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

|                             |                                      |                                      |                                      |                                      |                                      |
| --------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                             | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|                             | **Air Group**                        | **Air Group**                        | **Virgin America**                   | **Combined**                         | **Combined**                         |
|                             | **2017**  **^(b)^**                  | **2016** **^(b)^**                   | **2016** **^(c)^**                   | **2016** **^(a)^**                   | **Change**                           |
| **Consolidated:**           |                                      |                                      |                                      |                                      |                                      |
| Revenue passengers (in 000) | **44,005**                           | 34,289                               | 7,658                                | 41,947                               | 4\.9%                                |
| RPMs (in 000,000)           | **52,338**                           | 37,209                               | 11,545                               | 48,754                               | 7\.4%                                |
| ASMs (in 000,000)           | **62,072**                           | 44,135                               | 13,818                               | 57,953                               | 7\.1%                                |
| Load Factor                 | **84\.3%**                           | 84\.3%                               | (a)                                  | 84\.1%                               | 0\.2 pts                             |
| RASM ^(b)^                  | **12\.72¢**                          | 13\.43¢                              | (a)                                  | 12\.92¢                              | (1\.5)%                              |
| CASMex ^(b)^                | **8\.25¢**                           | 8\.32¢                               | (a)                                  | 8\.11¢                               | 1\.7%                                |
| FTEs                        | **20,183**                           | 14,760                               | 2,618                                | 17,378                               | 16\.1%                               |
| **Mainline:**               |                                      |                                      |                                      |                                      |                                      |
| RPMs (in 000,000)           | **48,236**                           | 33,489                               | 11,545                               | 45,034                               | 7\.1%                                |
| ASMs (in 000,000)           | **56,945**                           | 39,473                               | 13,818                               | 53,291                               | 6\.9%                                |
| Load Factor                 | **84\.7%**                           | 84\.8%                               | (a)                                  | 84\.5%                               | 0\.2 pts                             |
| RASM ^(b)^                  | **12\.00¢**                          | 15\.01¢                              | (a)                                  | 14\.05¢                              | (15\.0)%                             |

(a)2016 Combined operating statistics have been recalculated using the combined results\.

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------- |
| (b) | Certain information has been adjusted to reflect the adoption of new accounting standards\.  |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (c) | Column represents Virgin America 2016 financial results prior to the December 13, 2016 acquisition\. Information has  *not*  been adjusted to reflect new accounting standards\.  |

***OPERATING REVENUES***

Total operating revenues increased$2\.0 billion, or 33%, during 2017 compared to the same period in 2016\. On a Combined Comparative basis, total operating revenues increased $405 million or 5%\. The changes, including the reconciliation of the impact of Virgin America on the comparative results, are summarized in the following table:

|                            |                                      |                                      |                                      |                                      |              |              |
| -------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------------------------------ | ------------ | ------------ |
|                            | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Change**   | **Change**   |
|                            | **Air Group**                        | **Air Group**                        | **Virgin America**                   | **Combined**                         | **Combined** | **Combined** |
| ***(in millions)***        | **2017**  **^(b)^**                  | **2016** **^(b)^**                   | **2016** **^(c)^**                   | **2016** **^(a)^**                   | **$**        | **%**        |
| Passenger revenue          | **$7,301**                           | $5,392                               | $1,414                               | $6,806                               | $495         | 7\.3 %       |
| Mileage Plan other revenue | **418**                              | 370                                  | —                                    | 370                                  | 48           | 13\.0 %      |
| Cargo and other            | **175**                              | 163                                  | 150                                  | 313                                  | (138)        | (44\.1)%     |
| Total operating revenues   | **$7,894**                           | $5,925                               | $1,564                               | $7,489                               | $405         | 5\.4 %       |

^(a), (b), (c)^ See footnotes on the Combined Comparative Operating Statistics table above\.

***Passenger Revenue***

On a consolidated basis, passenger revenue for 2017increased by $1\.9 billion, or 35% on a 41% increase in capacity driven by the acquisition of Virgin America, offset by a 3\.7% decline in yield\. On a Combined Comparative basis, Passenger revenue increased by $495 million or 7%, due to a 7% increase in capacity\. The increase in capacity was driven by our continued network expansion and growth in the number of operating aircraft\. In 2017, we launched 44 new markets to activate our new, larger network\. Lower ticket yields (pricing) were impacted, in large part, by our new market growth and by competitor pricing actions felt more acutely in our California markets\.

***Mileage Plan other revenue***

Mileage Plan other revenue increased by $48 million, or 13%, compared to 2016, primarily due to increases in miles sold to our affinity card partner during the year and Mileage Plan™ revenue earned from partner airlines\.

 43


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

Share Repurchase Programs

In April 2018, we announced that our Board of Directors authorized a  $2\.0 billion  share repurchase program that will expire on December 31, 2020\. Since July 2014, our Board of Directors has approved  seven  share repurchase programs aggregating  $13\.0 billion  of authority\. As of  December 31, 2019 , there was  $565 million  of remaining authority to repurchase shares under our current $2\.0 billion share repurchase program\.  Share repurchases under our repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions\. Any such repurchases that may be made from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors\. We are not obligated to repurchase any specific number of shares and our repurchase of AAG common stock may be limited, suspended or discontinued at any time at our discretion and without prior notice\.

In  2019 , we repurchased  33\.8 million  shares of AAG common stock for  $1\.1 billion  at a weighted average cost per share of  $32\.09 \.  Since the inception of our share repurchase programs in July 2014 through December 31, 2019, we have repurchased  312\.7 million  shares of AAG common stock for  $12\.4 billion  at a weighted average cost per share of  $39\.76 \.

Cash Dividends

Our Board of Directors declared the following cash dividends during  2019 :

|                |               |                                      |                   |                                  |
| -------------- | ------------- | ------------------------------------ | ----------------- | -------------------------------- |
| **Period**     | **Per share** | **For stockholders of record as of** | **Payable on**    | **Total**

**(millions)** |
| First Quarter  | $0\.10        | February 6, 2019                     | February 20, 2019 | $46                              |
| Second Quarter | 0\.10         | May 8, 2019                          | May 22, 2019      | 44                               |
| Third Quarter  | 0\.10         | August 7, 2019                       | August 21, 2019   | 44                               |
| Fourth Quarter | 0\.10         | November 6, 2019                     | November 20, 2019 | 44                               |
| Total          | $0\.40        |                                      |                   | $178                             |

In  January 2020 , we announced that our Board of Directors declared a  $0\.10  per share cash dividend for stockholders of record on  February 5, 2020 , and payable on  February 19, 2020 \.

Any future dividends that may be declared and paid from time to time will be subject to market and economic conditions, applicable legal requirements and other relevant factors\. We are not obligated to continue a dividend for any fixed period, and the payment of dividends may be suspended or discontinued at any time at our discretion and without prior notice\.

Collateral\-Related Covenants

Certain of our debt financing agreements (including our term loans, revolving credit facilities and spare engine EETCs) contain loan to value ratio covenants and require us to appraise the related collateral annually\. Pursuant to such agreements, if the loan to value ratio exceeds a specified threshold or the value of the appraised collateral fails to meet a specified threshold, as the case may be, we are required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash or investment securities), or pay down such financing, in whole or in part\. As of  December 31, 2019 , we were in compliance with the foregoing collateral coverage tests as of the most recent applicable measurement dates\. For further information regarding our collateral\-related covenants, see Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B\.

