

• Delta Private Jets, until January 2020 a wholly\-owned subsidiary, provides aircraft charters, aircraft management and programs allowing members to purchase flight time by the hour\. In January 2020, we combined Delta Private Jets with Wheels Up, establishing one of the world’s largest owned and managed fleets of private aircraft\. We now own an equity stake in Wheels Up\.

Fuel

Our results of operations are significantly impacted by changes in the price and availability of aircraft fuel\. We purchase most of our aircraft fuel under contracts that establish the price based on various market indices and therefore do not provide material protection against price increases or assure the availability of our fuel supplies\. We also purchase aircraft fuel on the spot market, from off\-shore sources and under contracts that permit the refiners to set the price\.

The following table shows our aircraft fuel consumption and costs\.

|      |      |      |                                             |                                             |                                   |                                  |                                               |                                               |
|:---- |:---- |:---- | -------------------------------------------:| -------------------------------------------:| ---------------------------------:| --------------------------------:| ---------------------------------------------:| ---------------------------------------------:|
| Year | Year | Year | Gallons Consumed^(1)^

(in millions) | Gallons Consumed^(1)^

(in millions) | Cost^(1)(2)^

(in millions) | Average Price Per Gallon^(1)(2)^ | Percentage of Total Operating Expense^(1)(2)^ | Percentage of Total Operating Expense^(1)(2)^ |
| 2019 | 2019 | 2019 |                                      4,214  |                                      4,214  |                           $8,519  |                          $2\.02  |                                       21\.1 % |                                       21\.1 % |
| 2018 | 2018 | 2018 |                                      4,113  |                                      4,113  |                           $9,020  |                          $2\.20  |                                       23\.0 % |                                       23\.0 % |
| 2017 | 2017 | 2017 |                                      4,032  |                                      4,032  |                           $6,756  |                          $1\.68  |                                       19\.2 % |                                       19\.2 % |

^(1)^ Includes the operations of our regional carriers operating under capacity purchase agreements\.

^(2)^ Includes the impact of fuel hedge activity and refinery segment results\.

Monroe Energy

Our wholly owned subsidiaries, Monroe Energy, LLC and MIPC, LLC (collectively, "Monroe") operate the Trainer refinery and related assets located near Philadelphia, Pennsylvania\. The facilities include pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U\.S\., including our New York hubs at LaGuardia and JFK\. These companies are distinct from us, operating under their own management teams and with their own boards of managers\. We own Monroe as part of our strategy to mitigate the cost of the refining margin reflected in the price of jet fuel, as well as to maintain sufficiency of supply to our New York operations\.

Refinery Operations\.  The facility is capable of refining approximately 200,000 barrels of crude oil per day\. In addition to jet fuel, the refinery's production consists of gasoline, diesel and other refined petroleum products ("non\-jet fuel products")\. Monroe sources domestic and foreign crude oil supply from a variety of providers\.

Strategic Agreements\.  Monroe exchanges the non\-jet fuel products the refinery produces with third parties for jet fuel consumed in our airline operations\.

6


Annual Report of Southwest Airlines Co\. for year 2019

The following table presents the Company's fixed\-rate senior unsecured notes outstanding, excluding the notes or debentures that have been converted to a floating rate, as of  December 31, 2019 :

|                             |                       |
| --------------------------- | --------------------- |
| **(in millions)**           | **December 31, 2019** |
| 2\.75% Notes due 2022       | $300                  |
| 3\.00% Notes due 2026       | 300                   |
| 7\.375% Debentures due 2027 | 100                   |
| 3\.45% Notes due 2027       | 300                   |

The  $100 million  7\.375%  senior unsecured notes due 2027 had at one point been converted to a floating rate, but the Company subsequently terminated the fixed\-to\-floating interest rate swap agreements related to it\. The effect of this termination was that the interest associated with this debt prospectively reverted back to its original fixed rate\. As a result of the gain realized on this transaction, which is being amortized over the remaining term of the corresponding notes, and based on projected interest rates at the date of termination, the Company does not believe its future interest expense, based on projected future interest rates at the date of termination, associated with these notes will significantly differ from the expense it would have recorded had the notes remained at floating rates\. The following table displays the characteristics of the Company’s secured fixed rate debt as of  December 31, 2019 :

|                     |                                                            |                                       |                                 |                                       |
| ------------------- | ---------------------------------------------------------- | ------------------------------------- | ------------------------------- | ------------------------------------- |
|                     | **Principal**

**amount**

 **(in millions)**  | **Effective**

 **fixed rate**  | **Final**

 **maturity**  | **Underlying collateral**             |
| Term Loan Agreement | $134                                                       | 5\.223%                               | 5/9/2020                        | 21 specified Boeing 737\-700 aircraft |

The carrying value of the Company’s floating rate debt totaled  $683 million , and this debt had a weighted\-average maturity of  1\.73  years at floating rates averaging  3\.12 percent  for the year ended  December 31, 2019 \. The Company's floating rate debt represented  25\.6 percent  of the Company's total outstanding debt as of  December 31, 2019 \. In addition, the Company's total debt (both floating and fixed rate debt) divided by total assets was  10\.3 percent  as of  December 31, 2019 \.

The Company also has some risk associated with changing interest rates due to the short\-term nature of its invested cash, which totaled  $2\.5 billion , and short\-term investments, which totaled  $1\.5 billion  at  December 31, 2019 \. See Notes  1  and  11  to the Consolidated Financial Statements for further information\. The Company currently invests available cash in certificates of deposit, highly rated money market instruments, investment grade commercial paper, treasury securities, U\.S\. government agency securities, and other highly rated financial instruments, depending on market conditions and operating cash requirements\. Because of the short\-term nature of these investments, the returns earned parallel closely with short\-term floating interest rates\. The Company has not undertaken any additional actions to cover interest rate market risk and is not a party to any other material market interest rate risk management activities\.

