Annual Report of Southwest Airlines Co\. for year 2019

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| [Supplemental Agreement No\. 11 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2000](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/sa111810redacted.txt) , including [Letter Agreement 6\-1162\-RLL\-932R1](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/rll932r1redlined.txt)  and [Table of Contents](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/tableofcontents11.txt)  (File No\. 1\-7259)); [Supplemental Agreement No\. 12 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2000](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/sa121810redacted.txt) , including [Purchase Agreement Amendments](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/pasa12redacted.txt)  (File No\. 1\-7259)); [Supplemental Agreement No\. 13 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2000](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/sa13redacted.txt) , including [Purchase Agreement Amendments](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/pasa13.txt) , [Letter Agreement No\. 6\-1162\-RLL\-932R2](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/rll932r2.txt) , [Letter Agreement No\. 6\-1162\-RLL\-933R9](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/rll933r9redacted.txt) , [Letter Agreement No\. 6\-1162\-RLL\-934R1](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/rll934r2redlined.txt) , [Letter Agreement No\. 6\-1162\-RLL\-941R1](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/rll941r2redlined.txt) , [Letter Agreement No\. 6\-1162\-KJJ\-054](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/kjj054busmatters.txt) , [Letter Agreement No\. 6\-1162\-KJJ\-055](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/kjj055strucmatters.txt) , [Letter Agreement No\. 6\-1162\-KJJ\-056](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/kjj056noiseemission.txt) , [Letter Agreement No\. 6\-1162\-KJJ\-057](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/kjj057productdev.txt) , [Letter Agreement No\. 6\-1162\-KJJ\-058](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/kjj058submatters.txt) , and [Price Adjustment](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/exhibitd1.txt)  (File No\. 1\-7259)); [Supplemental Agreement No\. 14 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2000](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/sa141810redacted.txt) , including [Purchase Agreement Amendments](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/pa1810sa14redacted.txt) , [Letter Agreement No\. 6\-1162\-RLL\-934R2](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/rll934r3redlined.txt) , and [Letter Agreement No\. 6\-1162\-KJJ\-150](http://www.sec.gov/Archives/edgar/data/92380/000009238000500006/kjj150fccmode.txt)  (File No\. 1\-7259)); [Supplemental Agreements Nos\. 15, 16, 17, 18, and 19 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2001 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000095013401508530/d91871ex10-1.txt) ; [Supplemental Agreements Nos\. 20, 21, 22, 23, and 24 (incorporated by reference to Exhibit 10\.3 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2002 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238002000019/ex10_3.txt) ; [Supplemental Agreements Nos\. 25, 26, 27, 28, and 29 (incorporated by reference to Exhibit 10\.8 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2003 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238003000013/ex10_8.txt) ; [Supplemental Agreements Nos\. 30, 31, 32, and 33 (incorporated by reference to Exhibit 10\.1 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2003 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000095013404000842/d11818exv10w1.txt) ;[ Supplemental Agreements Nos\. 34, 35, 36, 37, and 38 (incorporated by reference to Exhibit 10\.3 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2004 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238004000016/ex10-3.txt) ; [Supplemental Agreements Nos\. 39 and 40 (incorporated by reference to Exhibit 10\.6 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2004 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238004000028/ex10-6.txt) ; [Supplemental Agreement No\. 41 (incorporated by reference to Exhibit 10\.1 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2004 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000095013405002093/d21965exv10w1.htm) ; [Supplemental Agreements Nos\. 42, 43, and 44 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2005 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238005000006/ex10-1.txt) ; [Supplemental Agreement No\. 45 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2005 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238005000012/ex10-1.txt) ; [Supplemental Agreements Nos\. 46 and 47 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2006 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000095013406007697/d35241exv10w1.htm) ; [Supplemental Agreement No\. 48 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2006 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238006000009/exhibit_10-1.htm) ; [Supplemental Agreements Nos\. 49 and 50 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2006 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238006000020/ex10-1.htm) ; [Supplemental Agreement No\. 51 (incorporated by reference to Exhibit 10\.1 to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2006 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000095013407001724/d42975exv10w1.htm) ; [Supplemental Agreement No\. 52 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2007 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238007000014/ex10-1.htm) ; [Supplemental Agreement No\. 53 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2007 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238007000024/ex10_1.htm) ; [Supplemental Agreement No\. 54 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2007 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238007000034/ex10_1.htm) ;[ Supplemental Agreement No\. 55 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2007 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238007000034/ex10_2.htm) ; [Supplemental Agreement No\. 56 (incorporated by reference to Exhibit 10\.1 to Southwest’s Annual Report on Form 10\-K for the year ended December 31, 2007 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000095013408001572/d53331exv10w1.htm) ; [Supplemental Agreement No\. 57 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2008 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238008000009/ex10_1.htm) ; [Supplemental Agreement No\. 58 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2008 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238008000009/ex10_2.htm) ; [Supplemental Agreement No\. 59 (incorporated by reference to Exhibit 10\.3 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2008 (File No\. 1\-7259)); ](http://www.sec.gov/Archives/edgar/data/92380/000009238008000009/ex10_3.htm)[Supplemental Agreement No\. 60 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2008 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238008000014/ex10_1.htm) ; [Supplemental Agreement No\. 61 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2008 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238008000018/ex10_1.htm) ; [Supplemental Agreement No\. 62 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2009 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238009000016/ex10_1.htm) ; [Supplemental Agreement No\. 63 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2009 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238009000016/ex10_2.htm) ; [Supplemental Agreement No\. 64 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238010000032/ex10_1.htm) ;<br><br>  <br><br>  <br> |

120


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

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

Delta is not filing any instruments evidencing any indebtedness because the total amount of securities authorized under any single such instrument does not exceed 10% of the total assets of Delta and its subsidiaries on a consolidated basis\. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request\.