Sources and Uses of Cash

For a comparison of the  2018  and  2017  reporting periods, see Part II, Item 7\. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “ Sources and Uses of Cash”  of our 2018 Form 10\-K\.

AAG

2019  Compared to  2018

Operating Activities

Our net cash provided by operating activities was  $3\.8 billion  and  $3\.5 billion  in  2019  and  2018 , respectively, a year\-over\-year  increase  of  $282 million \. This  increase  in operating cash flows was primarily due to higher profitability in  2019  as well as working capital increases principally in our air traffic liability and loyalty program deferred revenue\. These increases were offset in part by higher contributions to our defined benefit pension plans in  2019  as compared to  2018 \.

60


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

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

the Tax Act and to adjust those amounts during a measurement period not to extend more than one year from the date of enactment\. Based on our current interpretation of the Tax Act and published Treasury and Internal Revenue Service ("IRS") guidance as of December 31, 2018, the Company's accounting for the impacts of the Tax Act is complete and the Company has not recorded any material adjustments to the provisional amounts under SAB 118\. In 2018, we recorded an income tax benefit for the one\-time transition tax of $4 million and have completed the re\-measurement of our net deferred tax balances\. The Tax Act included a Global Intangible Low\-Taxed Income ("GILTI") provision which introduced a new tax on foreign income in excess of a deemed return on tangible business property of foreign subsidiaries\. The GILTI provisions of the Tax Act became effective for the Company during 2018 and we elected to account for it in the period incurred (the "period cost method")\.

Temporary differences and carryforwards that give rise to deferred tax assets and liabilities at December 31, 2018 and 2017 were as follows (in millions):

|                                                                   |          |          |            |            |
| ----------------------------------------------------------------- | -------- | -------- | ---------- | ---------- |
|                                                                   | **UAL**  | **UAL**  | **United** | **United** |
|                                                                   | **2018** | **2017** | **2018**   | **2017**   |
| Deferred income tax asset (liability):                            |          |          |            |            |
| Federal and state net operating loss ("NOL") carryforwards        | $398     | $601     | $372       | $574       |
| Deferred revenue                                                  | 1,232    | 1,090    | 1,232      | 1,090      |
| Employee benefits, including pension, postretirement and medical  | 885      | 1,051    | 885        | 1,051      |
| Other                                                             | 408      | 351      | 406        | 351        |
| Less: Valuation allowance                                         | (59)     | (63)     | (59)       | (63)       |
| Total deferred tax assets                                         | $2,864   | $3,030   | $2,836     | $3,003     |
| Depreciation                                                      | $(2,929) | $(2,431) | $(2,929)   | $(2,431)   |
| Intangibles                                                       | (749)    | (803)    | (749)      | (803)      |
| Total deferred tax liabilities                                    | $(3,678) | $(3,234) | $(3,678)   | $(3,234)   |
| Net deferred tax liability                                        | $(814)   | $(204)   | $(842)     | $(231)     |

United and its domestic consolidated subsidiaries file a consolidated federal income tax return with UAL\. Under an intercompany tax allocation policy, United and its subsidiaries compute, record and pay UAL for their own tax liability as if they were separate companies filing separate returns\. In determining their own tax liabilities, United and each of its subsidiaries take into account all tax credits or benefits generated and utilized as separate companies and they are each compensated for the aforementioned tax benefits only if they would be able to use those benefits on a separate company basis\.

The Company's federal and state NOL carryforwards relate to prior years' NOLs, which may be used to reduce tax liabilities in future years\. These tax benefits are mostly attributable to federal pre\-tax NOL carryforwards of $1\.6 billion for UAL\. If not utilized these federal pre\-tax NOLs will expire as follows (in billions): $0\.6 in 2030, $1\.0 thereafter\. In addition, for UAL the majority of tax benefits of the state NOLs of $83 million will expire over a five to twenty year period\. We have recorded a $48 million valuation allowance against these state NOLs\.

The Company's unrecognized tax benefits related to uncertain tax positions were $39 million, $21 million and $74 million at December 31, 2018, 2017 and 2016, respectively\. Included in the ending balance at December 31, 2018 is $39 million that would affect the Company's effective tax rate if recognized\. The changes in unrecognized tax benefits relating to settlements with taxing authorities, unrecognized tax benefits as a result of tax positions taken during a prior period and unrecognized tax benefits relating from a lapse of the statute of limitations were immaterial during 2018, 2017 and 2016\. The Company does not expect significant increases or decreases in their unrecognized tax benefits within the next 12 months\. There are no material amounts included in the balance at December 31, 2018 for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility\.

The Company's federal income tax returns for tax years after 2002 remain subject to examination by the IRS and state taxing jurisdictions\. Currently, there are no ongoing examinations of the Company's prior year tax returns being conducted by the IRS\.

**NOTE 8 \- PENSION AND OTHER POSTRETIREMENT PLANS**

The following summarizes the significant pension and other postretirement plans of United:

**Pension Plans\.** United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U\.S\. non\-pilot employees\. Each of these plans provide benefits based on a combination of years of benefit

69


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

Outlook

With the acquisition of Virgin America largely behind us, in 2020 we will shift our focus to executing on our new five\-year strategy\. Integral to this long\-term plan will be achieving 13% to 15% pretax margins and 4% to 6% annual capacity growth over the business cycle\. Our revenue initiatives, including our Saver Fare product, provided meaningful revenue improvements in 2019, and are expected to continue to provide incremental revenue in 2020\. Benefits from the synergies of the merger also provided positive impacts to our 2019 pretax margin, with the full run\-rate expected by 2021\. Through cross\-fleeting, we were able to optimize the use of our fleet by moving larger\-gauge, lower unit cost aircraft into markets with high demand\.

In 2020, we anticipate the continuation of these initiatives and synergies will provide an incremental $125 million of revenue\. We also expect additional revenue from initiatives we will be launching throughout 2020\. In addition, we will continue our work on notable guest experience enhancement projects which are already underway\. By the end of the year, we expect our entire mainline fleet will be equipped with high\-speed satellite Wi\-Fi, and that the majority of the interiors of our Airbus fleet will be retrofitted to align with the Boeing fleet, allowing for lower unit\-costs and incremental premium revenue on Airbus aircraft\. Work will also continue with the Port of Seattle to open a state\-of\-the\-art 20\-gate North Satellite Concourse at Sea\-Tac Airport to be completed in 2021\. These improvements, combined with our ongoing rotation of fresh, on\-board menu offerings, refreshed aircraft interiors, and optimization of our network, will continue to provide our guests with more options at a significant value\.

We expect to grow our combined network capacity in 2020 by approximately 3% to 4%, compared to 2% growth in 2019\. Current schedules indicate competitive capacity will increase by roughly one point in the first quarter of 2020\. Our capacity guidance is highly dependent on the return to service of the Boeing 737 MAX aircraft\. Our current delivery schedule indicates that ten 737 MAX aircraft will be delivered in 2020, three of which were delayed from 2019, plus seven originally contracted for delivery in 2020\. Should the grounding of the aircraft further delay those ten deliveries beyond our current expectations, our capacity growth could be negatively impacted\.