A hypothetical  10 percent  change in market interest rates as of  December 31, 2019 , would not have a material effect on the fair value of the Company’s fixed\-rate debt instruments\. See Note  11  to the Consolidated Financial Statements for further information on the fair value of financial instruments\. A change in market interest rates could, however, have a corresponding effect on earnings and cash flows associated with the Company’s floating\-rate debt, invested cash (excluding cash collateral deposits held, if applicable), floating\-rate aircraft leases, and short\-term investments because of the floating\-rate nature of these items\. Assuming floating market rates in effect as of  December 31, 2019  were held constant throughout a 12\-month period, a hypothetical  10 percent  change in those rates would have an immaterial impact on the Company’s net earnings and cash flows\. Utilizing these assumptions and considering the Company’s cash balance (excluding the impact of cash collateral deposits held from or provided to counterparties, if applicable), short\-term investments, and floating\-rate debt outstanding at  December 31, 2019 , an increase in rates would have a net positive effect on the Company’s earnings and cash flows, while a decrease in rates would have a net negative effect on the Company’s earnings and cash flows\. However, a  10 percent  change in market rates would not impact the Company’s earnings or cash flow associated with the Company’s publicly traded fixed\-rate debt\.

62


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

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

Glossary of Defined Terms

ASM  \- Available Seat Mile\. A measure of capacity\. ASMs equal the total number of seats available for transporting passengers during a reporting period multiplied by the total number of miles flown during that period\.

CASM  \- (Operating) Cost per Available Seat Mile\. The amount of operating cost incurred per ASM during a reporting period\. CASM is also referred to as "unit cost\."

CASM\-Ex, including profit sharing  \- The amount of operating cost incurred per ASM during a reporting period, adjusted for aircraft fuel and related taxes, other expenses, including aircraft maintenance and staffing services we provide to third parties, our vacation wholesale operations and refinery cost of sales to third parties\.

Passenger Load Factor  \- A measure of utilized available seating capacity calculated by dividing RPMs by ASMs for a reporting period\.

Passenger Mile Yield or Yield  \- The amount of passenger revenue earned per RPM during a reporting period\.

PRASM  \- Passenger Revenue per ASM\. The amount of passenger revenue earned per ASM during a reporting period\. PRASM is also referred to as "unit revenue\."

RPM  \- Revenue Passenger Mile\. One revenue\-paying passenger transported one mile\. RPMs equal the number of revenue passengers during a reporting period multiplied by the number of miles flown by those passengers during that period\. RPMs are also referred to as "traffic\."

TRASM  \- Total Revenue per ASM\. The amount of total revenue earned per ASM during a reporting period\.

 46


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

**AMERICAN AIRLINES, INC\.**

**CONSOLIDATED BALANCE SHEETS**

**(In millions, except shares and par value)**

|                                                                                |                  |                  |
| ------------------------------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** |
|                                                                                | **2017**         | **2016**         |
| **ASSETS**                                                                      |                  |                  |
| **Current assets**                                                              |                  |                  |
| Cash                                                                            | $287             | $310             |
| Short\-term investments                                                         | 4,768            | 6,034            |
| Restricted cash and short\-term investments                                     | 318              | 638              |
| Accounts receivable, net                                                        | 1,755            | 1,599            |
| Receivables from related parties, net                                           | 8,822            | 6,810            |
| Aircraft fuel, spare parts and supplies, net                                    | 1,294            | 1,032            |
| Prepaid expenses and other                                                      | 647              | 633              |
| Total current assets                                                            | 17,891           | 17,056           |
| **Operating property and equipment**                                            |                  |                  |
| Flight equipment                                                                | 39,993           | 36,671           |
| Ground property and equipment                                                   | 8,006            | 6,910            |
| Equipment purchase deposits                                                     | 1,217            | 1,209            |
| Total property and equipment, at cost                                           | 49,216           | 44,790           |
| Less accumulated depreciation and amortization                                  | (15,354)         | (13,909)         |
| Total property and equipment, net                                               | 33,862           | 30,881           |
| **Other assets**                                                                |                  |                  |
| Goodwill                                                                        | 4,091            | 4,091            |
| Intangibles, net of accumulated amortization of $622 and $578, respectively     | 2,203            | 2,173            |
| Deferred tax asset                                                              | 682              | 1,912            |
| Other assets                                                                    | 1,283            | 1,979            |
| Total other assets                                                              | 8,259            | 10,155           |
| **Total assets**                                                                | $60,012          | $58,092          |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                        |                  |                  |
| **Current liabilities**                                                         |                  |                  |
| Current maturities of long\-term debt and capital leases                        | $2,058           | $1,859           |
| Accounts payable                                                                | 1,625            | 1,546            |
| Accrued salaries and wages                                                      | 1,613            | 1,460            |
| Air traffic liability                                                           | 3,978            | 3,912            |
| Loyalty program liability                                                       | 2,791            | 2,789            |
| Other accrued liabilities                                                       | 2,209            | 2,106            |
| Total current liabilities                                                       | 14,274           | 13,672           |
| **Noncurrent liabilities**                                                      |                  |                  |
| Long\-term debt and capital leases, net of current maturities                   | 21,236           | 20,718           |
| Pension and postretirement benefits                                             | 7,452            | 7,800            |
| Other liabilities                                                               | 2,456            | 3,253            |
| Total noncurrent liabilities                                                    | 31,144           | 31,771           |
| **Commitments and contingencies (Note 9)**                                      |
           |
           |
| **Stockholder’s equity**                                                        |                  |                  |
| Common stock, $1\.00 par value; 1,000 shares authorized, issued and outstanding | —                | —                |
| Additional paid\-in capital                                                     | 16,716           | 16,624           |
| Accumulated other comprehensive loss                                            | (5,251)          | (5,182)          |
| Retained earnings                                                               | 3,129            | 1,207            |
| Total stockholder’s equity                                                      | 14,594           | 12,649           |
| **Total liabilities and stockholder’s equity**                                  | $60,012          | $58,092          |

See accompanying notes to consolidated financial statements\.

