Annual Report of Southwest Airlines Co\. for year 2017

that the hedges are assumed to be perfectly effective, and, thus, there is no ineffectiveness to be recorded in earnings\. For the Company’s interest rate swap agreements that do not qualify for the "shortcut" method of accounting, ineffectiveness is required to be measured at each reporting period\. The ineffectiveness associated with all of the Company’s, including AirTran Holdings', interest rate swap agreements for all periods presented was not material\.

The fair values of the interest rate swap agreements, which are adjusted regularly, have been aggregated by counterparty for classification in the Consolidated Balance Sheet\. Agreements totaling a net liability of $22 million are fair value hedges, cash flow hedges, and interest rate derivatives not utilizing hedge accounting, and are classified as components of Accrued liabilities and Other noncurrent liabilities\. The corresponding adjustment related to the net liability associated with the Company’s cash flow hedges is to AOCI, fair value hedges is to the carrying value of the long\-term debt, and interest rate derivatives not utilizing hedge accounting is to Interest expense\. See Note 12\.

The Company has fixed\-to\-floating interest rate swap agreements in place associated with its $500 million2\.65 percent Notes due 2020 and its $300 million2\.75 percent Notes due 2019 that are accounted for as fair value hedges\. As a result of the fixed\-to\-floating interest rate swap agreements in place, the average floating rate recognized during 2017 was approximately 2\.47 percent on the $500 million Note, and approximately 2\.29 percent on the $300 million Note, based on actual and forward rates as of December 31, 2017\.

The Company has floating\-to\-fixed interest rate swap agreements associated with its $600 million floating\-rate term loan agreement due 2020 and its $332 million term loan agreement due 2019 that are accounted for as cash flow hedges\. These interest rate hedges have fixed the interest rate on the $600 million floating\-rate term loan agreement at 5\.223 percent until maturity, and for the $332 million term loan agreement at 6\.315 percent until maturity\.

There are also a number of interest rate swap agreements, which convert a portion of AirTran Holdings' floating\-rate debt to a fixed\-rate basis for the remaining life of the debt, thus reducing the impact of interest rate changes on future interest expense and cash flows\. Under these agreements, which expire between 2018 and 2020, it pays fixed rates between 4\.35 percent and 6\.435 percent and receives either three\-month or six\-month LIBOR on the notional values\. The notional amount of outstanding debt related to interest rate swaps as of December 31, 2017, was $124 million\. The mark\-to\-market impact associated with these hedges for all periods presented was not material\.

***Credit Risk and Collateral***

Credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are an asset to the Company at the reporting date\. At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements\. However, the Company has not experienced any significant credit loss as a result of counterparty nonperformance in the past\. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty\. At December 31, 2017, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty credit rating\. The Company also had agreements with counterparties in which cash deposits, letters of credit, and/or pledged aircraft are required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds\. The following table provides the fair values of fuel derivatives, amounts posted as collateral, and applicable collateral posting threshold amounts as of December 31, 2017, at which such postings are triggered:

98


Annual Report of Southwest Airlines Co\. for year 2018

The following table provides the impact of applying the New Revenue Standard to the Company’s previously reported balances as of December 31, 2017:

|                                     |                                     |                                     |                                     |
| ----------------------------------- | ----------------------------------- | ----------------------------------- | ----------------------------------- |
|                                     | **Balance as of December 31, 2017** | **Balance as of December 31, 2017** | **Balance as of December 31, 2017** |
| **(in millions)**                   | **As Reported**                     | **New Revenue Standard**            | **As Recast**                       |
| Accrued liabilities                 | $1,777                              | $(77)                               | $1,700                              |
| Air traffic liability               | 3,460                               | 35                                  | 3,495                               |
| Air traffic liability \- noncurrent | —                                   | 1,070                               | 1,070                               |
| Deferred income taxes               | 2,358                               | (239)                               | 2,119                               |
| Retained earnings                   | 14,621                              | (789)                               | 13,832                              |

81


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

Free Cash Flow

We present free cash flow because management believes this metric is helpful to investors to evaluate the company's ability to generate cash that is available for use for debt service or general corporate initiatives\. Adjustments include:

• Net redemptions of short\-term investments\.  Net redemptions of short\-term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses\. We adjust for this activity to provide investors a better understanding of the company's free cash flow generated by our operations\.

• Strategic investments\.  Cash flows related to our investment in Hanjin\-KAL, the largest shareholder of Korean Air, are included in our GAAP investing activities\. We adjust free cash flow for this activity to provide investors a better understanding of the company's free cash flow that is core to our operational performance\.

• Net cash flows related to certain airport construction projects and other\.  Cash flows related to certain airport construction projects are included in our GAAP operating activities and capital expenditures\. We have adjusted for these items, which were primarily funded by cash restricted for airport construction, to provide investors a better understanding of the company's free cash flow and capital expenditures that are core to our operational performance in the periods shown\.

|                                                                            |                                                                            |                                                                            |                         |                         |  |  |  |
|:-------------------------------------------------------------------------- |:-------------------------------------------------------------------------- |:-------------------------------------------------------------------------- | -----------------------:| -----------------------:|:- |:- |:- |
|                                                                            |                                                                            |                                                                            | Year Ended December 31, | Year Ended December 31, |  |  |  |
| (in millions)                                                              | (in millions)                                                              | (in millions)                                                              |                    2019 |                    2018 |
| Net cash provided by operating activities                                  | Net cash provided by operating activities                                  | Net cash provided by operating activities                                  |                 $8,425  |                 $7,014  |
| Net cash used in investing activities                                      | Net cash used in investing activities                                      | Net cash used in investing activities                                      |                 (4,563) |                 (4,393) |
| Adjustments:                                                               | Adjustments:                                                               | Adjustments:                                                               |                         |                         |
|  Net redemptions of short\-term investments                                |  Net redemptions of short\-term investments                                |  Net redemptions of short\-term investments                                |                   (206) |                   (621) |
|  Strategic investments                                                     |  Strategic investments                                                     |  Strategic investments                                                     |                    170  |                      —  |
|  Net cash flows related to certain airport construction projects and other |  Net cash flows related to certain airport construction projects and other |  Net cash flows related to certain airport construction projects and other |                    338  |                    362  |
| Free cash flow                                                             | Free cash flow                                                             | Free cash flow                                                             |                 $4,164  |                 $2,362  |

Glossary of Defined Terms

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

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

CASM\-Ex  \- The amount of operating cost incurred per ASM during a reporting period, adjusted for aircraft fuel and related taxes, ancillary businesses and refinery and profit sharing expenses\.

Free Cash Flow  \- Represents the excess cash generated from operations after satisfying the investment needed to sustain and grow our business\. The remaining funds are available to return to shareholders and other providers of capital\.