Given another year of slower growth and increased cost pressure from higher wages, airport costs and maintenance costs, we expect unit costs to increase approximately 2% in 2020\. This expectation excludes the impacts of any new labor agreements that might be reached during the year\. In order to reach our long\-term margin goals of 13% to 15%, we will mitigate cost pressures through a continued focus on higher productivity and lower overhead\. We believe that our product, our operation, our engaged employees, our award\-winning service, and our competitive Mileage Plan™, combined with our strong balance sheet and focus on low costs, give us the ability to compete successfully in the markets we serve and generate meaningful profit margins\.

RESULTS  OF OPERATIONS

ADJUSTED (NON\-GAAP) RESULTS AND  PER\-SHARE AMOUNTS

We believe disclosure of earnings excluding the impact of merger\-related costs, mark\-to\-market gains or losses or other individual special revenues or expenses is useful information to investors because:

• By excluding fuel expense and certain special items (including merger\-related and other costs) from our unit metrics, we believe that we have better visibility into the results of operations and our non\-fuel cost initiatives\. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non\-fuel operating costs can lead to a significant improvement in operating results\. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and investors) to understand the impact of (and trends in) company\-specific cost drivers, such as labor rates and productivity, airport costs, maintenance costs, etc\., which are more controllable by management\.

• Cost per ASM (CASM) excluding fuel and certain special items, such as merger\-related costs, is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance\.

• Adjusted income before income tax and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan, which covers the majority of Air Group employees\.

33


Annual Report of Southwest Airlines Co\. for year 2019

for our Customers booking their summer travel\. See Note 16 to the Consolidated Financial Statements for further information\.

For the twelve months ended  December 31, 2019 , the Company's earnings performance, combined with its actions to manage invested capital, produced a  22\.9 percent  pre\-tax non\-GAAP return on invested capital ("ROIC"), or  17\.8  percent on an after\-tax basis, compared with the Company's pre\-tax ROIC of  23\.6 percent , or  18\.4  percent on an after\-tax basis, for the twelve months ended  December 31, 2018 \. As a result of not paying for its scheduled MAX aircraft deliveries following the grounding in March 2019, the Company's cash balance at  December 31, 2019 , was higher than projected\. However, the Company has not factored any amounts for excess cash into its invested capital and ROIC calculations for any of the periods presented\. The primary cause of the year\-over\-year decline in pre\-tax ROIC was the  decrease  in Operating income for the twelve months ended  December 31, 2019 , compared with the twelve months ended  December 31, 2018 \. See the Company's calculation of ROIC in the accompanying reconciliation tables as well as the  Note Regarding Use of Non\-GAAP Financial Measures \.

During  2019 , the Company continued to return value to its Shareholders\. The Company returned  $2\.4 billion  to Shareholders through  $372 million  in dividend payments and  $2\.0 billion  through  four  separate accelerated share repurchase programs and other open market share repurchases\. During November 2019, the Company launched the Fourth Quarter 2019 ASR Program by advancing  $550 million  to a financial institution in a privately negotiated transaction\. The Company subsequently received  7\.3 million  shares of common stock in December 2019, representing an estimated 75 percent of the shares to be purchased by the Company under the Fourth Quarter 2019 ASR Program, and subsequently received an additional  1\.8 million  shares in January 2020 in further partial settlement of the Fourth Quarter 2019 ASR Program\. The specific number of shares that the Company ultimately will repurchase under the Fourth Quarter 2019 ASR Program will be determined based generally on a discount to the volume\-weighted average price per share of the Company's common stock during a calculation period to be completed no later than February 13, 2020\. The Company also entered into an additional open market share repurchase plan for the purchase of up to an additional  $50 million  of its shares of common stock depending on market prices\. These purchases will be recorded as treasury share repurchases for purposes of calculating earnings per share\. See "Liquidity and Capital Resources" below for further information on the Company's 2019 share repurchases\. The Company has  $1\.35 billion  remaining under its May 2019  $2\.0 billion  share repurchase authorization\. See Part II, Item 5 for further information on the Company's share repurchase authorizations\.

Company Overview

As of  December 31, 2019 , the Company served  101  destinations across  40  states and ten near\-international countries and currently operates over  4,000  departures a day\. The Company began service to Hawaii in March 2019 from Oakland to Honolulu, and from San Jose, California in May 2019\. On November 10, 2019, the Company began service between Sacramento and Honolulu, as well as interisland service between Honolulu and Lihue\. The Company currently operates 18 flights daily between Hawaii and the mainland, and 34 interisland flights daily amongst the Hawaiian Islands\. By April 20, 2020, the Company is scheduled to offer 28 daily departures between California and Hawaii, and 38 daily departures among the Hawaiian Islands\. The Company began service from Oakland and San Jose to both Lihue and Kona, and new interisland service between Honolulu and Hilo, and Kona and Kahului, in January 2020\. The Company also is scheduled to begin service from San Diego to Kahului on Maui on April 14, 2020, and from San Diego to Honolulu on April 20, 2020\. In 2019, the Company also announced plans to begin service from Houston Hobby to Cozumel, Mexico in March 2020, subject to government approvals\. The Company ceased services at Benito Juárez Mexico City International Airport on March 30, 2019\. Also in 2019, the Company decided to close its operations at Newark Liberty International Airport and consolidate its New York City presence at New York LaGuardia Airport\.

During  2019 , the Company took delivery of  three  new MAX aircraft from third parties\. These deliveries occurred prior to the March 13, 2019, FAA emergency order issued for all U\.S\. airlines to ground all MAX aircraft\. All  34  of the Company's MAX aircraft have remained grounded since March 13, 2019\. Upon a rescission of the FAA order to ground the MAX, the Company currently estimates it will take at least a couple of months to comply with applicable FAA directives, including all necessary Pilot training\. Based on continued uncertainty around the timing of MAX return to service, the Company has proactively removed the MAX from its flight schedule through June 6, 2020 and will likely

41


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

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

At December 31, 2017, the maturities of long\-term debt and capital lease obligations are as follows (in millions):

|                     |         |
| ------------------- | ------- |
| 2018                | $2,598  |
| 2019                | 2,868   |
| 2020                | 4,069   |
| 2021                | 2,856   |
| 2022                | 1,288   |
| 2023 and thereafter | 11,622  |
| Total               | $25,301 |

***(a) 2013, 2014, April 2016 and December 2016 Credit Facilities***

*2013 Credit Facilities*

In March 2017, American and AAG entered into the Second Amendment to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 (which amended and restated the Credit and Guaranty Agreement dated as of June 27, 2013), as previously amended by the First Amendment to Amended and Restated Credit and Guaranty Agreement dated as of October 26, 2015, pursuant to which AAG refinanced the $1\.8 billion term loan facility due June 2020 established thereunder (the 2013 Term Loan Facility and, together with the $1\.4 billion revolving credit facility established under such agreement (the 2013 Revolving Facility), the 2013 Credit Facilities) to reduce the LIBOR margin from 2\.50% to 2\.00% and the base rate margin from 1\.50% to 1\.00%\.