128


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

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

The components of our deferred tax assets and liabilities were (in millions):

|                                                    |                  |                  |
| -------------------------------------------------- | ---------------- | ---------------- |
|                                                    | **December 31,** | **December 31,** |
|                                                    | **2018**         | **2017**         |
| Deferred tax assets:                               |                  |                  |
| Operating loss carryforwards                       | $2,343           | $2,281           |
| Leases                                             | 2,189            | 107              |
| Pensions                                           | 1,430            | 1,559            |
| Loyalty program liability                          | 1,770            | 1,809            |
| Alternative minimum tax (AMT) credit carryforwards | 175              | 344              |
| Postretirement benefits other than pensions        | 145              | 170              |
| Rent expense                                       | 136              | 160              |
| Reorganization items                               | 33               | 35               |
| Other                                              | 631              | 678              |
| Total deferred tax assets                          | 8,852            | 7,143            |
| Valuation allowance                                | (30)             | (36)             |
| Net deferred tax assets                            | 8,822            | 7,107            |
| Deferred tax liabilities:                          |                  |                  |
| Accelerated depreciation and amortization          | (5,280)          | (5,045)          |
| Leases                                             | (2,081)          | —                |
| Other                                              | (326)            | (279)            |
| Total deferred tax liabilities                     | (7,687)          | (5,324)          |
| Net deferred tax asset                             | $1,135           | $1,783           |

At December 31, 2018, we had approximately $10\.2 billion of federal NOLs carried over from prior taxable years (NOL Carryforwards) to reduce future federal taxable income, substantially all of which we expect to be available for use in 2019\. The federal NOL Carryforwards will expire beginning in 2022 if unused\. We also had approximately $3\.2 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2018, which will expire in years 2019 through 2038 if unused\. Our ability to deduct our NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred\. Substantially all of our remaining federal NOL Carryforwards attributable to US Airways Group are subject to limitation under Section 382; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation\. We elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9\.0 billion (with $8\.4 billion of unlimited NOL still remaining at December 31, 2018) of our federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382\. Similar limitations may apply for state income tax purposes\. Our ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another future ownership change occurs\. Under the Section 382 limitation, cumulative stock ownership changes among material stockholders exceeding 50% during a rolling three\-year period can potentially limit a company’s future use of NOLs and tax credits\. See Part I, Item 1A\. Risk Factors *– “Our ability to utilize our NOL Carryforwards may be limited”* for unaudited additional discussion of this risk\.

At December 31, 2018, we had an AMT credit carryforward of approximately $339 million available for federal income tax purposes, which is now expected to be fully refundable over the next several years as a result of the repeal of corporate AMT\.

In 2018, we recorded an income tax provision of $472 million, with an effective rate of approximately 25%, which was substantially non\-cash\. The 2018 income tax provision included an $18 million special income tax charge related to an international income tax matter\. Substantially all of our income before income taxes is attributable to the United States\.

We file our tax returns as prescribed by the tax laws of the jurisdictions in which we operate\. Our 2015 through 2017 tax years are still subject to examination by the Internal Revenue Service\. Various state and foreign jurisdiction tax years remain open to examination and we are under examination, in administrative appeals, or engaged in tax litigation in certain jurisdictions\. We believe that the effect of any assessments will not be material to our consolidated financial statements\.

108


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

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

|                                                      |                                                      |                            |                            |  |  |  |              |  |  |  |                                |  |  |  |                |  |  |  |                                               |  |  |  |                   |  |  |  |         |
|:---------------------------------------------------- |:---------------------------------------------------- | --------------------------:| --------------------------:| -:| -:| -:| ------------:| -:| -:| -:| ------------------------------:| -:| -:| -:| --------------:| -:| -:| -:| ---------------------------------------------:| -:| -:| -:| -----------------:| -:| -:| -:| -------:|
| *(in millions)*                                      | *(in millions)*                                      | *Common Stock Outstanding* | *Common Stock Outstanding* |  |  |  | Common Stock |  |  |  | Capital in Excess of Par Value |  |  |  | Treasury Stock |  |  |  | Accumulated Other Comprehensive Income (Loss) |  |  |  | Retained Earnings |  |  |  |   Total |
| Balances at December 31, 2016                        | Balances at December 31, 2016                        |                 *123\.328* |                 *123\.328* |  |  |  |          $ 1 |  |  |  |                          $ 110 |  |  |  |        $ (443) |  |  |  |                                       $ (305) |  |  |  |           $ 3,381 |  |  |  | $ 2,744 |
| 2017 net income                                      | 2017 net income                                      |                         —  |                         —  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                            —  |  |  |  |               960 |  |  |  |     960 |
| Other comprehensive income (loss)                    | Other comprehensive income (loss)                    |                         —  |                         —  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                          (75) |  |  |  |                —  |  |  |  |    (75) |
| Common stock repurchases                             | Common stock repurchases                             |                 *(0\.981)* |                 *(0\.981)* |  |  |  |           —  |  |  |  |                              — |  |  |  |           (75) |  |  |  |                                            —  |  |  |  |                —  |  |  |  |    (75) |
| Stock\-based compensation                            | Stock\-based compensation                            |                         —  |                         —  |  |  |  |           —  |  |  |  |                             34 |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |      34 |
| Cash dividend declared ($1\.20 per share)            | Cash dividend declared ($1\.20 per share)            |                       *—*  |                       *—*  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                            —  |  |  |  |             (148) |  |  |  |   (148) |
| Stock issued for employee stock purchase plan        | Stock issued for employee stock purchase plan        |                   *0\.407* |                   *0\.407* |  |  |  |           —  |  |  |  |                             24 |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |      24 |
| Stock issued under stock plans                       | Stock issued under stock plans                       |                   *0\.307* |                   *0\.307* |  |  |  |           —  |  |  |  |                            (4) |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |     (4) |
| Balances at December 31, 2017                        | Balances at December 31, 2017                        |                 *123\.061* |                 *123\.061* |  |  |  |            1 |  |  |  |                            164 |  |  |  |          (518) |  |  |  |                                         (380) |  |  |  |             4,193 |  |  |  |   3,460 |
| Reclassification of tax effects to retained earnings | Reclassification of tax effects to retained earnings |                         —  |                         —  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                          (62) |  |  |  |                62 |  |  |  |       — |
| 2018 net income                                      | 2018 net income                                      |                         —  |                         —  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                            —  |  |  |  |               437 |  |  |  |     437 |
| Other comprehensive income (loss)                    | Other comprehensive income (loss)                    |                         —  |                         —  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                           (6) |  |  |  |                —  |  |  |  |     (6) |
| Common stock repurchases                             | Common stock repurchases                             |                 *(0\.776)* |                 *(0\.776)* |  |  |  |           —  |  |  |  |                              — |  |  |  |           (50) |  |  |  |                                            —  |  |  |  |                —  |  |  |  |    (50) |
| Stock\-based compensation                            | Stock\-based compensation                            |                         —  |                         —  |  |  |  |           —  |  |  |  |                             36 |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |      36 |
| Cash dividend declared ($1\.28 per share)            | Cash dividend declared ($1\.28 per share)            |                       *—*  |                       *—*  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                            —  |  |  |  |             (158) |  |  |  |   (158) |
| Stock issued for employee stock purchase plan        | Stock issued for employee stock purchase plan        |                   *0\.632* |                   *0\.632* |  |  |  |           —  |  |  |  |                             35 |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |      35 |
| Stock issued under stock plans                       | Stock issued under stock plans                       |                   *0\.277* |                   *0\.277* |  |  |  |           —  |  |  |  |                            (3) |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |     (3) |
| Balances at December 31, 2018                        | Balances at December 31, 2018                        |                 *123\.194* |                 *123\.194* |  |  |  |            1 |  |  |  |                            232 |  |  |  |          (568) |  |  |  |                                         (448) |  |  |  |             4,534 |  |  |  |   3,751 |
| Cumulative effect of accounting changes^(a)^         | Cumulative effect of accounting changes^(a)^         |                         —  |                         —  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                 3 |  |  |  |       3 |
| 2019 net income                                      | 2019 net income                                      |                         —  |                         —  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                            —  |  |  |  |               769 |  |  |  |     769 |
| Other comprehensive income (loss)                    | Other comprehensive income (loss)                    |                         —  |                         —  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                          (17) |  |  |  |                —  |  |  |  |    (17) |
| Common stock repurchases                             | Common stock repurchases                             |                 *(1\.193)* |                 *(1\.193)* |  |  |  |           —  |  |  |  |                              — |  |  |  |           (75) |  |  |  |                                            —  |  |  |  |                —  |  |  |  |    (75) |
| Stock\-based compensation                            | Stock\-based compensation                            |                         —  |                         —  |  |  |  |           —  |  |  |  |                             36 |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |      36 |
| Cash dividend declared ($1\.40 per share)            | Cash dividend declared ($1\.40 per share)            |                       *—*  |                       *—*  |  |  |  |           —  |  |  |  |                             —  |  |  |  |             —  |  |  |  |                                            —  |  |  |  |             (173) |  |  |  |   (173) |
| Stock issued for employee stock purchase plan        | Stock issued for employee stock purchase plan        |                   *0\.785* |                   *0\.785* |  |  |  |           —  |  |  |  |                             40 |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |      40 |
| Stock issued under stock plans                       | Stock issued under stock plans                       |                   *0\.214* |                   *0\.214* |  |  |  |           —  |  |  |  |                            (3) |  |  |  |             —  |  |  |  |                                            —  |  |  |  |                —  |  |  |  |     (3) |
| Balances at December 31, 2019                        | Balances at December 31, 2019                        |                 *123\.000* |                 *123\.000* |  |  |  |          $ 1 |  |  |  |                          $ 305 |  |  |  |        $ (643) |  |  |  |                                       $ (465) |  |  |  |           $ 5,133 |  |  |  | $ 4,331 |