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

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

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

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

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

47


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

at Sea\-Tac Airport, including a 15,000 square\-foot flagship lounge\. We have also introduced new food and beverage menus, which include more fresh, local, and healthy offerings including salads, protein plates, and fresh snacks, as well as new beverage offerings, including craft beers, juices and an updated wine selection\.

We are also active in the communities we serve and strive to be an industry leader in environmental and community stewardship\. In 2018, Air Group donated $17 million in cash and in\-kind travel to over 1,300 charitable organizations, and our employees volunteered more than 44,000 hours of community service, related to youth and education, medical research, and transportation\. One of our leadership principles is to "give back" and we are proud of the efforts and voluntarism of our employees\. As recognition of our community leadership, financial stability and the fact that our combined fleet is one of the youngest and most fuel\-efficient in North America, we ranked higher than any other North American airline for the second year in a row on the Dow Jones Sustainability Index\.

We continued to generate profits in 2018, marking our 15th consecutive year with adjusted net income\. Our liquidity and capital position remain strong, positioning us among other high\-quality industrial companies\. Due to our strong financial health and outlook, we are one of only three U\.S\. airlines with investment grade credit ratings\. The cash generated by our continued success enables us to invest in our business to deliver profitable growth, enhance our guests' experience, and improve our financial position\.

Looking to the future, our vision is to become the West Coast's favorite airline\. To do this, we will focus on the following areas:

*Safety*

Safety is the most important thing we do\. We have an unwavering commitment to run a safe operation, and we will not compromise this commitment in the pursuit of other initiatives\. Alaska and Horizon were the first U\.S\. major airlines to receive FAA validation and acceptance of their Safety Management Systems (SMS) in 2016\. In 2018, we continued using SMS to safely and consistently guide our integration with the legacy Virgin America operation\. Report It\!, a new mobile safety reporting application, made it easier than ever for employees to file safety reports\. Once again, in 2018, 100% of our Alaska and Horizon aircraft technicians completed the requirements for the FAA's "Diamond Certificate of Excellence" award\. This marks the 17th consecutive year Alaska has received the award, and the 17th time in the last 19 years Horizon has received this award\. In 2018 we were also included as one of only two U\.S\. airlines on the AirlineRatings\.com list of the world's Top 20 safest airlines\. We also believe that maintaining safe operations, through adherence to well\-defined processes, and ensuring every Air Group employee is aware of their individual contribution to our operation, is critical to ensuring on\-time performance\. The rigor we apply to running a safe operation has resulted in Alaska consistently being one of the top airlines in North America for on\-time performance; and Horizon recognized as the leader in on\-time performance in 2018 among regional airlines\.

*Delivering Low Costs*

We believe that our low\-fare model gives us a competitive advantage by providing significant value to our guests\. We also know that, in order to provide low fares in our growing network, while generating strong returns for our shareholders, it is imperative for us to maintain a competitive cost structure\. In 2018, our unit costs, excluding fuel and special items, increased 3\.1% on a consolidated basis\. Although our unit costs are expected to rise again in 2019 primarily due to slower capacity growth, a higher mix of Regional flying, and general wage inflation, we have increased our focus on lowering overhead, improving productivity, and managing vendor costs\. We are also actively managing fuel costs by flying larger, more fuel\-efficient aircraft, which has increased our fuel efficiency as measured by available seat miles flown per gallon by 1\.3% over the last five years\. As we work to finalize the integration of our Airbus operations, we are committed to achieving our stated cost and revenue synergy goals\. We have a long track record of effective cost control, and we remain keenly committed to protecting our unit cost advantage relative to competitors\.

*Enabling Our Advantage*

Paramount to becoming the West Coast favorite airline is enabling and demonstrating Our Advantage\. We do so by delivering great service, great value and providing generous rewards\.

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | *Genuine and Caring Service \-*  P roviding genuine and caring service to our guests is key to our success, and is demonstrated daily by our employees\.  As proof, in 2018, Alaska ranked first in the J\.D\. Power and Associates annual survey of customer satisfaction among traditional network carriers for the 11th year in a row\. Alaska was also recognized for excellent service by Condé Nast Traveler and Travel \+ Leisure magazine, continuing an achievement earned by Virgin America for the preceding ten years\.  |

 5


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

NOTE 16\. EARNINGS PER SHARE

We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding, excluding restricted shares\. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share\-based awards, including stock options and restricted stock awards\. Antidilutive common stock equivalents excluded from the diluted earnings per share calculation are not material\. The following table shows our computation of basic and diluted earnings per share:

|                                             |                                             |                                             |                         |                         |                         |  |  |  |  |  |  |
|:------------------------------------------- |:------------------------------------------- |:------------------------------------------- | -----------------------:| -----------------------:| -----------------------:|:- |:- |:- |:- |:- |:- |
|                                             |                                             |                                             | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, |  |  |  |  |  |  |
| (in millions, except per share data)        | (in millions, except per share data)        | (in millions, except per share data)        |                    2019 |                    2018 |                    2017 |
| Net income                                  | Net income                                  | Net income                                  |                 $ 4,767 |                 $ 3,935 |                 $ 3,205 |
| Basic weighted average shares outstanding   | Basic weighted average shares outstanding   | Basic weighted average shares outstanding   |                     651 |                     691 |                     720 |
| Dilutive effect of share\-based awards      | Dilutive effect of share\-based awards      | Dilutive effect of share\-based awards      |                       2 |                       3 |                       3 |
| Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | Diluted weighted average shares outstanding |                     653 |                     694 |                     723 |
| Basic earnings per share                    | Basic earnings per share                    | Basic earnings per share                    |                 $ 7\.32 |                 $ 5\.69 |                 $ 4\.45 |
| Diluted earnings per share                  | Diluted earnings per share                  | Diluted earnings per share                  |                 $ 7\.30 |                 $ 5\.67 |                 $ 4\.43 |

NOTE 17\. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table summarizes our unaudited results of operations on a quarterly basis\. The quarterly earnings per share amounts for a year will not add to the earnings per share for that year due to the weighting of shares used in calculating per share data\.