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.1 | [Credit and Guaranty Agreement, dated as of August 24, 2015, among Delta Air Lines, Inc\., as Borrower, the subsidiaries of the Borrower named as Guarantors, each of the several Lenders from time to time party thereto, JPMorgan Chase Bank, N\.A\., as administrative agent for the Lenders, Barclays Bank PLC, Bank of America, N\.A\., Wells Fargo Bank, N\.A\. and U\.S\. Bank National Association, as Co\-Syndication Agents, BBVA Compass and Fifth Third Bank, as Co\-Documentation Agents, J\.P\. Morgan Securities LLC, Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BNP Paribas Securities Corp\., Citigroup Global Markets Inc\., BBVA Compass, Credit Agricole Corporate and Investment Bank, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc\., Fifth Third Bank, Goldman Sachs Lending Partners LLC, Morgan Stanley Senior Funding, Inc\., Wells Fargo Securities, LLC, Natixis, New York Branch, U\.S\. Bank National Association and UBS Securities LLC, as Revolving Facility Joint Lead Arrangers and Revolving Facility Joint Bookrunners and Barclays Bank PLC, J\.P\. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BNP Paribas Securities Corp\., Citigroup Global Markets Inc\., BBVA Compass, Credit Agricole Corporate and Investment Bank, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc\., Fifth Third Bank, Goldman Sachs Lending Partners LLC, Wells Fargo Securities, LLC and U\.S\. Bank National Association, as Term Loan Joint Lead Arrangers and Term Loan Joint Bookrunners (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended September 30, 2015)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790415000013/dal9302015ex101.htm) |

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| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.2 | [Credit and Guaranty Agreement, dated as of October 18, 2012, among Delta Air Lines, Inc\., as Borrower, the subsidiaries of the Borrower named as Guarantors, each of the several Lenders party thereto, Barclays Bank PLC, as administrative agent, Wilmington Trust, National Association, as Collateral Trustee, Deutsche Bank Securities Inc\. and UBS Securities LLC, as Co\-Syndication Agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc\., as co\-documentation agents, Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc\., Deutsche Bank Securities Inc\., and UBS Securities LLC, as joint lead arrangers, and Barclays Bank PLC, BNP Paribas Securities Corp, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc\., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc\., Goldman Sachs Bank USA, J\.P\. Morgan Securities LLC, Morgan Stanley Senior Funding, Inc\. and UBS Securities LLC, as joint bookrunners (Filed as Exhibit 10\.2 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2012)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000144530513000209/dal12312012ex102.htm) |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.3 | [Anchor Tenant Agreement dated as of December 9, 2010 between JFK International Air Terminal LLC and Delta Air Lines, Inc\. (Filed as Exhibit 10\.4 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2010)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000095012311014364/g24877exv10w4.htm) |

|       |                                                                                |
| ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.4 | [Amended and Restated Agreement of Lease by and between The Port Authority of New York and New Jersey and Delta Air Lines, Inc\., dated as of September 13, 2017 (Filed as Exhibit 10\.1 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000017/dal9302017ex101.htm) |

|          |                                                                                |
| -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.5(a) | [Supplemental Agreement No\. 13 to Purchase Agreement Number 2022, dated August 24, 2011, between The Boeing Company and Delta relating to Boeing Model 737NG Aircraft ("Supplemental Agreement 13") (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended September 30, 2011)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000144530511003058/dal9302011ex101.htm) |

|          |                                                                                |
| -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.5(b) | [Supplemental Agreement No\. 17 to Purchase Agreement Number 2022, dated December 16, 2015, between The Boeing Company and Delta relating to Boeing Model 737NG Aircraft ("Supplemental Agreement 17") (Filed as Exhibit 10\.6(b) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2015)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000018/dal12312015ex106b.htm) |

|          |                                                                                |
| -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.5(c) | [Supplemental Agreement No\. 20 to Purchase Agreement Number 2022, dated March 30, 2017, between The Boeing Company and Delta relating to Boeing Model 737NG Aircraft ("Supplemental Agreement No\. 20") (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000008/dal3312017ex101.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.5(d) | [Letter Agreements, dated March 30, 2017, relating to Supplemental Agreement No\. 20 (Filed as Exhibit 10\.2 to Delta's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000008/dal3312017ex102.htm) |

 93


Annual Report of Southwest Airlines Co\. for year 2018

The Company's ability to effectively address fuel price increases could be limited by factors such as its historical low\-fare reputation, the portion of its Customer base that purchases travel for leisure purposes, the competitive nature ofthe airline industry generally, and the risk that higher fares will drive a decrease in demand\. The Company attempts to manage its risk associated with volatile jet fuel prices by utilizing over\-the\-counter fuel derivative instruments to hedge a portion of its future jet fuel purchases\. However, energy prices can fluctuate significantly in a relatively short amount of time\. Because the Company uses a variety of different derivative instruments at different price points, the Company is subject to the risk that the fuel derivatives it uses will not provide adequate protection against significant increases in fuel prices and in some cases could in fact result in hedging losses, and the Company effectively paying higher than market prices for fuel, thus creating additional volatility in the Company's earnings\. The Company is also subject to the risk that cash collateral may be required to be posted to fuel hedge counterparties, which could have a significant impact on the Company's financial position and liquidity\.