(a) Represents the opening balance sheet adjustment recorded as a result of the adoption of the new lease accounting standard\.

See accompanying notes to consolidated financial statements\.

54


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

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

Benefit Plan Assets Measured at Fair Value on a Recurring Basis

The fair value of our pension plan assets at  December 31, 2019  and  2018 , by asset category, were as follows (in millions):

|                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                                                                                | **Fair Value Measurements as of December 31, 2019**                                                            | **Fair Value Measurements as of December 31, 2019**                          | **Fair Value Measurements as of December 31, 2019**                            | **Fair Value Measurements as of December 31, 2019** |
| **Asset Category**                                                                            | **Quoted Prices in**

**Active Markets**

**for Identical**

**Assets**

**(Level 1)** | **Significant**

**Observable**

**Inputs**

**(Level 2)** | **Significant**

**Unobservable**

**Inputs**

**(Level 3)** | **Total**                                           |
| Cash and cash equivalents                                                                     | $20                                                                                | $—                                                                           | $—                                                                             | $20                                                 |
| Equity securities:                                                                            |                                                                                |                                                                              |                                                                                |                                                     |
| International markets  ^(a), (b)^                                                             | 2,769                                                                                | —                                                                            | —                                                                              | 2,769                                               |
| Large\-cap companies  ^(b)^                                                                   | 2,312                                                                                | —                                                                            | —                                                                              | 2,312                                               |
| Mid\-cap companies  ^(b)^                                                                     | 543                                                                                | —                                                                            | —                                                                              | 543                                                 |
| Small\-cap companies  ^(b)^                                                                   | 97                                                                                | —                                                                            | —                                                                              | 97                                                  |
| Mutual funds  ^(c)^                                                                           | 68                                                                                | —                                                                            | —                                                                              | 68                                                  |
| Fixed income:                                                                                |                                                                                |                                                                              |                                                                                |                                                     |
| Corporate debt  ^(d)^                                                                         | —                                                                                | 2,804                                                                        | —                                                                              | 2,804                                               |
| Government securities  ^(e)^                                                                  | —                                                                                | 923                                                                          | —                                                                              | 923                                                 |
| U\.S\. municipal securities                                                                   | —                                                                                | 51                                                                           | —                                                                              | 51                                                  |
| Mortgage backed securities                                                                    | —                                                                                | 4                                                                            | —                                                                              | 4                                                   |
| Alternative instruments:                                                                      |                                                                                |                                                                              |                                                                                |                                                     |
| Private market partnerships  ^(f)^                                                            | —                                                                                | —                                                                            | 10                                                                             | 10                                                  |
| Private market partnerships measured at net asset value  ^(f), (g)^                           | —                                                                                | —                                                                            | —                                                                              | 1,464                                               |
| Common/collective trusts  ^(h)^                                                               | —                                                                                | 358                                                                          | —                                                                              | 358                                                 |
| Common/collective trusts and 103\-12 Investment Trust measured at net asset value  ^(g), (h)^ | —                                                                                | —                                                                            | —                                                                              | 1,423                                               |
| Insurance group annuity contracts                                                             | —                                                                                | —                                                                            | 2                                                                              | 2                                                   |
| Dividend and interest receivable                                                              | 53                                                                                | —                                                                            | —                                                                              | 53                                                  |
| Due to/from brokers for sale of securities – net                                              | (4

)                                                                                | —                                                                            | —                                                                              | (4