|                                      |                                      |                                      |                     |                     |                     |                     |  |  |  |  |  |  |  |  |  |
|:------------------------------------ |:------------------------------------ |:------------------------------------ | -------------------:| -------------------:| -------------------:| -------------------:|:- |:- |:- |:- |:- |:- |:- |:- |:- |
|                                      |                                      |                                      | Three Months Ended, | Three Months Ended, | Three Months Ended, | Three Months Ended, |  |  |  |  |  |  |  |  |  |
| (in millions, except per share data) | (in millions, except per share data) | (in millions, except per share data) |            March 31 |             June 30 |        September 30 |         December 31 |
| 2019                                 | 2019                                 | 2019                                 |                     |                     |                     |                     |
| Operating revenue                    | Operating revenue                    | Operating revenue                    |            $ 10,472 |            $ 12,536 |            $ 12,560 |            $ 11,439 |
| Operating income                     | Operating income                     | Operating income                     |               1,020 |               2,128 |               2,071 |               1,399 |
| Net income                           | Net income                           | Net income                           |                 730 |               1,443 |               1,495 |               1,099 |
| Basic earnings per share             | Basic earnings per share             | Basic earnings per share             |             $ 1\.10 |             $ 2\.22 |             $ 2\.32 |             $ 1\.71 |
| Diluted earnings per share           | Diluted earnings per share           | Diluted earnings per share           |             $ 1\.09 |             $ 2\.21 |             $ 2\.31 |             $ 1\.71 |
| 2018                                 | 2018                                 | 2018                                 |                     |                     |                     |                     |
| Operating revenue                    | Operating revenue                    | Operating revenue                    |             $ 9,968 |            $ 11,775 |            $ 11,953 |            $ 10,742 |
| Operating income                     | Operating income                     | Operating income                     |                 844 |               1,684 |               1,645 |               1,090 |
| Net income                           | Net income                           | Net income                           |                 557 |               1,036 |               1,322 |               1,019 |
| Basic earnings per share             | Basic earnings per share             | Basic earnings per share             |             $ 0\.79 |             $ 1\.49 |             $ 1\.93 |             $ 1\.50 |
| Diluted earnings per share           | Diluted earnings per share           | Diluted earnings per share           |             $ 0\.79 |             $ 1\.49 |             $ 1\.92 |             $ 1\.49 |

95


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

**MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a\-15(f)\. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework)\. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2018\.

We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and to improve these controls and procedures over time and to correct any deficiencies that we may discover in the future\. While we believe the present design of our disclosure controls and procedures and internal control over financial reporting are effective, future events affecting our business may cause us to modify our controls and procedures\.

The Company's independent registered public accounting firm has issued an attestation report regarding its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2018\.

 93


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

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

**2\. Special Items, Net**

Special items, net on our consolidated statements of operations consisted of the following (in millions):

|                                                                    |                             |                             |                             |
| ------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                                                                    | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                    | **2018**                    | **2017**                    | **2016**                    |
| Fleet restructuring expenses  ^(1)^                                | $422                        | $232                        | $177                        |
| Merger integration expenses  ^(2)^                                 | 268                         | 273                         | 514                         |
| Severance expenses  ^(3)^                                          | 58                          | —                           | —                           |
| Litigation settlement  ^(4)^                                       | 45                          | —                           | —                           |
| Intangible asset impairment  ^(5)^                                 | 26                          | —                           | —                           |
| Labor contract expenses                                            | 13                          | 46                          | —                           |
| Mark\-to\-market adjustments on bankruptcy obligations, net  ^(6)^ | (76)                        | 27                          | 25                          |
| Employee 2017 Tax Act bonus expense  ^(7)^                         | —                           | 123                         | —                           |
| Other operating charges (credits), net                             | 31                          | 11                          | (7)                         |
| Mainline operating special items, net                              | 787                         | 712                         | 709                         |
| Regional operating special items, net                              | 6                           | 22                          | 14                          |
| Operating special items, net                                       | 793                         | 734                         | 723                         |
| Mark\-to\-market adjustments on equity investments, net  ^(8)^     | 104                         | —                           | —                           |
| Debt refinancing and extinguishment charges                        | 13                          | 22                          | 49                          |
| Other nonoperating credits, net                                    | (4)                         | —                           | —                           |
| Nonoperating special items, net                                    | 113                         | 22                          | 49                          |
| Income tax special items  ^(9)^                                    | 18                          | —                           | —                           |
| Impact of the 2017 Tax Act  ^(10)^                                 | —                           | 823                         | —                           |
| Income tax special items, net                                      | 18                          | 823                         | —                           |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Fleet restructuring expenses principally included accelerated depreciation and rent expense for aircraft and related equipment grounded or expected to be grounded earlier than planned\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Merger integration expenses included costs associated with integration projects, principally our flight attendant, human resources and payroll, and technical operations systems\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | Severance expenses primarily included costs associated with reductions of management and support staff team members\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(4)^ | Settlement of a private party antitrust lawsuit\. See Note 12(e) \- “ *Private Party Antitrust Action Related to Passenger Capacity* ” for further discussion\.  |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(5)^ | Intangible asset impairment includes a non\-cash charge to write\-off our Brazil route authority as a result of the U\.S\.\-Brazil open skies agreement\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------- |
| ^(6)^ | Bankruptcy obligations that will be settled in shares of our common stock are marked\-to\-market based on our stock price\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(7)^ | 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\. |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(8)^ | Mark\-to\-market adjustments on equity investments relate to net unrealized losses primarily associated with our equity investments in China Southern Airlines and Mesa Air Group, Inc\. |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------ |
| ^(9)^ | Income tax special items for 2018 included an  $18 million  charge related to an international income tax matter\. |

97


Annual Report of Southwest Airlines Co\. for year 2019

Item 6\.  Selected Financial Data

The following financial information, for the five years ended  December 31, 2019 , has been derived from the Company’s Consolidated Financial Statements\. This information should be viewed in conjunction with the Consolidated Financial Statements and related notes thereto included elsewhere herein\. The Company provides the operating data below because these statistics are commonly used in the airline industry and, therefore, allow readers to compare the Company’s performance against its results for prior periods, as well as against the performance of the Company’s peers\.