In addition, the Company is subject to the risk that its fuel derivatives will no longer qualify for hedge accounting under applicable accounting standards, which can create additional earnings volatility\. Adjustments in the Company's overall fuel hedging strategy, as well as the ability of the commodities used in fuel hedging to qualify for special hedge accounting, are likely to continue to affect the Company's results of operations\. In addition, there can be no assurance that the Company will be able to cost\-effectively hedge against increases in fuel prices\. Also, see Note 2 to the Consolidated Financial Statements for information on changes in applicable standards for hedge accounting\.

The Company's fuel hedging arrangements and the various potential impacts of hedge accounting on the Company's financial position, cash flows, and results of operations are discussed in more detail under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and in Note 1 and Note 10 to the Consolidated Financial Statements\.

The Company is also reliant upon the readily available supply and timely delivery of jet fuel to the airports that it serves\. A disruption in that supply could present significant challenges to the Company's operations and could ultimately cause the cancellation of flights and/or the inability of the Company to provide service to a particular airport\.

***The Company's low\-cost structure has historically been one of its primary competitive advantages, and many factors have affected and could continue to affect the Company's ability to control its costs\.***

The Company's low\-cost structure has historically been one of its primary competitive advantages, as it has enabled it to offer low fares, drive traffic volume, grow market share, and protect profits\. The Company's low\-cost position has become even more significant with the increased presence of ULCCs and changes to the fare offerings of other carriers, as discussed above; however, it has become increasingly difficult for the Company to improve upon its industry cost position\. For example, labor and fuel costs, as well as other costs such as regulatory compliance costs, can negatively affect the Company's ability to control its costs\. Furthermore, the Company has limited control over many of these costs\.

Jet fuel and oil constituted approximately 25 percent of the Company's operating expenses during 2018, and the Company's ability to control the cost of fuel is subject to the external factors discussed in the second Risk Factor above\.

Salaries, wages, and benefits constituted approximately 41 percent of the Company's operating expenses during 2018\. The Company's ability to control labor costs is limited by the terms of its collective\-bargaining agreements, and increased labor costs have negatively impacted the Company's low\-cost competitive position\. As discussed further under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the Company's unionized workforce, which makes up approximately 83 percent of its Employees, has had pay scale increases as a result of contractual rate increases, which has put pressure on the Company's labor costs\. Additionally, as indicated above under "Business \- Employees," the majority of Southwest's unionized Employee work groups, including its Flight Attendants; Customer Service Agents, Customer Representatives, and Source of Support Representatives; Material Specialists; Mechanics; Dispatchers; Flight Simulator Technicians; and Meteorologists, are in unions currently in negotiations for labor agreements or have labor agreements that become amendable in 2019, which could result in additional pressure on the Company's low\-cost structure\.

As discussed above under "Business \- Regulation," the airline industry is heavily regulated, and the Company's regulatory compliance costs are subject to potentially significant increases from time to time based on actions by regulatory agencies that are out of the Company's control\. Additionally, the Company cannot control decisions by other

22


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

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

Certain information regarding the 2019\-1 Aircraft EETC equipment notes and remaining escrowed proceeds, as of  December 31, 2019 , is set forth in the table below\.

|                               |                            |                            |                            |
| ----------------------------- | -------------------------- | -------------------------- | -------------------------- |
|                               | **2019\-1 Aircraft EETCs** | **2019\-1 Aircraft EETCs** | **2019\-1 Aircraft EETCs** |
|                               | **Series AA**              | **Series A**               | **Series B**               |
| Aggregate principal issued    | $579 million               | $289 million               | $229 million               |
| Remaining escrowed proceeds   | $155 million               | $77 million                | $61 million                |
| Fixed interest rate per annum | 3\.15%                     | 3\.50%                     | 3\.85%                     |
| Maturity date                 | February 2032              | February 2032              | February 2028              |

2019\-1 Engine EETCs

In June  2019 , American created pass\-through trusts which issued   $650 million  in aggregate face amount of 2019\-1 Engine EETCs (the 2019\-1 Engine EETCs), with maturities from June 2022 to June 2026\. All of the proceeds received by such pass\-through trusts from the sale of the 2019\-1 Engine EETCs have been used to acquire equipment notes issued by American to the pass\-through trusts\. The pass\-through trust certificates represent the right to payment under the equipment notes that are full\-recourse obligations of American and such equipment notes are secured by spare aircraft engines currently owned and operated by American\.

(c) Equipment Loans and Other Notes Payable Issued in  2019

In  2019 , American entered into agreements under which it borrowed   $1\.7 billion  in connection with the financing or refinancing, as the case may be, of certain aircraft and other flight equipment, of which   $643 million  was used to repay existing indebtedness\. Debt incurred under these agreements matures in  2023  through  2031  and bears interest at variable rates (comprised of LIBOR plus an applicable margin) averaging   3\.37%  at  December 31, 2019 \.

Guarantees

As of  December 31, 2019 , American had issued guarantees covering AAG’s   $500 million  aggregate principal amount of   4\.625%  senior notes due  March 2020  and   $750 million  aggregate principal amount of   5\.000%  senior notes due  June 2022 \.

Collateral\-Related Covenants

Certain of American’s debt financing agreements (including its term loans, revolving credit facilities and spare engine EETCs) contain loan to value (LTV) ratio covenants and require American to appraise the related collateral annually\. Pursuant to such agreements, if the LTV ratio exceeds a specified threshold or if the value of the appraised collateral fails to meet a specified threshold, as the case may be, American is required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash or investment securities), or pay down such financing, in whole or in part\.