)                                         |
| Total                                                                                | $5,858                                                                                | $4,140                                                                       | $12                                                                            | $12,897                                             |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(a)^ | Holdings are diversified as follows:   14%  United Kingdom,   8%  Switzerland,   8%  Ireland,   7%  Japan,   7%  France,   6%  South Korea,   6%  Canada,   18%  emerging markets and the remaining   26%  with no concentration greater than 5% in any one country\. |

|       |                                                                              |
| ----- | ---------------------------------------------------------------------------- |
| ^(b)^ | There are no significant concentrations of holdings by company or industry\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(c)^ | Investment includes mutual funds invested   40%  in equity securities of large\-cap, mid\-cap and small\-cap U\.S\. companies,   33%  in U\.S\. treasuries and corporate bonds and   27%  in equity securities of international companies\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(d)^ | Includes approximately   76%  investments in corporate debt with a S&P rating lower than A and   24%  investments in corporate debt with a S&P rating A or higher\. Holdings include   86%  U\.S\. companies,   11%  international companies and   3%  emerging market companies\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(e)^ | Includes approximately   79%  investments in U\.S\. domestic government securities,   13%  in emerging market government securities and   8%  in international government securities\. There are no significant foreign currency risks within this classification\. |

103


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

Passenger revenue related to our international regions increased 2\.7% year\-over\-year primarily due to capacity growth in the Atlantic region and yield strength in the Latin America region\. This growth in passenger revenue was achieved despite the negative impact of foreign currency fluctuations\.

Atlantic unit revenues decreased due to foreign currency fluctuations between the U\.S\. dollar and the Euro and British pound, the uncertain economic outlook in Europe and increased industry capacity\. These conditions were partially offset by growth in premium product demand and strong U\.S\. point of sale\.

Unit revenue increased in Latin America principally as a result of yield growth, mainly due to reduced industry capacity in Brazil and improvements in Mexico beach markets\. In the September 2019 quarter we announced our plan to enter into a strategic alliance with LATAM, which is expected to provide great customer convenience, a more seamless travel experience and to better connect customers between North and South America\.

Unit revenue decreased in the Pacific region primarily on persistent economic and trade related uncertainty, foreign currency fluctuations and increased capacity to China, Japan and Korea due to our network transformation\. Despite these challenges, our joint venture with Korean Air has enabled solid traffic growth and we have continued to reshape our Pacific network with the announcements that in the March 2020 quarter we will transfer our U\.S\.\-Tokyo services from Narita to Haneda airport, Tokyo's preferred airport for corporate customers, and shift our Beijing service to the new Beijing Daxing airport\.

Starting in February 2020, we temporarily suspended flights between the U\.S\. and China as the result of an outbreak of a novel coronavirus originating in Wuhan, Hubei Province, China\. We have suspended flights between the U\.S\. and China through April 30, will continue to monitor the situation closely and may make additional adjustments\.

Other Revenue

|                                   |                                   |                                   |                         |                         |       |                          |                          |                            |                            |                            |  |  |  |
|:--------------------------------- |:--------------------------------- |:--------------------------------- | -----------------------:| -----------------------:| -----:| ------------------------:| ------------------------:|:--------------------------:|:--------------------------:|:--------------------------:|:- |:- |:- |
|                                   |                                   |                                   | Year Ended December 31, | Year Ended December 31, |       | Increase
(Decrease) | Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) |
| (in millions)                     | (in millions)                     | (in millions)                     |                    2019 |                    2018 |       | Increase
(Decrease) | Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) | % Increase
(Decrease) |  |  |  |
| Loyalty program                   | Loyalty program                   | Loyalty program                   |                 $1,962  |                 $1,459  | $503  |                  34\.5 % |                  34\.5 % |
| Ancillary businesses and refinery | Ancillary businesses and refinery | Ancillary businesses and refinery |                  1,297  |                  1,801  | (504) |                 (28\.0)% |                 (28\.0)% |
| Miscellaneous                     | Miscellaneous                     | Miscellaneous                     |                    718  |                    558  |  160  |                  28\.7 % |                  28\.7 % |
| Total other revenue               | Total other revenue               | Total other revenue               |                 $3,977  |                 $3,818  | $159  |                   4\.2 % |                   4\.2 % |

Loyalty Program\.  Loyalty program revenues relate primarily to brand usage by third parties and include the redemption of miles for non\-travel awards\.

Effective January 1, 2019, we amended our co\-brand agreement with American Express, and we also amended other agreements with American Express during the March quarter\. The new agreements increase the value we receive and extend the terms to 2029\. Under the agreements, we sell miles to American Express and allow American Express to market its services or products using our brand and customer database\. The products and services sold with the miles (such as award travel, priority boarding, baggage fee waivers, lounge access and the use of our brand) are consistent with previous agreements\. We continue to use the accounting method that allocates the consideration received based on the relative selling prices of those products and services\. The increase in loyalty program revenues are primarily related to brand usage by American Express\.

Ancillary Businesses and Refinery\.  Ancillary businesses and refinery includes aircraft maintenance provided to third parties, our vacation wholesale operations, our private jet operations and refinery sales to third parties\. Refinery sales to third parties, which are at or near cost, decreased $451 million compared to 2018\. The 2018 results also included $244 million of third\-party revenue from DGS, which was sold in December 2018\. These decreases were mitigated by growth in our MRO revenues, which increased $175 million to $877 million during 2019\.

In January 2020, we combined Delta Private Jets, our wholly owned subsidiary which provides private jet operations, with Wheels Up\. Upon closing, we received a 27% equity stake in Wheels Up\. Delta Private Jets will no longer be consolidated and annual revenues of approximately $200 million, which have historically been generated ratably through the year, will no longer be reflected in ancillary businesses and refinery revenue\.

Miscellaneous\.  Miscellaneous revenue is primarily composed of lounge access and codeshare revenues, with lounge access revenue driving the majority of the $160 million increase compared to 2018\. We continually enhance the customer experience at our lounges, which also included opening three new Sky Clubs during 2019 in Austin, Phoenix and New Orleans\.