|                                                                      |                             |                             |                             |                             |                             |
| -------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                      | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|                                                                      | **2019**                    | **2018**                    | **2017**                    | **2016**                    | **2015**                    |
| **Financial Data (in millions, except per share amounts):**          |                             |                             |                             |                             |                             |
| Operating revenues                                                   | $22,428                     | $21,965                     | $21,146                     | $20,289                     | $19,820                     |
| Operating expenses                                                   | 19,471                      | 18,759                      | 17,739                      | 16,767                      | 15,821                      |
| Operating income                                                     | 2,957                       | 3,206                       | 3,407                       | 3,522                       | 3,999                       |
| Other expenses (income) net                                          | —                           | 42                          | 142                         | 72                          | 520                         |
| Income before taxes                                                  | 2,957                       | 3,164                       | 3,265                       | 3,450                       | 3,479                       |
| Provision (benefit) for income taxes                                 | 657                         | 699                         | (92)                        | 1,267                       | 1,298                       |
| Net income                                                           | $2,300                      | $2,465                      | $3,357                      | $2,183                      | $2,181                      |
| Net income per share, basic                                          | $4\.28                      | $4\.30                      | $5\.58                      | $3\.48                      | $3\.30                      |
| Net income per share, diluted                                        | $4\.27                      | $4\.29                      | $5\.57                      | $3\.45                      | $3\.27                      |
| Cash dividends per common share                                      | $0\.700                     | $0\.605                     | $0\.475                     | $0\.375                     | $0\.285                     |
| Total assets at period\-end                                          | $25,895                     | $26,243                     | $25,110                     | $23,286                     | $21,312                     |
| Long\-term obligations at period\-end                                | $1,846                      | $2,771                      | $3,320                      | $2,821                      | $2,541                      |
| Stockholders’ equity at period\-end                                  | $9,832                      | $9,853                      | $9,641                      | $7,784                      | $7,358                      |
| **Operating Data:**                                                  |                             |                             |                             |                             |                             |
| Revenue passengers carried (000s)                                    | 134,056                     | 134,890                     | 130,256                     | 124,720                     | 118,171                     |
| Enplaned passengers (000s)                                           | 162,681                     | 163,606                     | 157,677                     | 151,740                     | 144,575                     |
| Revenue passenger miles (RPMs) (in millions) ^(a)^                   | 131,345                     | 133,322                     | 129,041                     | 124,798                     | 117,500                     |
| Available seat miles (ASMs) (in millions) ^(b)^                      | 157,254                     | 159,795                     | 153,811                     | 148,522                     | 140,501                     |
| Load factor ^(c)^                                                    | 83\.5%                      | 83\.4%                      | 83\.9%                      | 84\.0%                      | 83\.6%                      |
| Average length of passenger haul (miles)                             | 980                         | 988                         | 991                         | 1,001                       | 994                         |
| Average aircraft stage length (miles)                                | 748                         | 757                         | 754                         | 760                         | 750                         |
| Trips flown                                                          | 1,367,727                   | 1,375,030                   | 1,347,893                   | 1,311,149                   | 1,267,358                   |
| Seats flown (000s) ^(d)^                                             | 206,390                     | 207,223                     | 200,879                     | 193,168                     | 184,955                     |
| Seats per trip ^(e)^                                                 | 150\.9                      | 150\.7                      | 149\.0                      | 147\.3                      | 145\.9                      |
| Average passenger fare                                               | $154\.98                    | $151\.64                    | $151\.73                    | $152\.89                    | $154\.85                    |
| Passenger revenue yield per RPM (cents) ^(f)^                        | 15\.82                      | 15\.34                      | 15\.32                      | 15\.28                      | 15\.57                      |
| Operating revenues per ASM (cents) ^(g)(j)^                          | 14\.26                      | 13\.75                      | 13\.75                      | 13\.66                      | 13\.98                      |
| Passenger revenue per ASM (cents) ^(h)^                              | 13\.21                      | 12\.80                      | 12\.85                      | 12\.84                      | 13\.02                      |
| Operating expenses per ASM (cents) ^(i)^                             | 12\.38                      | 11\.74                      | 11\.53                      | 11\.29                      | 11\.26                      |
| Operating expenses per ASM, excluding fuel (cents)                   | 9\.62                       | 8\.85                       | 8\.88                       | 8\.73                       | 8\.60                       |
| Operating expenses per ASM, excluding fuel and profitsharing (cents) | 9\.19                       | 8\.51                       | 8\.53                       | 8\.34                       | 8\.16                       |
| Fuel costs per gallon, including fuel tax                            | $2\.09                      | $2\.20                      | $1\.99                      | $1\.90                      | $1\.96                      |
| Fuel costs per gallon, including fuel tax, economic                  | $2\.09                      | $2\.20                      | $2\.06                      | $2\.00                      | $2\.13                      |
| Fuel consumed, in gallons (millions)                                 | 2,077                       | 2,094                       | 2,045                       | 1,996                       | 1,901                       |
| Active fulltime equivalent Employees                                 | 60,767                      | 58,803                      | 56,110                      | 53,536                      | 49,583                      |
| Aircraft at end of period                                            | 747                         | 750                         | 706                         | 723                         | 704                         |

|     |                                                                                |
| --- | -------------------------------------------------------------------------------------------------------------------------------------------------- |
| (a) | A revenue passenger mile is one paying passenger flown one mile\. Also referred to as "traffic," which is a measure of demand for a given period\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (b) | An available seat mile is one seat (empty or full) flown one mile\. Also referred to as "capacity," which is a measure of the space available to carry passengers in a given period\. |

|     |                                                           |
| --- | --------------------------------------------------------- |
| (c) | Revenue passenger miles divided by available seat miles\. |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (d) | Seats flown is calculated using total number of seats available by aircraft type multiplied by the total trips flown by the same aircraft type during a particular period\. |

|     |                                                                       |
| --- | --------------------------------------------------------------------- |
| (e) | Seats per trip is calculated by dividing seats flown by trips flown\. |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (f) | Calculated as passenger revenue divided by revenue passenger miles\. Also referred to as "yield," this is the average cost paid by a paying passenger to fly one mile, which is a measure of revenue production and fares\. |

38


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

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

|            |                 |                                                                                |
| ----------:|:--------------- |:------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| \*^10\.182 | UAL
United | [Supplemental Agreement No\. 08 to Purchase Agreement Number  PA\-03784, dated June 12, 2015 (filed as Exhibit 10\.7 to UAL’s Form  10\-Q for the quarter ended June 30, 2015, Commission file number  1\-10323 and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515261239/d941677dex107.htm)                                                                        |
| \*^10\.183 | UAL
United | [Supplemental Agreement No\. 9 to Purchase Agreement No\. 03784, dated January 20, 2016, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.2 to UAL’s Form  10\-Q for the quarter ended March 31, 2016, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312516550432/d116267dex102.htm)                     |
| \*^10\.184 | UAL
United | [Supplemental Agreement No\. 10 to Purchase Agreement No\. 03784, dated February 8, 2016, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.4 to UAL’s Form  10\-Q for the quarter ended March 31, 2016, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312516550432/d116267dex104.htm)                    |
| \*^10\.185 | UAL
United | [Supplemental Agreement No\. 11 to Purchase Agreement Number No\. 03784, dated March 7, 2016, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.6 to UAL’s Form  10\-Q for the quarter ended March 31, 2016, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312516550432/d116267dex106.htm)                |
| \*^10\.186 | UAL
United | [Supplemental Agreement No\. 12 to Purchase Agreement No\. 03784, dated June 24, 2016, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.7 to UAL’s Form  10\-Q for the quarter ended June 30, 2016, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312516651221/d188420dex107.htm)                        |
| \*^10\.187 | UAL
United | [Supplemental Agreement No\. 13 to Purchase Agreement No\. 03784, dated December 27, 2016, between The Boeing Company and United Airlines, Inc\. (filed as Exhibit 10\.174 to UAL’s Form  10\-K for the year ended December 31, 2016, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312517054129/d300268dex10174.htm)               |
| \*^10\.188 | UAL
United | [Purchase Agreement No\.  PA\-03776, dated July 12, 2012, between The Boeing Company and United Continental Holdings, Inc\. (filed as Exhibit 10\.3 to UAL’s Form  10\-Q for the quarter ended September 30, 2012, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312512435658/d408868dex103.htm)                                    |
| \*^10\.189 | UAL
United | [Supplemental Agreement No\. 01 to Purchase Agreement No\. 03776, dated June 17, 2013 (filed as Exhibit 10\.5 to UAL’s Form  10\-Q for the quarter ended June 30, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312513302696/d552832dex105.htm)                                                                               |
| \*^10\.190 | UAL
United | [Purchase Agreement Assignment to Purchase Agreement No\. 03776, dated October 23, 2013, between United Continental Holdings, Inc\. and United Airlines, Inc\. (filed as Exhibit 10\.3 to UAL’s Form  10\-Q for the quarter ended September 30, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312513409916/d578285dex103.htm) |
| \*^10\.191 | UAL
United | [Supplemental Agreement No\. 02 to Purchase Agreement No\. 03776, dated January 14, 2015 (filed as Exhibit 10\.5 to UAL’s Form  10\-Q for the quarter ended March 31, 2015, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515144255/d891332dex105.htm)                                                                           |
| \*^10\.192 | UAL
United | [Supplemental Agreement No\. 03 to Purchase Agreement No\. 03776, dated May 26, 2015 (filed as Exhibit 10\.4 to UAL’s Form  10\-Q for the quarter ended June 30, 2015, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515261239/d941677dex104.htm)                                                                               |
| \*^10\.193 | UAL
United | [Supplemental Agreement No\. 04 to Purchase Agreement No\. 03776, dated June 12, 2015 (filed as Exhibit 10\.5 to UAL’s Form  10\-Q for the quarter ended June 30, 2015, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312515261239/d941677dex105.htm)                                                                              |