134


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

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

Subject to certain limitations and exceptions, the Credit Facilities are secured by collateral, including certain spare parts, certain slots, certain route authorities, certain simulators and certain leasehold rights\. American has the ability to make future modifications to the collateral pledged, subject to certain restrictions\. American’s obligations under the Credit Facilities are guaranteed by AAG\. American is required to maintain a certain minimum ratio of appraised value of the collateral to the outstanding loans as further described below in *“Collateral\-Related Covenants\.”*

The Credit Facilities contain events of default customary for similar financings, including cross default to other material indebtedness\. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become due and payable immediately\. In addition, if a “change of control” occurs, American will (absent an amendment or waiver) be required to repay at par the loans outstanding under the Credit Facilities and terminate the 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility and any revolving credit facility established under the December 2016 Credit Facilities\. The Credit Facilities also include covenants that, among other things, require AAG to maintain a minimum aggregate liquidity (as defined in the Credit Facilities) of not less than $2\.0 billion and limit the ability of AAG and its restricted subsidiaries to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, incur liens on the collateral, dispose of the collateral, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions\.

***(b) EETCs***

Below is a discussion of the 2018 aircraft financing activities resulting from EETC issuances\.

*2017\-2 EETCs*

In August and October 2017, American created three pass\-through trusts which issued approximately $1\.0 billion aggregate face amount of Series 2017\-2 Class AA, Class A and Class B EETCs (the 2017\-2 EETCs) in connection with the financing of 30 aircraft delivered to American through May 2018 (the 2017\-2 Aircraft)\. In 2017, approximately $735 million of the net proceeds were used to purchase equipment notes issued by American in connection with the financing of 24 aircraft financed under the 2017\-2 EETC\. During the first six months of 2018, the remaining $283 million of net proceeds was used to purchase equipment notes issued by American in connection with the financing of the remaining six aircraft financed under the 2017\-2 EETCs\. Interest and principal payments on equipment notes issued in connection with the 2017\-2 EETCs are payable semi\-annually in April and October of each year, with interest payments that began in April 2018 and principal payments that began in October 2018\. These equipment notes are secured by liens on the 2017\-2 Aircraft\.

Certain information regarding the 2017\-2 EETC equipment notes, as of December 31, 2018, is set forth in the table below\.

|                               |                   |                   |                   |
| ----------------------------- | ----------------- | ----------------- | ----------------- |
|                               | **2017\-2 EETCs** | **2017\-2 EETCs** | **2017\-2 EETCs** |
|                               | **Series AA**     | **Series A**      | **Series B**      |
| Aggregate principal issued    | $545 million      | $252 million      | $221 million      |
| Fixed interest rate per annum | 3\.35%            | 3\.60%            | 3\.70%            |
| Maturity date                 | October 2029      | October 2029      | October 2025      |

*2012\-2C(R) EETCs*

On May 15, 2018, American created a pass\-through trust which issued $100 million aggregate face amount of the Series 2012\-2 Class C(R) EETCs (the 2012\-2C(R) EETCs)\. Interest and principal payments on equipment notes issued in connection with the 2012\-2C(R) EETCs are payable semi\-annually in June and December of each year, which began in December 2018\.

American had previously issued $100 million aggregate face amount of Series 2012\-2 Class C Certificates on June 6, 2013 (the 2012\-2C Certificates) in connection with the financing of 11 aircraft previously delivered to American between May 2013 and October 2013\. On June 1, 2018, American redeemed the Series C Equipment Notes relating to such 2012\-2C Certificates (the 2012\-2C Equipment Notes), which were scheduled to mature on June 3, 2018\. The proceeds received from the 2012\-2C(R) EETCs were used for the redemption of the 2012\-2 Series C Equipment Notes and the repayment of the 2012\-2C Certificates\.

Certain information regarding the 2012\-2 Class C(R) EETC equipment notes, as of December 31, 2018, is set forth in the table below\.

149


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

In 2019, we will slow our capacity growth and renew our focus on expanding margins\. Despite cost pressure from wage increases across our unionized labor groups and higher maintenance expenses, we will manage costs through productivity initiatives, schedule optimization and other initiatives\. We expect to incur further costs associated with the ongoing integration of Virgin America, though less than in prior years\. We also expect the price per gallon of jet fuel to decrease approximately 4% from the prior\-year period\. Our CASMex will be disproportionately impacted in the first quarter and first half of 2019 due to an increased mix of Regional flying, timing of heavy maintenance events, and costs for all\-employee training\. On a full year basis, however, we expect to see total unit costs excluding fuel to decrease in the second half of 2019, and expect a full year CASMex increase of 2% to 2\.5%\.

We expect to grow our combined network capacity in 2019 by approximately 2%, compared to 5\.3% growth in 2018\. Current schedules indicate competitive capacity will increase by roughly 4 points in the first quarter of 2019 compared to the first quarter of 2018\. We believe that our product, our operation, our engaged employees, our award\-winning service, and our competitive Mileage Plan™, combined with our strong balance sheet, give us the ability to compete successfully in the markets we serve\.

**RESULTS****OF OPERATIONS**

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

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

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

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

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

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | CASM excluding fuel and certain special items is a measure commonly used by industry analysts and we believe it is an important metric by which they compare our airlines to others in the industry\. The measure is also the subject of frequent questions from investors\. |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **•** | Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items\. We believe that disclosing the impact of certain items, such as merger\-related costs and mark\-to\-market hedging adjustments, is important because it provides information on significant items that are not necessarily indicative of future performance\. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines\. |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices\. Fuel expense represents a large percentage of our total operating expenses\. Fluctuations in fuel prices often drive changes in unit revenues in the mid\-to\-long term\. Although we believe it is useful to evaluate non\-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business\. |

Although we are presenting these non\-GAAP amounts for the reasons above, investors and other readers should not necessarily conclude that these amounts are non\-recurring, infrequent, or unusual in nature\.