32


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

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

Net Periodic Cost

|                                      |                             |                             |                             |                                                      |                                                      |                                                      |
| ------------------------------------ | --------------------------- | --------------------------- | --------------------------- | ---------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------- |
|                                      | **Pension Benefits**        | **Pension Benefits**        | **Pension Benefits**        | **Other Postretirement and Postemployment Benefits** | **Other Postretirement and Postemployment Benefits** | **Other Postretirement and Postemployment Benefits** |
|                                      | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,**                          | **Year Ended December 31,**                          | **Year Ended December 31,**                          |
| **(in millions)**                    | **2017**                    | **2016**                    | **2015**                    | **2017**                                             | **2016**                                             | **2015**                                             |
| Service cost                         | $—                          | $—                          | $—                          | $87                                                  | $68                                                  | $62                                                  |
| Interest cost                        | 853                         | 917                         | 884                         | 138                                                  | 147                                                  | 141                                                  |
| Expected return on plan assets       | (1,143

)             | (902

)               | (879

)               | (69

)                                         | (74

)                                         | (81

)                                         |
| Amortization of prior service credit | —                           | —                           | —                           | (26

)                                         | (26

)                                         | (26

)                                         |
| Recognized net actuarial loss        | 262                         | 233                         | 232                         | 32                                                   | 24                                                   | 24                                                   |
| Settlements                          | 3                           | 3                           | 3                           | —                                                    | —                                                    | —                                                    |
| Net periodic cost ^(1)^              | $

(25

)       | $251                        | $240                        | $162                                                 | $139                                                 | $120                                                 |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------- |
| ^(1)^ | See Note 1 for discussion on ASU No\. 2017\-07, "Compensation \- Retirement Benefits (Topic 715)\."  |

Assumptions

We used the following actuarial assumptions to determine our benefit obligations and our net periodic cost for the periods presented:

|                                   |                  |                  |
| --------------------------------- | ---------------- | ---------------- |
|                                   | **December 31,** | **December 31,** |
| **Benefit Obligations** **^(1)^** | **2017**         | **2016**         |
| Weighted average discount rate    | 3\.69%           | 4\.20%           |

|                                                                    |                             |                             |                             |
| ------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **Net Periodic Cost** **^(1)^**                                    | **2017**                    | **2016**                    | **2015**                    |
| Weighted average discount rate \- pension benefit                  | 4\.14%                      | 4\.57%                      | 4\.13%                      |
| Weighted average discount rate \- other postretirement benefit     | 4\.19%                      | 4\.53%                      | 4\.13%                      |
| Weighted average discount rate \- other postemployment benefit     | 4\.14%                      | 4\.50%                      | 4\.13%                      |
| Weighted average expected long\-term rate of return on plan assets | 8\.96%                      | 8\.94%                      | 8\.94%                      |
| Assumed healthcare cost trend rate ^(2)^                           | 7\.00%                      | 6\.50%                      | 7\.00%                      |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | Future employee compensation levels do not impact our frozen defined benefit pension plans or other postretirement plans and impact only a small portion of our other postemployment liability\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(2)^ | Healthcare cost trend rate at  December 31, 2017  is assumed to decline gradually to   5\.00%  by  2026  and remain unchanged thereafter\. |

 75


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

Risk Factors Relating to the Airline Industry

Terrorist attacks, geopolitical conflict or security events may adversely affect our business, financial condition and operating results\.

Terrorist attacks, geopolitical conflict or security events, or fear of any of these events, could have a significant adverse effect on our business\. Despite significant security measures at airports and airlines, the airline industry remains a high profile target for terrorist groups\. We constantly monitor threats from terrorist groups and individuals, including from violent extremists both internationally and domestically, with respect to direct threats against our operations and in ways not directly related to the airline industry\. In addition, the impact on our operations of avoiding areas of the world, including airspace, in which there are geopolitical conflicts and the targeting of commercial aircraft by parties to those conflicts can be significant\. Security events, primarily from external sources but also from potential insider threats, also pose a significant risk to our passenger and cargo operations\. These events could include random acts of violence and could occur in public areas that we cannot control\.

Terrorist attacks, geopolitical conflict or security events, or fear of any of these events, even if not made directly on or involving the airline industry, could have significant negative impact on us by discouraging passengers from flying, leading to decreased ticket sales and increased refunds\. In addition, potential costs from these types of events include increased security costs, impacts from avoiding flight paths over areas in which conflict is occurring, reputational harm and other costs\. If any or all of these types of events occur, they could have a material adverse effect on our business, financial condition and results of operations\.

The global airline industry is highly competitive and, if we cannot successfully compete in the marketplace, our business, financial condition and operating results will be materially adversely affected\.

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

Our domestic operations are subject to competition from traditional network carriers, including American Airlines and United Airlines, national point\-to\-point carriers, including Alaska Airlines, JetBlue Airways and Southwest Airlines, and other discount or ultra low\-cost carriers, including Spirit Airlines and Allegiant Air, some of which may have lower costs than we do and provide service at low fares to destinations served by us\. Point\-to\-point, discount and ultra low\-cost carriers place significant competitive pressure on network carriers in the domestic market\. In particular, we face significant competition at our domestic hub and key airports either directly at those airports or at the hubs of other airlines that are located in close proximity to our hubs and key airports\. We also face competition in smaller to medium\-sized markets from regional jet operations of other carriers\. Our ability to compete in the domestic market effectively depends, in part, on our ability to maintain a competitive cost structure\. If we cannot maintain our costs at a competitive level, then our business, financial condition and operating results could be materially adversely affected\.

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

Through alliance and other marketing and codesharing agreements with foreign carriers, U\.S\. carriers have increased their ability to sell international transportation, such as services to and beyond traditional European and Asian gateway cities\. Similarly, foreign carriers have obtained increased access to interior U\.S\. passenger traffic beyond traditional U\.S\. gateway cities through these relationships\. In addition, several joint ventures among U\.S\. and foreign carriers have received grants of antitrust immunity allowing the participating carriers to coordinate schedules, pricing, sales and inventory\.

Increased competition in both the domestic and international markets may have a material adverse effect on our business, financial condition and operating results\.