127


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

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

ITEM 6\. SELECTED FINANCIAL DATA

The following tables are derived from our audited Consolidated Financial Statements and present selected financial and operating data as of and for the five years ended  December 31, 2017 \.

Consolidated Summary of Operations

|                                      |                             |                             |                             |                             |                             |
| ------------------------------------ | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                      | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions, except share data)** | **2017**                    | **2016**                    | **2015**                    | **2014**                    | **2013**                    |
| Operating revenue                    | $41,244                     | $39,639                     | $40,704                     | $40,362                     | $37,773                     |
| Operating expense                    | 35,130                      | 32,687                      | 32,902                      | 38,156                      | 34,373                      |
| Operating income                     | 6,114                       | 6,952                       | 7,802                       | 2,206                       | 3,400                       |
| Non\-operating expense, net          | (413)                       | (316)                       | (645)                       | (1,134)                     | (873)                       |
| Income before income taxes           | 5,701                       | 6,636                       | 7,157                       | 1,072                       | 2,527                       |
| Income tax (provision) benefit       | (2,124)                     | (2,263)                     | (2,631)                     | (413)                       | 8,013                       |
| Net income                           | $3,577                      | $4,373                      | $4,526                      | $659                        | $10,540                     |
| Basic earnings per share             | $4\.97                      | $5\.82                      | $5\.68                      | $0\.79                      | $12\.41                     |
| Diluted earnings per share           | $4\.95                      | $5\.79                      | $5\.63                      | $0\.78                      | $12\.29                     |
| Cash dividends declared per share    | $1\.02                      | $0\.68                      | $0\.45                      | $0\.30                      | $0\.12                      |

Special Items

|                                                                          |                             |                             |                             |                             |                             |
| ------------------------------------------------------------------------ | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions)**                                                        | **2017**                    | **2016**                    | **2015**                    | **2014**                    | **2013**                    |
| MTM adjustments and settlements                                          | $259                        | $450                        | $1,301                      | $(2,346)                    | $276                        |
| Restructuring and other                                                  | —                           | —                           | (35)                        | (716)                       | (424)                       |
| Loss on extinguishment of debt                                           | —                           | —                           | —                           | (268)                       | —                           |
| Investment MTM adjustments                                               | (8)                         | 115                         | 26                          | (134)                       | —                           |
| Tax Cuts and Jobs Act                                                    | (150)                       | —                           | —                           | —                           | —                           |
| Release of tax valuation allowance and intraperiod income tax allocation | —                           | —                           | —                           | —                           | 7,989                       |
| Total income (loss)                                                      | $101                        | $565                        | $1,292                      | $(3,464)                    | $7,841                      |

Consolidated Balance Sheet Data

|                                                                   |                  |                  |                  |                  |                  |
| ----------------------------------------------------------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- |
|                                                                   | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
| **(in millions)**                                                 | **2017**         | **2016**         | **2015**         | **2014**         | **2013**         |
| Total assets                                                      | $53,292          | $51,261          | $53,134          | $54,005          | $52,104          |
| Long\-term debt and capital leases (including current maturities) | $8,834           | $7,332           | $8,329           | $9,661           | $11,194          |
| Stockholders' equity                                              | $13,910          | $12,287          | $10,850          | $8,813           | $11,643          |

 25


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

Goodwill and Indefinite\-lived Assets

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and liabilities assumed\. Goodwill is not amortized but is assessed for impairment annually on October 1 or more frequently if events or circumstances indicate that goodwill may be impaired\. We have one consolidated reporting unit\.

Indefinite\-lived intangible assets other than goodwill include certain domestic airport slots and international slots and route authorities\. Indefinite\-lived intangible assets are not amortized but instead are assessed for impairment annually on October 1 or more frequently if events or circumstances indicate that the asset may be impaired\.

Goodwill and indefinite\-lived intangible assets are assessed for impairment by initially performing a qualitative assessment\. Under the qualitative approach, we analyze the following factors, among others, to determine if events and circumstances have affected the fair value of goodwill and indefinite\-lived intangible assets: (1) negative trends in our market capitalization, (2) an increase in fuel prices, (3) declining per mile passenger yields, (4) lower passenger demand as a result of a weakened U\.S\. and global economy and (5) changes to the regulatory environment\.

Based upon our annual assessment, there were no impairments of our goodwill and no material impairments of our indefinite\-lived assets in  2019 \.

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 and (3) expected health care cost trend rate (as discussed below)\. These assumptions as of December 31 were:

|                                                                                |          |          |
| --------------------------------------------------------------------------------------- | -------- | -------- |
|                                                                                | **2019** | **2018** |
| Pension weighted average discount rate  ^(1)^                                           | 3\.4%    | 4\.4%    |
| Retiree medical and other postretirement benefits weighted average discount rate  ^(1)^ | 3\.3%    | 4\.3%    |
| Expected rate of return on plan assets  ^(2)^                                           | 8\.0%    | 8\.0%    |
| Weighted average health care cost trend rate assumed for next year  ^(3)^ :             |          |          |
| Initial                                                                                | 3\.7%    | 3\.9%    |
| Ultimate (2027)                                                                         | 3\.3%    | 3\.5%    |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(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, 2019  would increase our pension and retiree medical and other postretirement benefits obligations by approximately  $1\.3 billion  and  $40 million , respectively, decrease estimated  2020  pension expense by approximately  $5 million  and increase estimated  2020  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  26%  U\.S\. stocks,  16%  developed international stocks,  30%  fixed income securities,  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, 2019  would increase estimated  2020  pension expense and retiree medical and other postretirement benefits expense by approximately  $65 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  2020  retiree medical and other postretirement benefits expense by approximately  $5 million \. |

67


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

***Common Stock Repurchase***

In August 2015, the Board of Directors authorized a $1 billion share repurchase program\. As of December 31, 2018, the Company has repurchased 6 million shares for $438 million under this program\.