 34


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

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

*This Form 10\-K contains various “forward\-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)\. Forward\-looking statements represent our expectations and beliefs concerning future events, based on information available to us on the date of the filing of this Form 10\-K, and are subject to various risks and uncertainties\. Factors that could cause actual results to differ materially from those referenced in the forward\-looking statements are listed in Part I, Item 1A, Risk Factors and in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations\. We disclaim any intent or obligation to update or revise any of the forward\-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise, except as required by applicable law\.*

**PART I**

|               |                 |
| ------------- | --------------- |
|  **ITEM 1\.** | **BUSINESS\.**  |

**Overview**

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

UAL was incorporated under the laws of the State of Delaware on December 30, 1968\. Our principal executive office is located at 233 South Wacker Drive, Chicago, Illinois 60606 (telephone number (872) 825\-4000)\.

The Company’s website is www\.united\.com\. The information contained on or connected to the Company’s website is not incorporated by reference into this annual report on Form 10\-K and should not be considered part of this or any other report filed with the U\.S\. Securities and Exchange Commission (“SEC”)\. Through this website, the Company’s filings with the SEC, including annual reports on Form 10\-K, quarterly reports on Form 10\-Q, current reports on Form 8\-K, and all amendments to those reports, as well as our proxy statement for our annual meeting of stockholders, are accessible without charge, as soon as reasonably practicable, after such material is electronically filed with or furnished to the SEC\. Such filings are also available on the SEC’s website at www\.sec\.gov\.

**Operations**

The Company transports people and cargo through its mainline and regional operations\. With key global aviation rights in North America, Asia\-Pacific, Europe, Middle East and Latin America, UAL has the world’s most comprehensive global route network\. UAL, through United and its regional carriers, operates more than 4,500 flights a day to 338 airports across five continents, with hubs at Newark Liberty International Airport (“Newark”), Chicago O’Hare International Airport (“Chicago O’Hare”), Denver International Airport (“Denver”), George Bush Intercontinental Airport (“Houston Bush”), Los Angeles International Airport (“LAX”), A\.B\. Won Pat International Airport (“Guam”), San Francisco International Airport (“SFO”) and Washington Dulles International Airport (“Washington Dulles”)\.

All of the Company’s domestic hubs are located in large business and population centers, contributing to a large amount of “origin and destination” traffic\. The hub and spoke system allows us to transport passengers between a large number of destinations with substantially more frequent service than if each route were served directly\. The

3


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

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

***Seasonality\.*** The air travel business is subject to seasonal fluctuations\. Historically, demand for air travel is higher in the second and third quarters, driving higher revenues, than in the first and fourth quarters, which are periods of lower travel demand\.

**Industry Regulation**

***Domestic Regulation***

All carriers engaged in air transportation in the United States are subject to regulation by the DOT\. Absent an exemption, no air carrier may provide air transportation of passengers or property without first being issued a DOT certificate of public convenience and necessity\. The DOT also grants international route authority, approves international codeshare arrangements and regulates methods of competition\. The DOT regulates consumer protection and maintains jurisdiction over advertising, denied boarding compensation, tarmac delays, baggage liability and other areas and may add additional expensive regulatory burdens in the future\. The DOT has launched investigations or claimed rulemaking authority to regulate commercial agreements among carriers or between carriers and third parties in a wide variety of contexts\.

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

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

*Legislation*\. The airline industry is subject to legislative actions (or inactions) that may have an impact on operations and costs\. In 2018, the U\.S\. Congress approved a five\-year reauthorization for the FAA, which encompasses significant aviation tax and policy\-related issues\. The law includes a range of policy changes related to airline customer service and aviation safety which, depending on how they are implemented, could impact our operations and costs\. Additionally, the U\.S\. Congress may fail to continue to fund the operations of one or more federal government agencies which could negatively impact the Company and the airline industry\.

*Catering Operations*\. The Company owns and operates catering kitchens at airports in Denver, Cleveland, Newark, Houston, and Honolulu, which prepare ready\-to\-eat food for United flights\. Some of the Company's kitchens also prepare ready\-to\-eat food for other domestic and international airlines\. These operations are subject to regulation by the FDA and the USDA, as well as other federal, state, and local regulatory agencies\. The FDA has begun enforcing the Federal Food Safety Modernization Act which requires all food manufacturers to implement stringent risk\-based preventive controls\. As a result, ready\-to\-eat catering operations are a focus of enhanced scrutiny by the FDA with inspections and greater enforcement\.

***International Regulation***

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

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

6


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

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

***Nonoperating Income (Expense)***

The following table illustrates the year\-over\-year dollar and percentage changes in the Company’s nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):

|                                 |          |          |                              |              |
|:------------------------------- | --------:| --------:| ----------------------------:| ------------:|
|                                 | **2017** | **2016** | **Increase
(Decrease)** | **% Change** |
| Interest expense                |   $(643) |   $(614) |                         $29  |        4\.7  |
| Interest capitalized            |      84  |      72  |                          12  |       16\.7  |
| Interest income                 |      57  |      42  |                          15  |       35\.7  |
| Miscellaneous, net              |       3  |     (19) |                         (22) |          NM  |
| Total nonoperating expense, net |   $(499) |   $(519) |                        $(20) |       (3\.9) |