 17


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

Operating segment information is as follows (in millions):

|                                     |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| ----------------------------------- | -------------------------------- | -------------------------------- | -------------------------------- | ----------------------------------- | -------------------------------- | -------------------------------- | -------------------------------- |
|                                     | **Year Ended December 31, 2018** | **Year Ended December 31, 2018** | **Year Ended December 31, 2018** | **Year Ended December 31, 2018**    | **Year Ended December 31, 2018** | **Year Ended December 31, 2018** | **Year Ended December 31, 2018** |
|                                     | **Mainline**                     | **Regional**                     | **Horizon**                      | **Consolidating & Other** **^(b)^** | **Air Group Adjusted** **^(c)^** | **Special Items** **^(d)^**      | **Consolidated**                 |
| **Operating revenues**              |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Passenger revenues                  | 6,475                            | 1,157                            | —                                | —                                   | 7,632                            | —                                | 7,632                            |
| CPA revenues                        | —                                | —                                | 508                              | (508)                               | —                                | —                                | —                                |
| Mileage Plan other revenue          | 397                              | 37                               | —                                | —                                   | 434                              | —                                | 434                              |
| Cargo and other                     | 191                              | 3                                | 4                                | —                                   | 198                              | —                                | 198                              |
| **Total operating revenues**        | 7,063                            | 1,197                            | 512                              | (508)                               | 8,264                            | —                                | 8,264                            |
| **Operating expenses**              |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Non\-fuel operating expenses        | 4,577                            | 1,024                            | 465                              | (513)                               | 5,553                            | 132                              | 5,685                            |
| Fuel expense                        | 1,652                            | 262                              | —                                | —                                   | 1,914                            | 22                               | 1,936                            |
| **Total operating expenses**        | 6,229                            | 1,286                            | 465                              | (513)                               | 7,467                            | 154                              | 7,621                            |
| **Nonoperating income (expense)**   |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Interest income                     | 53                               | —                                | —                                | (15)                                | 38                               | —                                | 38                               |
| Interest expense                    | (82)                             | —                                | (22)                             | 13                                  | (91)                             | —                                | (91)                             |
| Interest capitalized                | 16                               | —                                | 2                                | —                                   | 18                               | —                                | 18                               |
| Other                               | (12)                             | (11)                             | —                                | —                                   | (23)                             | —                                | (23)                             |
| **Total nonoperating expense**      | (25)                             | (11)                             | (20)                             | (2)                                 | (58)                             | —                                | (58)                             |
| **Income (loss) before income tax** | $809                             | $(100)                           | $27                              | $3                                  | $739                             | $(154)                           | $585                             |

|                                     |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| ----------------------------------- | -------------------------------- | -------------------------------- | -------------------------------- | ----------------------------------- | -------------------------------- | -------------------------------- | -------------------------------- |
|                                     | **Year Ended December 31, 2017** | **Year Ended December 31, 2017** | **Year Ended December 31, 2017** | **Year Ended December 31, 2017**    | **Year Ended December 31, 2017** | **Year Ended December 31, 2017** | **Year Ended December 31, 2017** |
|                                     | **Mainline**                     | **Regional**                     | **Horizon**                      | **Consolidating & Other** **^(b)^** | **Air Group Adjusted** **^(c)^** | **Special Items** **^(d)^**      | **Consolidated**                 |
| **Operating revenues**              |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Passenger revenues                  | 6,278                            | 1,023                            | —                                | —                                   | 7,301                            | —                                | 7,301                            |
| CPA revenues                        | —                                | —                                | 426                              | (426)                               | —                                | —                                | —                                |
| Mileage Plan other revenue          | 387                              | 31                               | —                                | —                                   | 418                              | —                                | 418                              |
| Cargo and other                     | 167                              | 4                                | 4                                | —                                   | 175                              | —                                | 175                              |
| **Total operating revenues**        | 6,832                            | 1,058                            | 430                              | (426)                               | 7,894                            | —                                | 7,894                            |
| **Operating expenses**              |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Non\-fuel operating expenses        | 4,271                            | 852                              | 427                              | (427)                               | 5,123                            | 116                              | 5,239                            |
| Fuel expense                        | 1,282                            | 172                              | —                                | —                                   | 1,454                            | (7)                              | 1,447                            |
| **Total operating expenses**        | 5,553                            | 1,024                            | 427                              | (427)                               | 6,577                            | 109                              | 6,686                            |
| **Nonoperating income (expense)**   |                                  |                                  |                                  |                                     |                                  |                                  |                                  |
| Interest income                     | 39                               | —                                | —                                | (5)                                 | 34                               | —                                | 34                               |
| Interest expense                    | (92)                             | —                                | (13)                             | 2                                   | (103)                            | —                                | (103)                            |
| Interest capitalized                | 15                               | —                                | 2                                | —                                   | 17                               | —                                | 17                               |
| Other                               | 3                                | —                                | —                                | —                                   | 3                                | —                                | 3                                |
| **Total nonoperating expense**      | (35)                             | —                                | (11)                             | (3)                                 | (49)                             | —                                | (49)                             |
| **Income (loss) before income tax** | $1,244                           | $34                              | $(8)                             | $(2)                                | $1,268                           | $(109)                           | $1,159                           |

 90


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

Part II

ITEM 5\. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND  ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is listed on the New York Stock Exchange ("NYSE") under the trading symbol DAL\.

Holders

As of January 31, 2019, there were approximately 2,450 holders of record of our common stock\.

Dividends

Our Board of Directors initiated a quarterly dividend program in the September 2013 quarter, with a payment of $0\.06 per share\. The Board has increased the quarterly dividend payment several times, most recently to $0\.35 per share in the September 2018 quarter\. The Board expects to be able to continue to pay cash dividends for the foreseeable future, subject to applicable limitations under Delaware law and compliance with covenants in certain of our credit facilities\. Dividend payments will be dependent upon our results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors\.

Stock Performance Graph

The following graph compares the cumulative total returns during the period from December 31, 2013 to  December 31, 2018  of our common stock to the Standard & Poor's 500 Stock Index and the NYSE ARCA Airline Index\. The comparison assumes $100 was invested on December 31, 2013 in each of our common stock and the indices and assumes that all dividends were reinvested\.

![chart\-676b378b5e31571a87c\.jpg](http://ir.delta.com/chart-676b378b5e31571a87c.jpg)

 23


Annual Report of Southwest Airlines Co\. for year 2018

The Company recognized revenue related to the marketing, advertising, and other travel\-related benefits of the revenue associated with various loyalty partner agreements including, but not limited to, the Agreement with Chase, within Other operating revenues\. For the years ended December 31, 2018, 2017, and 2016 the Company recognized $1\.1 billion, $1\.0 billion, and $919 million, respectively\.