At December 31, 2018, the Company held 7,619,046 shares in treasury\. Management does not anticipate retiring common shares held in treasury for the foreseeable future\.

Share repurchase activity (in millions, except shares):

|                                      |             |            |            |            |            |            |
| ------------------------------------ | ----------- | ---------- | ---------- | ---------- | ---------- | ---------- |
|                                      | **2018**    | **2018**   | **2017**   | **2017**   | **2016**   | **2016**   |
|                                      | **Shares**  | **Amount** | **Shares** | **Amount** | **Shares** | **Amount** |
| 2015 Repurchase Program – $1 billion | **776,186** | **$50**    | 981,277    | $75        | 2,594,809  | $193       |

***Accumulated Other Comprehensive Loss (AOCL)***

AOCL consisted of the following (in millions, net of tax):

|                                      |            |          |
| ------------------------------------ | ---------- | -------- |
|                                      | **2018**   | **2017** |
| Related to marketable securities     | **$(11)**  | $(5)     |
| Related to employee benefit plans    | **(440)**  | (376)    |
| Related to interest rate derivatives | **3**      | 1        |
|                                      | **$(448)** | $(380)   |

The Company adopted ASU 2018\-02 in 2018\. As a result, the Company reclassified approximately $62 million of tax effects in AOCL recorded in prior periods at previously enacted tax rates thus increasing Retained earnings\.

In relation to the Tax Cuts and Jobs Act, amounts recognized in other comprehensive income subsequent to the December 22, 2017 enactment date, are taxed at the revised federal income tax rates\. The Company's actuarial adjustments for employee benefit plans occur annually at December 31, and therefore are tax effected at the new lower rates\. Accordingly, the effective tax rate for employee benefit plan amounts recognized in other comprehensive income at December 31, 2017 was lower than it historically has been\.

**NOTE 11\. SPECIAL ITEMS**

In 2018, the Company recognized special items of $87 million for merger\-related costs associated with its acquisition of Virgin America\. Costs classified as merger\-related are directly attributable to merger activities\.

The Company incurred a one\-time settlement fee of $20 million for the termination of an existing maintenance services agreement and subsequently entered into a new services agreement that provides more flexibility for the timing and scope of engine work\. Additionally, the Company incurred $25 million for one\-time bonuses paid to employees as a result of tax reform\. These charges were recognized as special charges and are included in the Special charges \- other line on our consolidated statements of operations\.

In 2017, the Company recognized $116 million in merger\-related costs\. The Company also recognized a special tax benefit of $237 million due to the remeasurement of net deferred tax liabilities as a result of the Tax Cuts and Jobs Act signed into law on December 22, 2017, partially offset by certain state tax law enactments\.

In 2016, the Company recognized $117 million in merger\-related costs\. $39 million of these costs were not deductible under the U\.S\. federal tax law, as discussed in Note 7\. The Company recognized a special tax expense of $17 million representing the discrete impacts of adjustments to the Company's position on income sourcing in various states\.

 86


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

In 2017 and 2016, American recorded an income tax provision of $2\.3 billion and $1\.6 billion, respectively, which was substantially non\-cash\. Substantially all of American’s income before income taxes was attributable to the United States\.

In 2017, American recorded a special, non\-cash income tax charge of $924 million to reflect the impact of lower corporate income tax rates on the Company’s deferred tax asset and liabilities due to the 2017 Tax Act, which reduced the federal corporate income tax rate from 35% to 21%\.

See Note 5 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on income taxes\.

**Liquidity and Capital Resources**

***Liquidity***

As of December 31, 2018, AAG had approximately $7\.6 billion in total available liquidity and $154 million in restricted cash and short\-term investments\. Additional detail of our available liquidity is provided in the table below (in millions):

|                                     |                  |                  |                  |                  |
| ----------------------------------- | ---------------- | ---------------- | ---------------- | ---------------- |
|                                     | **AAG**          | **AAG**          | **American**     | **American**     |
|                                     | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
|                                     | **2018**         | **2017**         | **2018**         | **2017**         |
| Cash                                | $275             | $295             | $265             | $287             |
| Short\-term investments             | 4,485            | 4,771            | 4,482            | 4,768            |
| Undrawn revolving credit facilities | 2,843            | 2,500            | 2,843            | 2,500            |
| Total available liquidity           | $7,603           | $7,566           | $7,590           | $7,555           |

***Share Repurchase Programs***

In April 2018, we announced that our Board of Directors authorized a new $2\.0 billion share repurchase program that expires 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, 2018, there was $1\.7 billion remaining authority to repurchase shares under our new $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 2018, we repurchased 16\.6 million shares of AAG common stock for $800 million at a weighted average cost per share of $48\.15\. Since the inception of our share repurchase programs in July 2014 through December 31, 2018, we have repurchased278\.9 million shares of AAG common stock for $11\.3 billion at a weighted average cost per share of $40\.69\.

***Cash Dividends***

Our Board of Directors declared the following cash dividends during 2018:

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

**(millions)** |
| First Quarter  | $0\.10        | February 6, 2018                     | February 20, 2018 | $48                              |
| Second Quarter | 0\.10         | May 8, 2018                          | May 22, 2018      | 46                               |
| Third Quarter  | 0\.10         | August 7, 2018                       | August 21, 2018   | 46                               |
| Fourth Quarter | 0\.10         | November 6, 2018                     | November 20, 2018 | 46                               |
| Total          | $0\.40        |                                      |                   | $186                             |

In January 2019, we announced that our Board of Directors declared a $0\.10 per share cash dividend for stockholders of record on February 6, 2019, and payable on February 20, 2019\.

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\.