*2016 compared to 2015*

***Operating Revenue***

The table below illustrates the year\-over\-year percentage change in the Company’s operating revenues for the years ended December 31 (in millions, except percentage changes):

|                         |           |           |                              |              |
|:----------------------- | ---------:| ---------:| ----------------------------:| ------------:|
|                         |  **2016** |  **2015** | **Increase
(Decrease)** | **% Change** |
| Passenger—Mainline      |  $25,414  |  $26,333  |                       $(919) |       (3\.5) |
| Passenger—Regional      |    6,043  |    6,452  |                        (409) |       (6\.3) |
| Total passenger revenue |   31,457  |   32,785  |                      (1,328) |       (4\.1) |
| Cargo                   |      876  |      937  |                         (61) |       (6\.5) |
| Other operating revenue |    4,223  |    4,142  |                          81  |        2\.0  |
| Total operating revenue |  $36,556  |  $37,864  |                     $(1,308) |       (3\.5) |

The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year\-over\-year changes:

|                                 |                                                |                                                |                                                |                                                |                                                |                                                |                                                |
|:------------------------------- | ----------------------------------------------:| ----------------------------------------------:| ----------------------------------------------:| ----------------------------------------------:| ----------------------------------------------:| ----------------------------------------------:| ----------------------------------------------:|
|                                 | **Increase (decrease) in 2016 from 2015 (a):** | **Increase (decrease) in 2016 from 2015 (a):** | **Increase (decrease) in 2016 from 2015 (a):** | **Increase (decrease) in 2016 from 2015 (a):** | **Increase (decrease) in 2016 from 2015 (a):** | **Increase (decrease) in 2016 from 2015 (a):** | **Increase (decrease) in 2016 from 2015 (a):** |
|                                 |                                  **Domestic**  |                                  **Atlantic**  |                                   **Pacific**  |                                     **Latin**  |                   **Total
Consolidated**  |                                  **Mainline**  |                                  **Regional**  |
| Passenger revenue (in millions) |                                        $(523)  |                                        $(512)  |                                        $(215)  |                                         $(78)  |                                     $ (1,328)  |                                        $(919)  |                                        $(409)  |
| Passenger revenue               |                                        (2\.7)% |                                        (8\.6)% |                                        (4\.9)% |                                        (2\.7)% |                                        (4\.1)% |                                        (3\.5)% |                                        (6\.3)% |
| Average fare per passenger      |                                        (4\.7)% |                                        (5\.2)% |                                        (5\.6)% |                                        (7\.9)% |                                        (5\.9)% |                                        (8\.0)% |                                        (2\.2)% |
| Yield                           |                                        (3\.8)% |                                        (4\.6)% |                                        (7\.4)% |                                        (7\.7)% |                                        (4\.8)% |                                        (4\.8)% |                                        (3\.1)% |
| PRASM                           |                                        (4\.2)% |                                        (8\.4)% |                                        (6\.7)% |                                        (5\.5)% |                                        (5\.4)% |                                        (5\.5)% |                                        (2\.7)% |
| Passengers                      |                                         2\.1 % |                                        (3\.7)% |                                         0\.7 % |                                         5\.7 % |                                         2\.0 % |                                         4\.9 % |                                        (4\.3)% |
| RPMs (traffic)                  |                                         1\.1 % |                                        (4\.3)% |                                         2\.7 % |                                         5\.4 % |                                         0\.8 % |                                         1\.4 % |                                        (3\.4)% |
| ASMs (capacity)                 |                                         1\.6 % |                                        (0\.2)% |                                         2\.0 % |                                         2\.9 % |                                         1\.4 % |                                         2\.1 % |                                        (3\.7)% |
| Passenger load factor (points)  |                                        (0\.3)  |                                        (3\.3)  |                                          0\.6  |                                          2\.0  |                                        (0\.5)  |                                        (0\.6)  |                                          0\.3  |

(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics\.

Consolidated passenger revenue decreased $1\.3 billion, or 4\.1%, in 2016 as compared to 2015\. Consolidated PRASM decreased 5\.4% in 2016 as compared to 2015\. The decline in PRASM was driven by factors including a competitive domestic fare environment, lower surcharges, a strong U\.S\. dollar and reductions from energy\-related corporate travel\.

32


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

Third\-party Regional Carrier Expense

Third\-party regional carrier expense, which represents payments made to SkyWest and PenAir under our CPA agreements, increased $12 million, or 8%, in 2019 compared to 2018\. The increase is primarily due to a 3\.3% increase in capacity flown by SkyWest as compared to the prior year and higher CPA rates\.

We expect third\-party regional carrier expense to be flat in 2020 as there is no expected growth in the number of aircraft to be operated by SkyWest\.

Special Items \- Merger\-Related Costs

We recorded $44 million of merger\-related costs in 2019 associated with our ongoing integration of former Virgin America operations, compared to $87 million in 2018\. Costs incurred in 2019 consisted primarily of expenses associated with Airbus flight attendant and pilot vacation balances, which were subject to a one\-time true\-up in accordance with the integrated labor agreements, as well as certain technology integration costs\. We expect to incur merger\-related costs in 2020, although at a lesser rate\.

Consolidated Non\-operating Income (Expense)

During 2019 we recorded net non\-operating expense of $47 million, compared to $58 million in 2018\. The decrease is primarily due to lower interest expense as compared to 2018 as a result of an overall reduction in our debt balance and a reduction in average interest rates\.

ADDITIONAL SEGMENT INFORMATION

Refer to Note 13 of the consolidated financial statements for a detailed description of each segment\. Below is a summary of each segment's profitability\.

Mainline

Mainline adjusted pretax profit was $993 million in 2019 compared to $809 million in 2018\. The $184 million increase in pretax profit was primarily driven by a $318 million increase in Mainline operating revenue and a $63 million decrease in Mainline fuel expense\. These increases were partially offset by a $201 million increase in Mainline non\-fuel operating expenses\.