In August 2017, American and AAG entered into the Third Amendment to the Amended and Restated Credit and Guaranty Agreement pursuant to which the maturity date of the 2013 Revolving Facility was extended to October 2022, the LIBOR margin thereon was reduced from 3\.00% to 2\.25%, and the maximum principal amount of such facility was reduced to $1\.2 billion\.

*2014 Credit Facilities*

In June 2017, American and AAG entered into the Third Amendment to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (which amended and restated the Credit and Guaranty Agreement dated as of October 10, 2014), as previously amended by the First Amendment to Amended and Restated Credit and Guaranty Agreement dated as of October 26, 2015 and the Second Amendment to Amended and Restated Credit and Guaranty Agreement dated as of September 22, 2016, pursuant to which AAG refinanced the $735 million term loan facility due October 2021 established thereunder (the 2014 Term Loan Facility and, together with the $1\.025 billion revolving credit facility established under such agreement (the 2014 Revolving Facility), the 2014 Credit Facilities) to reduce the LIBOR margin from 2\.50% to 2\.00% and the base rate margin from 1\.50% to 1\.00%\.

In August 2017, American and AAG entered into the Fourth Amendment to the Amended and Restated Credit and Guaranty Agreement pursuant to which the maturity date of the 2014 Revolving Facility was extended to October 2022, the LIBOR margin thereon was reduced from 3\.00% to 2\.25%, and the maximum principal amount of such facility was reduced to $1\.0 billion\.

*April 2016 Credit Facilities*

In August 2017, American and AAG entered into the Second Amendment to the Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (the April 2016 Credit Facilities), as previously amended by the First Amendment to the Credit and Guaranty Agreement, dated as of October 31, 2016, pursuant to which a new $300 million revolving credit facility (the April 2016 Revolving Facility) was established with a maturity date of October 2022 and a LIBOR margin of 2\.25%\.

In November 2017, American and AAG entered into the Third Amendment to the Credit and Guaranty Agreement, amending the April 2016 Credit Facilities, pursuant to which AAG refinanced the $990 million term loan facility due April 2023 established thereunder (the April 2016 Term Loan Facility), to reduce the LIBOR margin from 2\.50% to 2\.00% and the base rate margin from 1\.50% to 1\.00%\.

97


Annual Report of Southwest Airlines Co\. for year 2017

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized\.

|                  |                         |                                                      |
| ---------------- | ----------------------- | ---------------------------------------------------- |
|                  | SOUTHWEST AIRLINES CO\. | SOUTHWEST AIRLINES CO\.                              |
| February 7, 2018 | By                      | /s/ Tammy Romo                                       |
|                  |                         | Tammy Romo                                           |
|                  |                         | *Executive Vice President & Chief Financial Officer* |
|                  |                         | *(On behalf of the Registrant and in*                |
|                  |                         | *her capacity as Principal Financial*                |
|                  |                         | *and Accounting Officer)*                            |

123


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

During 2018, we entered into the following purchase agreements, which are included in the table above:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | In June 2018, we signed an agreement with Bombardier Commercial Aircraft to purchase   20  CRJ\-900 aircraft\. These aircraft will be operated by SkyWest Airlines, Inc\., and will replace older dual\-class aircraft that they own or lease\. The new aircraft will be delivered through 2020\. |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | In November 2018, we expanded our purchase commitment for A330\-900neo aircraft from   25  to   35  and deferred the delivery of the final   ten  A350\-900 purchase commitments\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | In December 2018, we increased our A220 purchase commitment by   15  to a total of   90  aircraft, composed of   40  A220\-100s and   50  A220\-300s\. The first   four  A220\-100 deliveries were received during the December 2018 quarter and deliveries will continue through 2020\. The A220\-300 deliveries will begin during 2020\. |

Contract Carrier Agreements

We have contract carrier agreements with regional carriers expiring from  2019  to  2029 \.

Capacity Purchase Agreements \. Most of our contract carriers operate for us under capacity purchase agreements\. Under these agreements, the contract carriers operate some or all of their aircraft using our flight designator codes, and we control the scheduling, pricing, reservations, ticketing and seat inventories of those aircraft and retain the revenues associated with those flights\. We pay those airlines an amount, as defined in the applicable agreement, which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services\.

The following table shows our minimum fixed obligations under our existing capacity purchase agreements with third\-party regional carriers\. The obligations set forth in the table contemplate minimum levels of flying by the contract carriers under the respective agreements and also reflect assumptions regarding certain costs associated with the minimum levels of flying such as the cost of fuel, labor, maintenance, insurance, catering, property tax and landing fees\. Accordingly, our actual payments under these agreements could differ materially from the minimum fixed obligations set forth in the table below\.

|                   |                      |
| ----------------- | -------------------- |
| **(in millions)** | **Amount** **^(1)^** |
| 2019              | $1,505               |
| 2020              | 1,344                |
| 2021              | 951                  |
| 2022              | 872                  |
| 2023              | 769                  |
| Thereafter        | 2,862                |
| Total             | $8,303               |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | These amounts exclude contract carrier payments accounted for as operating leases of aircraft, which are described in  Note 8 , "Leases\." |

Revenue Proration Agreement \. As of  December 31, 2018 , a portion of our contract carrier agreement with SkyWest Airlines, Inc\. is structured as a revenue proration agreement\. This revenue proration agreement establishes a fixed dollar or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries\.

Legal Contingencies

We are involved in various legal proceedings related to employment practices, environmental issues, antitrust matters and other matters concerning our business\. We record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount of loss can be reasonably estimated\. Although the outcome of the legal proceedings in which we are involved cannot be predicted with certainty, we believe that the resolution of current matters will not have a material adverse effect on our Consolidated Financial Statements\.

 88


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

other revenue in the period that those elements are sold\. The Company records passenger revenue related to the air transportation and certificates for discounted companion travel when the transportation is delivered\.

In contracts with non\-bank partners, the Company has identified two performance obligations in most cases \- travel and brand\. Revenue is recognized using the residual method, where the travel performance obligation is deferred until transportation is provided in the amount of the estimated standalone selling price of the ticket, less breakage\. The residual amount, if any, is recognized as commission revenue when the brand element is sold\. Mileage credit sales recorded under the residual approach are immaterial to the overall program\.

***Interline loyalty***

Alaska has interline arrangements with certain airlines whereby its members may earn and redeem Mileage Plan™ credits on those airlines, and members of a partner airline’s loyalty program may earn and redeem frequent flyer program credits on flights operated by Alaska and its regional partners\. When a Mileage Plan™ member earns credits on a partner airline, the partner airline remits a contractually\-agreed upon fee to the Company which is deferred until credits are redeemed\. When a Mileage Plan™ member redeems credits on a partner airline, the Company pays a contractually agreed upon fee to the other airline, which offsets the revenue recognized associated with the award travel\. When a member of a partner airline redeems frequent flyer credits on Alaska, the partner airline remits a contractually\-agreed upon amount to the Company, recognized as Passenger revenue upon travel\. If the partner airline’s member earns frequent flyer program credits on an Alaska flight, the Company remits a contractually\-agreed upon fee to the partner airline and records a commission expense\.