65


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

receive do not meet expected performance or quality standards, including with respect to fuel efficiency, safety and reliability, we could face higher financing and operating costs than planned and our business, results of operations and financial condition could be adversely impacted\. For instance, in March 2019, the FAA grounded all Boeing 737 MAX aircraft, including the 24 aircraft in our fleet\. For the duration of the Boeing 737 MAX grounding, we have been unable to take delivery of the Boeing 737 MAX aircraft we have on order from Boeing and have in some instances been required to extend the service lives of older, less efficient aircraft and delay service that we planned to offer\. Further, deliveries of Boeing 737 MAX aircraft have remained suspended following the grounding, and Boeing is not currently manufacturing new 737 MAX aircraft\. Depending on the ultimate duration of the grounding, various Boeing 737 MAX aircraft financings we previously obtained may be terminated and, as a result, we may be required to obtain alternate financing for these aircraft, which may not be available on terms and conditions as favorable as the previously obtained financings\. Further, once the grounding has been lifted, we are likely to be subject to training requirements\. Boeing has recommended that pilots receive special flight simulator training before operating the Boeing 737 MAX aircraft, and although the FAA is ultimately responsible for establishing training requirements for operating the Boeing 737 MAX, such additional training would further delay the aircraft’s return to service and impose restrictions on our ability to optimize our fleet\. This and other operational requirements and uncertainties regarding the timing of the delivery of Boeing 737 MAX aircraft we have on order and how rapidly we will be able to take delivery of and integrate such Boeing 737 MAX aircraft into our fleet could potentially result in further significant constraints on our operating efficiency, capacity and growth plans\.

We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could harm our business, results of operations and financial condition\.

We are highly dependent on existing and emerging technology and automated systems to operate our business\. These technologies and systems include our computerized airline reservation system, flight operations systems, financial planning, management and accounting systems, telecommunications systems, website, maintenance systems and check\-in kiosks\. In order for our operations to work efficiently, our website and reservation system must be able to accommodate a high volume of traffic, maintain secure information and deliver flight information, as well as issue electronic tickets and process critical financial information in a timely manner\. Substantially all of our tickets are issued to passengers as electronic tickets\. We depend on our reservation system, which is hosted and maintained under a long\-term contract by a third\-party service provider, to be able to issue, track and accept these electronic tickets\. If our technologies or automated systems are not functioning or if our third\-party service providers were to fail to adequately provide technical support, system maintenance or timely software upgrades for any one of our key existing systems, we could experience service disruptions or delays, which could harm our business and result in the loss of important data, increase our expenses and decrease our revenues\. In the event that one or more of our primary technology or systems vendors goes into bankruptcy, ceases operations or fails to perform as promised, replacement services may not be readily available on a timely basis, at competitive rates or at all, and any transition time to a new system may be significant\.

Our technologies and automated systems cannot be completely protected against events that are beyond our control, including natural disasters, power failures, terrorist attacks, cyber\-attacks, data theft, equipment and software failures, computer viruses or telecommunications failures\. Substantial or sustained system failures could cause service delays or failures and result in our customers purchasing tickets from other airlines\. We cannot assure that our security measures, change control procedures or disaster recovery plans are adequate to prevent disruptions or delays\. Disruption in or changes to these technologies or systems could result in a disruption to our business and the loss of important data\. Any of the foregoing could result in a material adverse effect on our business, results of operations and financial condition\.

We face challenges in integrating our computer, communications and other technology systems\.

While we have to date successfully integrated many of our computer, communication and other technology systems in connection with the merger of US Airways and American, including our customer reservations system and our pilot, flight attendant and fleet scheduling system, we still have to complete several additional important system integration or replacement projects\. In a number of prior airline mergers, the integration of these systems or deployment of replacement systems has taken longer, been more disruptive and cost more than originally forecasted\. The implementation process to integrate or replace these various systems will involve a number of risks that could adversely impact our business, results of operations and financial condition\. New systems will replace multiple legacy systems and the related implementation will be a complex and time\-consuming project involving substantial expenditures for implementation consultants, system hardware, software and implementation activities, as well as the transformation of business and financial processes\.

27


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

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

**OVERVIEW**

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our company, our operations and our present business environment\. MD&A is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes\. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward\-looking statements\. Please consider our forward\-looking statements in light of the risks referred to in this report’s introductory cautionary note and the risks mentioned in Part I, “Item 1A\. Risk Factors\.” This overview summarizes the MD&A, which includes the following sections:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Year in Review* —highlights from  2018  outlining some of the major events that happened during the year and how they affected our financial performance\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | *Results of Operations* —an in\-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the three years presented in our consolidated financial statements\. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item\. Financial and statistical data is also included here\. As discussed in Note 2, the adoption of two new accounting standards resulted in retroactive adjustments to our 2017 and 2016 financial information as reported\. We have recast our financial information to reflect the impact of those standards\. Additionally, as Virgin America was acquired on December 14, 2016, its financial and operational results are reflected in the year ended December 31, 2017, but not in the comparative prior period\. However, for comparability purposes, we have added "Combined Comparative" information for 2016, which is more fully described below\. This section includes forward\-looking statements regarding our view of  2019 \. Further information about the acquisition of Virgin America can be found in our previously filed Forms 10\-K for 2016 and 2017\. |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | *Liquidity and Capital Resources* —an overview of our financial position, analysis of cash flows, sources and uses of cash, contractual obligations and commitments and off\-balance sheet arrangements\. |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------- |
| *•* | *Critical Accounting Estimates* —a discussion of our accounting estimates that involve significant judgment and uncertainties\. |

**YEAR IN REVIEW**

December 2018 marked the two\-year anniversary of our acquisition of Virgin America\. As we look back over that time, we are very pleased with how far we have come\. Just 24 months ago, we were two airlines in complementary geographies with distinct products, operating processes and cultures\. We also had separate FAA certificates, labor agreements, and systems\. As we stand today, virtually all of that has changed\. Our operating processes are fully aligned, substantially all of our systems have been merged, and all but one of our labor groups are under single collective bargaining agreements\. Through 2018, we have completed about 95% of our major integration milestones and we continue to make great progress on a number of fronts\. Culturally, our employees are coming together as one team\. Across the fleet, our guest experience is increasingly aligned, and we will reach full alignment early in 2020 as we complete the renovation of the Airbus fleet\. We recently began to swap Boeing and Airbus aircraft onto the most appropriate routes\. Our flight attendants began flying as integrated crews in January 2019, and we are working on the integration of our pilot schedules now\.

With much of the integration work behind us, we are shifting our focus to realizing the merger synergies and maturing our recent network expansions\. Our core business remains strong and we continue to leverage the financial and operational discipline that has long been a source of our competitive advantage\. In 2018, we announced or launched a host of new revenue initiatives, including increases to bag fees to better align with the industry, the introduction of Saver Fares, and the reconfiguration of Airbus aircraft\. We continue to invest heavily in our brand and product, through projects like satellite connectivity for our full Mainline fleet, updating and expanding airport lounges, and introducing new food and beverage choices onboard\. These investments, among others, are laying the ground work as we look to grow revenues and strengthen margins in 2019 and beyond\.

 31


Annual Report of Southwest Airlines Co\. for year 2018

interest at the LIBO Rate (as defined in the term loan agreement) plus 1\.10 percent, which equates to a current rate of 3\.88 percent, and interest is payable semi\-annually in installments\.