Mainline revenue increased primarily due to a 3% increase in yields and a slight increase in load factor as compared to the prior year\. Lower raw fuel prices, offset by an increase in gallons consumed, drove the decrease in Mainline fuel expense\. Non\-fuel operating expense increased due to a $24 million signing bonus and higher wage rates from new contracts with our IAM and AMFA employees, as well as increased aircraft ownership and maintenance costs\.

Regional

Our Regional operations generated a pretax profit of $2 million in 2019 compared to a pretax loss of $100 million in 2018\. The improvement was primarily attributable to a $197 million increase in operating revenues, partially offset by $73 million higher non\-fuel operating expense and $33 million increase in fuel costs\. Increased revenues and non\-fuel operating expenses is primarily driven by the 13% increase in capacity\.

Horizon

Horizon achieved a pretax profit of $38 million in 2019 compared to $27 million in 2018\. The change was primarily driven by a 22% increase in capacity growth attributable to four E175 aircraft added to Horizon's fleet over the past year and improved cost management through better productivity and improved operational performance\.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are:

• Our existing cash and marketable securities balance of $1\.5 billion, and our expected cash from operations;

40


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

As of  December 31, 2019 , we did not have any fuel hedging contracts outstanding to hedge our fuel consumption\. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors\. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices\.

Other Costs

We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: the health of the economy and the price of fuel\.

Our  2019  total cost per available seat mile (CASM) was  14\.98  cents, an  increase  of  0\.9 %, from  14\.85  cents in  2018 \.

Our  2019  CASM excluding net special items and fuel was  11\.46  cents, an  increase  of  3\.6 %, from  11\.06  cents in  2018 \. The  increase  was primarily driven by higher maintenance expenses, costs associated with increased regional capacity and lower than planned capacity in 2019 due to the Boeing 737 MAX grounding\.

For a reconciliation of CASM excluding net special items and fuel, see Part II, Item 6\. Selected Consolidated Financial Data –  “Reconciliation of GAAP to Non\-GAAP Financial Measures\.”

Liquidity

As of  December 31, 2019 , we had approximately  $7\.0 billion  in total available liquidity, consisting of  $3\.8 billion  in unrestricted cash and short\-term investments and  $3\.2 billion  in undrawn capacity under our revolving credit facilities\. We also had restricted cash and short\-term investments of  $158 million \.

During  2019 , we completed the following significant financing transactions:

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | raised  $3\.2 billion  from enhanced equipment trust certificates (EETCs) and other aircraft and flight equipment financing, of which  $1\.3 billion  was used to repay existing indebtedness;  |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------- |
| • | issued  $750 million  in aggregate principal amount of 5\.000% senior notes due 2022 (the 5\.000% senior notes); |

|   |                                                                       |
| - | --------------------------------------------------------------------- |
| • | raised  $850 million  from aircraft sale\-leaseback transactions; and |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | extended the maturities on  $2\.8 billion  of our revolving credit facility commitments by one year from 2023 to 2024, and due to uncertainty surrounding the timing of the Boeing 737 MAX aircraft return to service, entered into an additional  $400 million  short\-term revolving line of credit\.  |

See Note 5 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on our debt obligations\.

Additionally, we returned  $1\.3 billion  to our stockholders in  2019 , including the repurchase of  $1\.1 billion  of our common stock, or  33\.8 million  shares, and quarterly dividend payments totaling  $178 million \. Since our capital return program commenced in mid\-2014, we have returned  $13\.6 billion  to stockholders, including  $12\.4 billion  in share repurchases, or  312\.7 million  shares, and  $1\.2 billion  in quarterly dividend payments\.

51


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

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

|          |                 |                                                                                |
| --------:|:--------------- |:---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
|   \*4\.4 | United          | [Indenture, dated as of July 15, 1997, between Continental Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\. (as successor to Bank One, N\.A\.), as trustee related to Continental Airlines, Inc\.’s 4\.5% Convertible Notes due 2015 (filed as Exhibit to 4\.1 to Continental’s Form  S\-3/A filed July 18, 1997, Commission file number  1\-10323, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/319687/0000950155-97-000064.txt)                                                                                |
|   \*4\.5 | UAL United      | [Fourth Supplemental Indenture, dated as of October 1, 2010, by and among Continental Airlines, Inc\., United Continental Holdings, Inc\. and The Bank of New York Mellon Trust Company, N\.A\., as trustee, with respect to the Indenture, dated as of July 15, 1997, between Continental Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\. (as successor to Bank One, N\.A\.), as trustee related to Continental Airlines, Inc\.’s 4\.5% Convertible Notes due 2015 (filed as Exhibit 4\.3 to UAL’s Form  8\-K dated October 1, 2010, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000119312510222185/dex43.htm) |
|   \*4\.6 | UAL United      | [Fifth Supplemental Indenture, dated as of May 15, 2014, among United Continental Holdings, Inc\., United Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\., as trustee (filed as Exhibit 4\.1 to UAL’s Form  8\-K filed on May 19, 2014, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015514000021/e64137634ex4_1.htm)                                                                                |
|   \*4\.7 | UAL United      | [Indenture, dated as of May 7, 2013, among United Continental Holdings, Inc\., United Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\., as Trustee (filed as Exhibit 4\.1 to UAL’s Form  8\-K filed on May 10, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015513000024/e62332806ex4_1.htm)                                                                                |
|   \*4\.8 | UAL United      | [First Supplemental Indenture, dated as of May 7, 2013, among United Continental Holdings, Inc\., United Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\., as Trustee, providing for the issuance of 6\.375% Senior Notes due 2018 (filed as Exhibit 4\.2 to UAL’s Form  8\-K filed on May 10, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015513000024/e62332806ex4_2.htm)                                                                                |
|   \*4\.9 | UAL United      | [Form of 6\.375% Senior Notes due 2018 (filed as Exhibit A to Exhibit 4\.2 to UAL’s Form  8\-K filed on May 10, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015513000024/e62332806ex4_2.htm#a)                                                                                |
|  \*4\.10 | UAL United      | [Form of Notation of Note Guarantee (filed as Exhibit B to Exhibit 4\.2 to UAL’s Form  8\-K filed on May 10, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015513000024/e62332806ex4_2.htm#b)                                                                                |
|  \*4\.11 | UAL United      | [Second Supplemental Indenture, dated as of November 8, 2013, among United Continental Holdings, Inc\., United Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\., as Trustee, providing for the issuance of 6\.000% Senior Notes due 2020 (filed as Exhibit 4\.2 to UAL’s Form  8\-K filed on November 12, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015513000051/e62651277ex4_2.htm)                                                                                |
|  \*4\.12 | UAL United      | [Form of 6\.000% Senior Notes due 2020 (filed as Exhibit 4\.3 to UAL’s Form  8\-K filed on November 12, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015513000051/e62651277ex4_3.htm)                                                                                |
|  \*4\.13 | UAL United      | [Form of Notation of Note Guarantee (filed as Exhibit 4\.4 to UAL’s Form  8\-K filed on November 12, 2013, Commission file number  1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015513000051/e62651277ex4_4.htm)                                                                                |
|  \*4\.14 | UAL  <br>United | [Third Supplemental Indenture, dated as of January 26, 2017, among United Continental Holdings, Inc\., United Airlines, Inc\. and The Bank of New York Mellon Trust Company, N\.A\., as Trustee, providing for the issuance of 5\.000% Senior Notes due 2024 (filed as Exhibit 4\.2 to UAL’s  Form 8\-K filed January 27, 2017, Commission file  number 1\-6033, and incorporated herein by reference) ](http://www.sec.gov/Archives/edgar/data/100517/000095015517000004/e75742257ex4_2.htm)                                                                                |