Mileage Plan™ revenue included in the consolidated statements of operations (in millions):

|                                  |                                      |                                      |                                      |
| -------------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                                  | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|                                  | **2018**                             | **2017**                             | **2016**                             |
| Passenger revenue                | **$619**                             | $541                                 | $443                                 |
| Mileage Plan ^TM^  other revenue | **434**                              | 418                                  | 370                                  |
| **Total Mileage Plan™ revenue**  | **$1,053**                           | $959                                 | $813                                 |

Mileage Plan™ other revenue is primarily brand and marketing revenue from our affinity card products\.

**Cargo and Other**

The Company provides freight and mail services (cargo)\. The majority of cargo services are provided to commercial businesses and the United States Postal Service\. The Company satisfies cargo service performance obligations and recognizes revenue when the shipment arrives at its final destination, or is transferred to a third\-party carrier for delivery\.

The Company also earns other revenue for lounge memberships, hotel and car commissions, and certain other immaterial items not intrinsically tied to providing air travel to passengers\. Revenue is recognized when these services are rendered and recorded as Cargo and other revenue\. The transaction price for Cargo and other revenue is the price paid by the customer\.

Cargo and other revenue included in the consolidated statements of operations (in millions):

|                                   |                                      |                                      |                                      |
| --------------------------------- | ------------------------------------ | ------------------------------------ | ------------------------------------ |
|                                   | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** | **Twelve Months Ended December 31,** |
|                                   | **2018**                             | **2017**                             | **2016**                             |
| Cargo revenue                     | **$128**                             | $115                                 | $108                                 |
| Other revenue                     | **70**                               | 60                                   | 55                                   |
| **Total Cargo and other revenue** | **$198**                             | $175                                 | $163                                 |

**Air Traffic Liability and Deferred Revenue**

***Passenger ticket and ancillary services liabilities***

Air traffic liability included on the consolidated balance sheets represents the remaining obligation associated with passenger tickets and ancillary services\. The air traffic liability balance fluctuates with seasonal travel patterns\. The Company recognized Passenger revenue of $583 million and $551 million from the 2017 and 2016 year\-end air traffic liability balance for both the twelve months ended December 31, 2018 and 2017, respectively\.

 72


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

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

operating decision maker at the consolidated level\. When making operational decisions, the chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics, but is indifferent to the results of the individual regional carriers\. The objective in making operational decisions is to maximize consolidated financial results, not the individual results of American or American Eagle\.

American’s operating revenues by geographic region as defined by the U\.S\. Department of Transportation (DOT) are summarized below (in millions):

|                          |                             |                             |                             |
| ------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                          | **2017**                    | **2016**                    | **2015**                    |
| DOT Domestic             | $29,600                     | $28,603                     | $28,709                     |
| DOT Latin America        | 5,422                       | 4,995                       | 5,539                       |
| DOT Atlantic             | 5,059                       | 4,769                       | 5,146                       |
| DOT Pacific              | 2,114                       | 1,796                       | 1,544                       |
| Total operating revenues | $42,195                     | $40,163                     | $40,938                     |

American attributes operating revenues by geographic region based upon the origin and destination of each flight segment\. American’s tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated\.

**12\. Share\-based Compensation**

The 2013 AAG Incentive Award Plan (the 2013 Plan) provides that awards may be in the form of an option, restricted stock award, restricted stock unit award, performance award, dividend equivalent award, deferred stock award, deferred stock unit award, stock payment award or stock appreciation right\. The 2013 Plan initially authorized the grant of awards for the issuance of up to 40 million shares\. Any shares underlying awards granted under the 2013 Plan, or any pre\-existing US Airways Group plan, that are forfeited, terminate or are settled in cash (in whole or in part) without the delivery of shares will again be available for grant\.

American’s salaries, wages and benefits expense for the years ended December 31, 2017, 2016 and 2015 included $90 million, $102 million and $274 million, respectively, of share\-based compensation costs\. Of the 2015 amount, $198 million was related to awards granted to certain employees in connection with the Merger and recorded in special items, net on the accompanying consolidated statements of operations\.

During 2017, 2016 and 2015, AAG withheld approximately 1\.1 million, 1\.4 million and 7\.0 million shares of AAG common stock, respectively, and paid approximately $51 million, $56 million and $306 million, respectively, in satisfaction of certain tax withholding obligations associated with employee equity awards\.

***(a) Restricted Stock Unit Awards (RSUs)***

AAG has granted RSUs with service conditions (time vested primarily over three years) and performance conditions\. The grant\-date fair value of RSUs is equal to the market price of the underlying shares of common stock on the date of grant\. For time vested awards, the expense is recognized on a straight\-line basis over the vesting period for the entire award\. For awards with performance conditions, the expense is recognized based on the expected achievement at each reporting period\. Stock\-settled RSUs are classified as equity awards as the vesting results in the issuance of shares of AAG common stock\.

166


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

***We may be adversely affected by conflicts overseas or terrorist attacks; the travel industry continues to face ongoing security concerns\.***

Acts of terrorism or fear of such attacks, including elevated national threat warnings, wars or other military conflicts, may depress air travel, particularly on international routes, and cause declines in revenues and increases in costs\. The attacks of September 11, 2001 and continuing terrorist threats, attacks and attempted attacks materially impacted and continue to impact air travel\. Increased security procedures introduced at airports since the attacks of September 11, 2001 and any other such measures that may be introduced in the future generate higher operating costs for airlines\. The Aviation and Transportation Security Act mandated improved flight deck security, deployment of federal air marshals on board flights, improved airport perimeter access security, airline crew security training, enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security screening personnel, additional provision of passenger data to the U\.S\. Customs and Border Protection Agency and enhanced background checks\. A concurrent increase in airport security charges and procedures, such as restrictions on carry\-on baggage, has also had and may continue to have a disproportionate impact on short\-haul travel, which constitutes a significant portion of our flying and revenue\. Implementation of and compliance with increasingly\-complex security and customs requirements will continue to result in increased costs for us and our passengers, and have caused and likely will continue to cause periodic service disruptions and delays\. We have at times found it necessary or desirable to make significant expenditures to comply with security\-related requirements while seeking to reduce their impact on our customers, such as expenditures for automated security screening lines at airports\. As a result of competitive pressure, and the need to improve security screening throughput to support the pace of our operations, it is unlikely that we will be able to capture all security\-related costs through increased fares\. In addition, we cannot forecast what new security requirements may be imposed in the future, or their impact on our business\.

***We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control\.***

We operate a global business with significant operations outside of the U\.S\. Our current international activities and prospects have been and in the future could be adversely affected by reversals or delays in the opening of foreign markets, increased competition in international markets, the performance of our alliance, joint business and codeshare partners in a given market, exchange controls or other restrictions on repatriation of funds, currency and political risks (including changes in exchange rates and currency devaluations), environmental regulation, increases in taxes and fees and changes in international government regulation of our operations, including the inability to obtain or retain needed route authorities and/or slots\. In particular, fluctuations in foreign currencies, including devaluations, exchange controls and other restrictions on the repatriation of funds, have significantly affected and may continue to significantly affect our operating performance, liquidity and the value of any cash held outside the U\.S\. in local currency\.

Generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by us and can significantly affect the value of our assets located outside the United States\. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect our business, results of operations and financial condition\.