During November 2015, the Company issued $500 million senior unsecured notes due 2020\. The notes bear interest at 2\.65 percent, payable semi\-annually in arrears on May 5 and November 5\. Concurrently, the Company entered into a fixed\-to\-floating interest rate swap to convert the interest on these unsecured notes to a floating rate until their maturity\. See Note 10 for further information on the interest\-rate swap agreement\.

During November 2014, the Company issued $300 million senior unsecured notes due November 2019\. The notes bear interest at 2\.75 percent, payable semi\-annually in arrears on May 6 and November 6\. Concurrently, the Company entered into a fixed\-to\-floating interest rate swap to convert the interest on these unsecured notes to a floating rate until their maturity\. See Note 10 for further information on the interest\-rate swap agreement\.

On July 1, 2009, the Company entered into a term loan agreement providing for loans to the Company aggregating up to $124 million, to be secured by mortgages on five of the Company’s 737\-700 aircraft\. The Company borrowed the full $124 million and secured this loan with the requisite five aircraft mortgages\. The loan matures on July 1, 2019, and is repayable semi\-annually in installments of principal and interest that began on January 1, 2010\. The loan bears interest at a fixed rate of 4\.84 percent\. In September 2015, the Company prepaid $24 million on the loan agreement, which in turn released one of the encumbered aircraft\. As such, the remaining four aircraft related to this transaction were still encumbered as of December 31, 2018\.

On April 29, 2009, the Company entered into a term loan agreement providing for loans to the Company aggregating up to $332 million, to be secured by mortgages on 14 of the Company’s 737\-700 aircraft\. The Company borrowed the full $332 million and secured the loan with the requisite 14 aircraft mortgages\. The loan matures on May 6, 2019, and is being repaid via quarterly installments of principal and interest that began on August 6, 2009\. The loan bears interest at the LIBO Rate (as defined in the term loan agreement) plus 3\.30 percent\. Pursuant to the terms of the term loan agreement, the Company entered into an interest rate swap agreement to convert the variable rate on the term loan to a fixed 6\.315 percent until maturity\.

On May 6, 2008, the Company entered into a term loan agreement providing for loans to the Company aggregating up to $600 million, to be secured by first\-lien mortgages on 21 of the Company’s 737\-700 aircraft\. On May 9, 2008, the Company borrowed the full $600 million and secured these loans with the requisite 21 aircraft mortgages\. The loans mature on May 9, 2020, and are being repaid via quarterly installments of principal and interest that began on August 9, 2008\. The loans bear interest at the LIBO Rate (as defined in the term loan agreement) plus 0\.95 percent\. Pursuant to the terms of the term loan agreement, the Company entered into an interest rate swap agreement to convert the variable rate on the term loan to a fixed 5\.223 percent until maturity\.

On October 3, 2007, grantor trusts established by the Company issued $500 million Pass Through Certificates consisting of $412 million6\.15 percent Series A certificates and $88 million6\.65 percent Series B certificates\. A separate trust was established for each class of certificates\. The trusts used the proceeds from the sale of certificates to acquire equipment notes in the same amounts, which were issued by the Company on a full recourse basis\. Payments on the equipment notes held in each trust are passed through to the holders of certificates of such trust\. The equipment notes were issued for each of 16 Boeing 737\-700 aircraft owned by the Company and are secured by a mortgage on each aircraft\. Beginning February 1, 2008, principal and interest payments on the equipment notes held for both series of certificates became due semi\-annually until the balance of the certificates mature on August 1, 2022\. Prior to their issuance, the Company also entered into swap agreements to hedge the variability in interest rates on the Pass Through Certificates\. The swap agreements were accounted for as cash flow hedges, and resulted in a payment by the Company of $20 million upon issuance of the Pass Through Certificates\. The effective portion of the hedge is being amortized to interest expense concurrent with the amortization of the debt and is reflected in the above table as a reduction in the debt balance\. The ineffectiveness of the hedge transaction was immaterial\.

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

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

The fair value of our retiree medical and other postretirement benefits plans assets at December 31, 2018 by asset category, were as follows (in millions):

|                          |                                                                                |                                                                              |                                                                                |                                                     |
| ------------------------ | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                          | **Fair Value Measurements as of December 31, 2018**                                      | **Fair Value Measurements as of December 31, 2018**                          | **Fair Value Measurements as of December 31, 2018**                            | **Fair Value Measurements as of December 31, 2018** |
| **Asset Category**       | **Quoted Prices in**

**Active Markets for Identical Assets**

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

**Observable**

**Inputs**

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

**Unobservable**

**Inputs**

**(Level 3)** | **Total**                                           |
| Money market fund        | $4                                                                                | $—                                                                           | $—                                                                             | $4                                                  |
| Mutual funds – AAL Class | —                                                                                | 221                                                                          | —                                                                              | 221                                                 |
| Total                    | $4                                                                                | $221                                                                         | $—                                                                             | $225                                                |

The fair value of our retiree medical and other postretirement benefits plans assets at December 31, 2017 by asset category, were as follows (in millions):

|                          |                                                                                |                                                                              |                                                                                |                                                     |
| ------------------------ | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- |
|                          | **Fair Value Measurements as of December 31, 2017**                                      | **Fair Value Measurements as of December 31, 2017**                          | **Fair Value Measurements as of December 31, 2017**                            | **Fair Value Measurements as of December 31, 2017** |
| **Asset Category**       | **Quoted Prices in**

**Active Markets for Identical Assets**

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

**Observable**

**Inputs**

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

**Unobservable**

**Inputs**

**(Level 3)** | **Total**                                           |
| Money market fund        | $5                                                                                | $—                                                                           | $—                                                                             | $5                                                  |
| Mutual funds – AAL Class | —                                                                                | 290                                                                          | —                                                                              | 290                                                 |
| Total                    | $5                                                                                | $290                                                                         | $—                                                                             | $295                                                |

Investments in the retiree medical and other postretirement benefits plans’ mutual funds are valued by quoted prices on the active market, which is fair value and represents the net asset value of the shares of such funds as of the close of business at the end of the period\. The AAL Class mutual fund restricts trading only to American, resulting in a fair value classification of Level 2\. Investments included approximately 30% of investments in non\-U\.S\. common stocks in both 2018 and 2017\. Net asset value is based on the fair market value of the funds’ underlying assets and liabilities at the date of determination\.

***Defined Contribution Plans***

We contributed $877 million, $851 million and $766 million to our defined contribution plans for the years ended December 31, 2018, 2017 and 2016, respectively\.

***Profit Sharing Program***

We accrue 5% of our pre\-tax income excluding special items for our profit sharing program\. For the year ended December 31, 2018, we accrued $175 million for this program, which will be distributed to employees in the first quarter of 2019\.

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