110


Annual Report of Southwest Airlines Co\. for year 2019

|   |                                                                                |
| - | --------------------------------------------------------------------------------- |
| • | upgrading of the Company's 737\-800 fleet with designed, split scimitar winglets; |

|   |                         |
| - | ----------------------- |
| • | periodic engine washes; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------- |
| • | use of electric ground power for aircraft air and power at the gate and for ground support equipment at select locations; |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------- |
| • | deployment of auto\-throttle and vertical navigation to maintain optimum cruising speeds; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------- |
| • | implementation of engine start procedures to support the Company's single engine taxi procedures; |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------- |
| • | adjustment of the timing of auxiliary power unit starts on originating flights to reduce auxiliary power unit usage; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------ |
| • | implementation of fuel planning initiatives to safely reduce loading of excess fuel; |

|   |                                                        |
| - | ------------------------------------------------------ |
| • | aircraft cabin interior retrofitting to reduce weight; |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------- |
| • | reduction of aircraft engine idle speed while on the ground, which also increases engine life; |

|   |                                                   |
| - | ------------------------------------------------- |
| • | galley refreshes with dry goods weight reduction; |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------- |
| • | Company\-optimized routes (flying the best wind routes to take advantage of tailwinds or to minimize headwinds); |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | improvements in flight planning algorithms to better match the Company's aircraft flight management system and thereby enable the Company to fly at the most efficient altitudes; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------ |
| • | substitution of Pilot and Flight Attendant flight bags with lighter Electronic Flight Bag tablets; and |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | implementation of Real Time Descent Winds (automatic uplinking of up\-to\-date wind data to the aircraft, allowing crews to time the descent to minimize thrust inputs)\. |

The Company has also participated in Required Navigation Performance ("RNP") operations as part of the FAA's Performance Based Navigation program, a key component of the NextGen program, which is intended to modernize the U\.S\. air traffic control system by addressing limitations on air transportation capacity and making more efficient use of airspace\. RNP combines the capabilities of advanced aircraft avionics, Global Positioning System ("GPS") satellite navigation (instead of less precise ground\-based navigation), and new flight procedures to (i) enable aircraft to carry navigation capabilities, rather than relying on airports; (ii) improve operational capabilities by opening up many new and more direct airport approach paths to produce safer and more efficient flight patterns; and (iii) conserve fuel and reduce carbon emissions\. Since its first use of RNP in 2011, Southwest has conducted approximately 237,000 RNP approaches, including over 93,000 in 2019\. Southwest must rely on RNP approaches published by the FAA, and the rate of introduction and utilization of RNP approaches continues to be slower than expected, with fuel efficient RNP approaches currently available at only 55 of Southwest's airports\. In addition, even at airports with approved RNP approaches, the clearance required from air traffic controllers to perform RNP approaches is often not granted\. Southwest continues to work with the FAA to develop and seek more use of RNP approaches and to evolve air traffic control rules to support greater utilization of RNP\.

As part of its commitment to corporate sustainability, the Company has published the Southwest One Report ^TM^  describing the Company's sustainability strategies, which include the foregoing and other efforts to reduce greenhouse gas emissions and address other environmental matters such as energy and water conservation, waste minimization, and recycling\. Information contained in the Southwest One Report is not incorporated by reference into, and does not constitute a part of, this Form 10\-K\.

Data Privacy and Security Regulation

Like all industries, the airline industry has experienced heightened legislative and regulatory focus on data privacy and security in the United States and elsewhere\. As a result, the Company must monitor a growing and fast\-evolving set of legal requirements in this area\. New laws give consumers much broader access and control over their personal information\. This regulatory environment is increasingly challenging and may present material obligations and risks to the Company's business, including significantly expanded compliance burdens, costs, and enforcement risks\.

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