The United Kingdom held a referendum in June 2016 regarding its membership in the EU in which a majority of the United Kingdom electorate voted in favor of the British government taking the necessary action for the United Kingdom to leave the EU, commonly referred to as Brexit\. In March 2017, the United Kingdom served notice of its decision to withdraw to the EU, formally initiating the withdrawal process\. Serving this notice began the two\-year period for the United Kingdom to negotiate the terms for its withdrawal from the EU\. At this time, it is not certain what steps will need to be taken to facilitate the United Kingdom’s exit from the EU\. The implications of the United Kingdom withdrawing from the EU are similarly unclear at present because it is unclear what relationship the United Kingdom will have with the EU after withdrawal\. We face risks associated with the uncertainty following the referendum and the consequences that may flow from the decision to exit the EU, notably given the extent of our passenger and cargo traffic and that of our joint business partners that flows through LHR in the United Kingdom\. Among other things, Brexit will likely require a transition arrangement or new air services agreement involving the U\.S\. and United Kingdom, and the United Kingdom and EU, to permit our current air services (including those involving our joint business and code share partners) to continue as we currently conduct them\. Moreover, the exit of the United Kingdom from the EU could adversely affect European or worldwide economic or market conditions and could contribute to further instability in global financial markets\. In addition, the exit of the United Kingdom from the EU has created uncertainty as to the future trade relationship between the EU and the United Kingdom, including as to air traffic services\. The exit of the United Kingdom could also lead to legal and regulatory uncertainty and potentially divergent treaties, laws and regulations as the United Kingdom determines which EU treaties, laws and regulations to replace or replicate, including those governing

25


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

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------ |
| (c) | See reconciliation to the most directly related Generally Accepted Accounting Principles (GAAP) measure in the "Results of Operations" section\. |

|     |                                                                    |
| --- | ------------------------------------------------------------------ |
| (d) | See "Glossary of Terms" for definitions of the abbreviated terms\. |

 30


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

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

UNITED AIRLINES HOLDINGS, INC\.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

|                                                                                |                     |                     |
| ------------------------------------------------------------------------------------------- | ------------------- | ------------------- |
|                                                                                | **At December 31,** | **At December 31,** |
| **ASSETS**                                                                                | **2019**            | **2018 (a)**        |
| Current assets:                                                                             |                     |                     |
| Cash and cash equivalents                                                                   | $2,762              | $1,694              |
| Short\-term investments                                                                     | 2,182               | 2,256               |
| Receivables, less allowance for doubtful accounts (2019—$9; 2018—$8)                        | 1,364               | 1,426               |
| Aircraft fuel, spare parts and supplies, less obsolescence allowance (2019—$425; 2018—$412) | 1,072               | 985                 |
| Prepaid expenses and other                                                                  | 814                 | 733                 |
| Total current assets                                                                        | 8,194               | 7,094               |
| Operating property and equipment:                                                           |                     |                     |
| Flight equipment                                                                            | 35,421              | 32,599              |
| Other property and equipment                                                                | 7,926               | 6,889               |
| Purchase deposits for flight equipment                                                      | 1,360               | 1,177               |
| Total operating property and equipment                                                      | 44,707              | 40,665              |
| Less—Accumulated depreciation and amortization                                              | (14,537

)    | (13,266

)    |
| Total operating property and equipment, net                                                 | 30,170              | 27,399              |
| Operating lease right\-of\-use assets                                                       | 4,758               | 5,262               |
| Other assets:                                                                               |                     |                     |
| Goodwill                                                                                | 4,523               | 4,523               |
| Intangibles, less accumulated amortization (2019—$1,440; 2018—$1,380)                       | 3,009               | 3,159               |
| Restricted cash                                                                             | 106                 | 105                 |
| Notes receivable, net                                                                       | 671                 | 516                 |
| Investments in affiliates and other, net                                                    | 1,180               | 966                 |
| Total other assets                                                                          | 9,489               | 9,269               |
| Total assets                                                                                | $52,611             | $49,024             |

(continued on next page)

45


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

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

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

**Overview**

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

**2018** **Financial Highlights**

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | 2018  net income was  $2\.1 billion , or  $7\.70  diluted earnings per share, as compared to  $2\.1 billion , or  $7\.06  diluted earnings per share, in 2017\. |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Revenue for 2018 increased $3\.5 billion over 2017 due to a  4\.9%  growth in ASMs and a PRASM increase of  4\.3%  in  2018  compared to  2017 \.  |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------- |
| • | Aircraft fuel cost for  2018  increased  34\.6%  over  2017  mainly due to higher fuel prices\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | In  2018 , UAL repurchased approximately 17\.5 million shares of its common stock for $1\.2 billion\. As of  December 31, 2018 , the Company had approximately  $1\.8 billion  remaining to purchase shares under its share repurchase program\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | UAL ended  2018  with  $6\.0 billion  in unrestricted liquidity, which consisted of unrestricted cash, cash equivalents, short\-term investments and available capacity under the revolving credit facility of its Amended and Restated Credit and Guaranty Agreement (as amended, the "Credit Agreement")\. |

**2018** **Operational Highlights**

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | RPMs for  2018  increased  6\.4%  as compared to  2017 , and ASMs increased  4\.9%  from the prior year, resulting in a load factor of  83\.6%  in  2018  versus 82\.4% in 2017\. |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | For  2018  and  2017 , the Company recorded U\.S\. Department of Transportation on\-time arrival rates of 79\.8% and 81\.9%, respectively, and mainline completion factors of 99\.2% and 99\.0%, respectively\. |

**Outlook**

Set forth below is a discussion of matters that we believe could impact our financial and operating performance and cause our results of operations in future periods to differ materially from our historical operating results and/or from our anticipated results of operations described in the forward\-looking statements in this report\. See Part I, Item 1A\., Risk Factors, of this report and the factors described under "Forward\-Looking Information" below for additional discussion of these and other factors that could affect us\.

***Growth Strategy\.*** In 2018, the Company completed the first year of its multi\-year growth strategy, increasing ASMs 4\.9% compared to 2017\. Our priorities for 2019 are delivering top\-tier operational reliability and customer service while continuing to execute on our growth plan by strengthening our domestic network through strategic and efficient growth and investing in our people and product\.

***Fuel\.*** The Company's average aircraft fuel price per gallon including related taxes was $2\.25 in 2018 as compared to $1\.74 in 2017\. Based on the Company's projected fuel consumption in 2019, a one\-dollar change in the price of a barrel of crude oil would change the Company's projected fuel expense by approximately $104 million\.

24


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

***Pensions and Retiree Medical and Other Postretirement Benefits***

We recognize the funded status (i\.e\., the difference between the fair value of plan assets and the projected benefit obligations) of our pension and retiree medical and other postretirement benefits plans in the consolidated balance sheets with a corresponding adjustment to accumulated other comprehensive income (loss)\.