The Company is also required to collect certain taxes and fees from Customers on behalf of government agencies and remit these back to the applicable governmental entity on a periodic basis\. These taxes and fees include foreign and U\.S\. federal transportation taxes, federal security charges, and airport passenger facility charges\. These items are collected from Customers at the time they purchase their tickets, are excluded from the contract transaction price, and are therefore not included in Passenger revenue\. The Company records a liability upon collection from the Customer and relieves the liability when payments are remitted to the applicable governmental agency\.

90


Annual Report of Southwest Airlines Co\. for year 2017

Income\. Amounts recorded for penalties and interest related to uncertain tax positions were immaterial for all years presented\. See Note 14 for further information\.

***Concentration Risk***

Approximately 83 percent of the Company’s full\-time equivalent Employees are unionized and are covered by collective\-bargaining agreements\. A small percentage of the Company's unionized Employees, including its Mechanics and Material Specialists, are in discussions on labor agreements\. Those unionized Employee groups in discussions represent approximately 4\.9 percent of the Company’s full\-time equivalent Employees as of December 31, 2017\.

The Company attempts to minimize its concentration risk with regards to its cash, cash equivalents, and its investment portfolio\. This is accomplished by diversifying and limiting amounts among different counterparties, the type of investment, and the amount invested in any individual security or money market fund\.

To manage risk associated with financial derivative instruments held, the Company selects and will periodically review counterparties based on credit ratings, limits its exposure to a single counterparty, and monitors the market position of the program and its relative market position with each counterparty\. The Company also has agreements with counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount or credit ratings fall below certain levels\. Collateral deposits provided to or held from counterparties serve to decrease, but not totally eliminate, the credit risk associated with the Company’s hedging program\. See Note 10 for further information\.

As of December 31, 2017, the Company operated an all\-Boeing fleet, all of which are variations of the Boeing 737\. If the Company was unable to acquire additional aircraft or associated aircraft parts from Boeing, or Boeing was unable or unwilling to make timely deliveries of aircraft or to provide adequate support for its products, the Company’s operations would be materially adversely impacted\. In addition, the Company would be materially adversely impacted in the event of a mechanical or regulatory issue associated with the Boeing 737 aircraft type, whether as a result of downtime for part or all of the Company’s fleet, increased maintenance costs, or because of a negative perception by the flying public\. The Company is also dependent on sole suppliers for aircraft engines and certain other aircraft parts and would, therefore, also be materially adversely impacted in the event of the unavailability of, or a mechanical or regulatory issue associated with, engines and other parts\.

The Company has historically entered into agreements with some of its co\-brand, payment, and loyalty partners that contain exclusivity aspects which place certain confidential restrictions on the Company from entering into certain arrangements with other payment and loyalty partners\. These arrangements generally extend for the terms of the agreements, none of which currently extend beyond May 2022\. The Company believes the financial benefits generated by the exclusivity aspects of these arrangements outweigh the risks involved with such agreements\.

**2****\. NEW ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING CHANGES**

On August 28, 2017, the Financial Accounting Standards Board (the "FASB") issued ASU No\. 2017\-12, Targeted Improvements to Accounting for Hedging Activities\. The standard amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results\. The amendments also simplify the application of hedge accounting in certain situations\. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted in any interim or annual period\. The Company plans to adopt this ASU as of January 1, 2018\. See Note 10 for further information on current accounting for financial derivative instruments\. The most significant impacts of this ASU on the Company's financial statements is the elimination of the requirement to separately measure and report ineffectiveness for all cash flow hedges in a hedging relationship, as well as a change in classification of premium expense associated with option contracts\. The estimate of the cumulative effect of the adjustment to move the reporting of ineffectiveness as of January 1, 2018, to Accumulated other comprehensive income (loss) from Retained earnings, is an approximate $20 million loss, net of taxes\. Historically

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

**ITEM 2\. PROPERTIES**

**Flight Equipment and Fleet Renewal**

As of December 31, 2018, American operated a mainline fleet of 956 aircraft\. In 2018, we continued our extensive fleet renewal program, which has provided us with the youngest fleet of the major U\.S\. network carriers\. During 2018, American took delivery of 23 mainline aircraft and retired 15 mainline aircraft\. We are supported by our wholly\-owned and third\-party regional carriers that fly under capacity purchase agreements operating as American Eagle\. As of December 31, 2018, American Eagle operated 595 regional aircraft\. During 2018, we reduced our regional fleet by a net of two aircraft, including the addition of 60 regional aircraft and retirement of 62 regional aircraft\.

***Mainline***

As of December 31, 2018, American’s mainline fleet consisted of the following aircraft:

|                          |                                         |                                               |           |            |           |
| ------------------------ | --------------------------------------- | --------------------------------------------- | --------- | ---------- | --------- |
|                          | **Average Seating**

**Capacity** | **Average**

**Age**

**(Years)** | **Owned** | **Leased** | **Total** |
| Airbus A319              | 128                                     | 14\.7                                         | 21        | 105        | 126       |
| Airbus A320              | 150                                     | 17\.7                                         | 10        | 38         | 48        |
| Airbus A321              | 178                                     | 6\.4                                          | 165       | 54         | 219       |
| Airbus A330\-200         | 247                                     | 7\.0                                          | 15        | —          | 15        |
| Airbus A330\-300         | 291                                     | 18\.4                                         | 4         | 5          | 9         |
| Boeing 737\-800          | 161                                     | 9\.1                                          | 132       | 172        | 304       |
| Boeing 737\-8 MAX        | 172                                     | 0\.6                                          | 11        | 9          | 20        |
| Boeing 757\-200          | 180                                     | 19\.1                                         | 31        | 3          | 34        |
| Boeing 767\-300ER        | 209                                     | 20\.1                                         | 24        | —          | 24        |
| Boeing 777\-200ER        | 273                                     | 18\.0                                         | 44        | 3          | 47        |
| Boeing 777\-300ER        | 304                                     | 4\.8                                          | 18        | 2          | 20        |
| Boeing 787\-8            | 226                                     | 3\.1                                          | 20        | —          | 20        |
| Boeing 787\-9            | 285                                     | 1\.3                                          | 15        | 5          | 20        |
| Embraer 190              | 99                                      | 11\.1                                         | 20        | —          | 20        |
| McDonnell Douglas MD\-80 | 140                                     | 20\.6                                         | 3         | 27         | 30        |
| Total                    |                                         | 10\.6                                         | 533       | 423        | 956       |

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