Our pension and retiree medical and other postretirement benefits costs and liabilities are calculated using various actuarial assumptions and methodologies\. We use certain assumptions including, but not limited to, the selection of the: (1) discount rate; (2) expected return on plan assets; (3) expected health care cost trend rate and (4) the estimated age of pilot retirement (as discussed below)\. These assumptions as of December 31 were:

|                                                                                |          |          |
| --------------------------------------------------------------------------------------- | -------- | -------- |
|                                                                                | **2017** | **2016** |
| Pension weighted average discount rate  ^(1)^                                           | 3\.80%   | 4\.30%   |
| Retiree medical and other postretirement benefits weighted average discount rate  ^(1)^ | 3\.60%   | 4\.10%   |
| Expected rate of return on plan assets  ^(2)^                                           | 8\.00%   | 8\.00%   |
| Weighted average health care cost trend rate assumed for next year  ^(3)^ :             |          |          |
| Initial                                                                                | 4\.19%   | 4\.25%   |
| Ultimate (2025)                                                                         | 3\.76%   | 3\.77%   |
| Pilot Retirement Age                                                                    | 62       | 62       |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | When establishing our discount rate to measure our obligations, we match high quality corporate bonds available in the marketplace whose cash flows approximate our projected benefit disbursements\. Lowering the discount rate by 50 basis points as of December 31, 2017 would increase our pension and retiree medical and other postretirement benefits obligations by approximately $1\.3 billion and $46 million, respectively, and increase both estimated 2018 pension expense and estimated 2018 retiree medical and other postretirement benefits expense by less than $1 million\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | The expected rate of return on plan assets is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions and our target asset allocation of 30% U\.S\. stocks, 22% developed international stocks, 20% long duration corporate and U\.S\. government/agency bonds, 20% alternative (private) investments and 8% emerging market stocks\. The expected rate of return on plan assets component of our net periodic benefit cost is calculated based on the fair value of plan assets and our target asset allocation\. Lowering the expected long\-term rate of return on plan assets by 50 basis points as of December 31, 2017 would increase estimated 2018 pension expense and retiree medical and other postretirement benefits expense by approximately $57 million and $1 million, respectively\. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | The assumed health care cost trend rate is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions\. Increasing the assumed health care cost trend rate by 100 basis points would increase estimated 2018 retiree medical and other postretirement benefits expense by $5 million\. |

During 2017, we reviewed and revised certain economic and demographic assumptions including the pension and retiree medical and other postretirement benefits discount rates and health care cost and trend rates\. The net effect of changing these assumptions for the pension plans resulted in an increase of $1\.2 billion in the projected benefit obligation at December 31, 2017\. The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in an increase of $45 million in the projected benefit obligation at December 31, 2017\. We also revised our mortality assumptions to incorporate the new mortality improvement scale issued by the Society of Actuaries\. This resulted in a decrease in the projected benefit obligations of our pension and retiree medical and other postretirement benefits plans of $114 million and $8 million, respectively\.

See Note 9 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 7 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information regarding our employee benefit plans\.

75


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

*Operating Special Items, Net*

|                                                         |                             |                             |
| ------------------------------------------------------- | --------------------------- | --------------------------- |
|                                                         | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                         | **2017**                    | **2016**                    |
|                                                         | **(In millions)**           | **(In millions)**           |
| Merger integration expenses  ^(1)^                      | $273                        | $514                        |
| Fleet restructuring expenses  ^(2)^                     | 232                         | 177                         |
| Employee 2017 Tax Act bonus expense  ^(3)^              | 123                         | —                           |
| Labor contract expenses  ^(4)^                          | 46                          | —                           |
| Mark\-to\-market adjustments for bankruptcy obligations | 27                          | 25                          |
| Other operating charges (credits), net                  | 11                          | (7)                         |
| Total mainline operating special items, net             | 712                         | 709                         |
| Regional operating special items, net                   | 3                           | 13                          |
| Total operating special items, net                      | $715                        | $722                        |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | Merger integration expenses included costs related to information technology, professional fees, re\-branding of aircraft and airport facilities and training, and in 2016, also included costs related to alignment of labor union contracts and the launch of re\-branded uniforms, both of which drove the $241 million year\-over\-year decrease in these expenses\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Fleet restructuring expenses, driven in part by the Merger, principally included the acceleration of depreciation and impairments for aircraft and related equipment grounded or expected to be grounded earlier than planned\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Employee bonus expense included costs related to the $1,000 cash bonus and associated payroll taxes granted to mainline employees as of December 31, 2017 in recognition of the 2017 Tax Act\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(4)^ | Labor contract expenses primarily included one\-time charges to adjust the vacation accruals for pilots and flight attendants as a result of the mid\-contract pay rate adjustments effective in the second quarter of 2017\. |

*Regional Operating Expenses*

|                                   |                                              |                                              |                                              |                                              |
| --------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- |
|                                   | **Year Ended
December 31,**             | **Year Ended
December 31,**             | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                   | **2017**                                     | **2016**                                     | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                   | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** |
| Aircraft fuel and related taxes   | $1,382                                       | $1,109                                       | $273                                         | 24\.6                                        |
| Other                             | 5,190                                        | 4,900                                        | 290                                          | 5\.9                                         |
| Total regional operating expenses | $6,572                                       | $6,009                                       | $563                                         | 9\.4                                         |

Regional operating expenses increased $563 million, or 9\.4%, in 2017 from 2016\. The year\-over\-year increase was due in part to a $273 million, or 24\.6%, increase in fuel costs\. The average price per gallon of fuel increased 21\.2% to $1\.79 in 2017 from $1\.48 in 2016, on a 2\.8% increase in consumption\. Additionally, other regional operating expenses increased $290 million, or 5\.9%, primarily driven by increased capacity\. See Note 1(q) to American’s Consolidated Financial Statements in Part II, Item 8B for further information on regional expenses\.

61


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

55


Annual Report of Southwest Airlines Co\. for year 2019

The only periods subject to examination for the Company’s federal tax return are the 2018 and  2019  tax years\. The Company is also subject to various examinations from state and local income tax jurisdictions in the ordinary course of business\. These examinations are not expected to have a material effect on the financial results of the Company\.

107


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

*Aircraft Emissions and Climate Change Requirements*

Many aspects of our operations are subject to increasingly stringent environmental regulations and concerns about climate change and greenhouse gas (GHG) emissions\. For example, the EU has established the Emissions Trading Scheme (ETS) to regulate GHG emissions in the EU\. The EU adopted a directive in 2008 under which each EU member state is required to extend the ETS to aviation operations\. However, the EU ETS has never fully been imposed, in large part due to the global effort to moderate international aviation emissions solely through the International Civil Aviation Organization (ICAO)\. The U\.S\. enacted legislation in November 2012 intended to encourage an international solution through ICAO, but which also authorizes the U\.S\. Secretary of Transportation to prohibit U\.S\. airlines from participating in the ETS\.

In October 2016, ICAO passed a resolution adopting the ICAO Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which is a global, market\-based emissions offset program to encourage carbon\-neutral growth beyond 2020\. The CORSIA applies to international aviation, and does not directly impact domestic U\.S\. flights\. The CORSIA was supported by the board of Airlines for America (the principal U\.S\. airline trade association), the International Air Transport Association (IATA) (the principal international airline trade association), and by American and many other U\.S\. and foreign airlines\. The CORSIA will increase operating costs for American and most other airlines, including other U\.S\. airlines that operate internationally, but the implementation of a global program, as compared to regional emission reduction schemes, should ensure that resulting increases in operating costs will be more predictable and more evenly applied to American and its competitors since there will be a common global regulatory regime\. The CORSIA is expected to be implemented in phases, beginning in 2021\. Certain details still need to be developed and the impact of the CORSIA cannot be fully predicted\. The EU has extended its stay on the extra\-territorial application of the EU ETS as applied to international flights to/from the European Economic Area (EAA) through year\-end 2023, contingent on successful implementation of the ICAO CORSIA\. Thereafter, the EU will assess the ICAO CORSIA implementation and decide the future status of the EU ETS as applied to international aviation to/from the EAA\.

In 2018, the EPA is expected to finalize a rule implementing aircraft engine GHG emission standards\. It is anticipated that the EPA rule will closely align with recent ICAO carbon dioxide emission standards\. The new standards, which were supported by the airline industry and manufacturers, would apply to new type aircraft certified beginning in 2020, and would be phased in for newly manufactured existing aircraft type designs starting in 2023\.

In addition, several states, have adopted or are considering initiatives to regulate emissions of GHGs, primarily through the planned development of GHG emissions inventories and/or regional GHG cap and trade programs\.

We have taken a number of actions that mitigate our GHG emissions and conserve fuel such as:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------- |
| • | Retiring older aircraft and replacing them with new, more fuel\-efficient aircraft; |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------- |
| • | Reducing fuel consumption through our Fuel Smart Program, which is an employee\-led effort to safely reduce fuel consumption; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------- |
| • | Working with the FAA and vendors to facilitate efficient airspace procedures, which also reduces aircraft emissions; |

|   |                                                                |
| - | -------------------------------------------------------------- |
| • | Replacing existing cargo containers with lightweight versions; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Replacing older, inefficient ground support equipment with new, more fuel\-efficient ground support equipment, including alternative\-fuel and electric powered equipment; |

|   |                                                           |
| - | --------------------------------------------------------- |
| • | Purchasing renewable energy to reduce indirect emissions; |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Seeking certification of certain buildings to the U\.S\. Green Building Council’s Leadership in Energy and Environmental Design (LEED) standard; and |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------- |
| • | Entering into partnerships with certain companies to further explore potential production pathways for sustainable alternative jet fuel\. |

For further information, see our annual Corporate Responsibility Report, available on our website at *www\.aa\.com*\. None of the information or contents of our website is incorporated into this Annual Report on Form 10\-K\.

13


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

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

Contractual Obligations

The following table summarizes our contractual obligations at  December 31, 2017  that we expect will be paid in cash\. The table does not include amounts that are contingent on events or other factors that are uncertain or unknown at this time, including legal contingencies, uncertain tax positions and amounts payable under collective bargaining arrangements, among others\. In addition, the table does not include expected significant cash payments representing obligations that arise in the ordinary course of business that do not include contractual commitments\.

The amounts presented are based on various estimates, including estimates regarding the timing of payments, prevailing interest rates, volumes purchased, the occurrence of certain events and other factors\. Accordingly, the actual results may vary materially from the amounts presented in the table\.

|                                             |                                               |                                               |                                               |                                               |                                               |                                               |                                               |
| ------------------------------------------- | --------------------------------------------- | --------------------------------------------- | --------------------------------------------- | --------------------------------------------- | --------------------------------------------- | --------------------------------------------- | --------------------------------------------- |
|                                             | **Contractual Obligations by Year** **^(1)^** | **Contractual Obligations by Year** **^(1)^** | **Contractual Obligations by Year** **^(1)^** | **Contractual Obligations by Year** **^(1)^** | **Contractual Obligations by Year** **^(1)^** | **Contractual Obligations by Year** **^(1)^** | **Contractual Obligations by Year** **^(1)^** |
| **(in millions)**                           | **2018**                                      | **2019**                                      | **2020**                                      | **2021**                                      | **2022**                                      | **Thereafter**                                | **Total**                                     |
| Long\-term debt (see Note 6)                |                                               |                                               |                                               |                                               |                                               |                                               |                                               |
| Principal amount                            | $2,183                                        | $1,359                                        | $1,983                                        | $345                                          | $2,009                                        | $660                                          | $8,539                                        |
| Interest payments                           | 349                                           | 247                                           | 171                                           | 131                                           | 82                                            | 120                                           | 1,100                                         |
| Capital lease obligations (see Note 7)      |                                               |                                               |                                               |                                               |                                               |                                               |                                               |
| Principal amount                            | 97                                            | 78                                            | 56                                            | 34                                            | 19                                            | 110                                           | 394                                           |
| Interest payments                           | 19                                            | 14                                            | 9                                             | 7                                             | 5                                             | 16                                            | 70                                            |
| Operating lease payments (see Note 7)       | 1,735                                         | 1,589                                         | 1,430                                         | 1,156                                         | 1,036                                         | 9,290                                         | 16,236                                        |
| Aircraft purchase commitments (see Note 10) | 3,570                                         | 3,370                                         | 3,270                                         | 3,880                                         | 2,450                                         | 1,740                                         | 18,280                                        |
| Contract carrier obligations (see Note 10)  | 1,772                                         | 1,603                                         | 1,320                                         | 793                                           | 723                                           | 1,975                                         | 8,186                                         |
| Employee benefit obligations (see Note 9)   | 149                                           | 144                                           | 130                                           | 120                                           | 113                                           | 5,916                                         | 6,572                                         |
| Other obligations                           | 770                                           | 364                                           | 314                                           | 241                                           | 411                                           | 459                                           | 2,559                                         |
| Total                                       | $10,644                                       | $8,768                                        | $8,683                                        | $6,707                                        | $6,848                                        | $20,286                                       | $61,936                                       |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | For additional information, see the Notes to the Consolidated Financial Statements referenced in the table above\. |

Long\-Term Debt, Principal Amount\.  Represents scheduled principal payments on long\-term debt\.

Long\-Term Debt, Interest Payments\.  Represents estimated interest payments under our long\-term debt based on the interest rates specified in the applicable debt agreements\. Interest payments on variable interest rate debt were calculated using London interbank offered rates ("LIBOR") at  December 31, 2017 \.

Operating Lease Payments\.  Represents our minimum rental commitments under noncancelable operating leases (including certain aircraft flown by regional carriers)\.

Aircraft Purchase Commitments\.  Represents our commitments to purchase  100  A321\-200neo,  93  A321\-200,  75  CS100,  41  B\-737\-900ER,  25  A330\-900neo and  19  A350\-900 aircraft\.

Contract Carrier Obligations\.  Represents our estimated minimum fixed obligations under capacity purchase agreements with third\-party regional carriers\. The reported amounts are based on (1) the required minimum levels of flying by our contract carriers under the applicable agreements and (2) assumptions regarding the costs associated with such minimum levels of flying\.

Employee Benefit Obligations\.  Represents primarily (1) our estimated minimum required funding for our qualified defined benefit pension plans based on actuarially determined estimates and (2) projected future benefit payments from our unfunded postretirement and postemployment plans\. For additional information about our defined benefit pension plan obligations, see "Critical Accounting Policies and Estimates\."

Other Obligations\.  Represents estimated purchase obligations under which we are required to make minimum payments for goods and services, including, but not limited to, insurance, marketing, maintenance, technology, sponsorships and other third\-party services and products\.

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