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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 \. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Delta Air Lines, Inc\., a Delaware corporation, provides scheduled air transportation for passengers and cargo throughout the United States ("U\.S\.") and around the world\. Our Consolidated Financial Statements include the accounts of Delta Air Lines, Inc\. and our wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U\.S\. ("GAAP")\. We do not consolidate the financial statements of any company in which we have voting rights of   50%  or less\. We are not the primary beneficiary of, nor do we have a controlling financial interest in, any variable interest entity\. Accordingly, we have not consolidated any variable interest entity\.

We have marketing alliances with other airlines to enhance our access to domestic and international markets\. These arrangements may include codesharing, reciprocal loyalty program benefits, shared or reciprocal access to passenger lounges, joint promotions, common use of airport gates and ticket counters, ticket office co\-location and other marketing agreements\. We have received antitrust immunity for certain marketing arrangements, which enables us to offer a more integrated route network and develop common sales, marketing and discount programs for customers\. Some of our marketing arrangements provide for the sharing of revenues and expenses\. Revenues and expenses associated with collaborative arrangements are presented on a gross basis in the applicable line items on our Consolidated Statements of Operations ("income statement")\.

We have recast prior year financial statements to conform with the adoption of the revenue recognition and retirement benefits standards described below\. In addition, we have reclassified regional carriers fuel expense from regional carriers expense to aircraft fuel and related taxes, and consolidated ancillary businesses and refinery expenses into one financial statement line item, in addition to making other classification changes to conform to the current year presentation\.

Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes\.

Use of Estimates

We are required to make estimates and assumptions when preparing our Consolidated Financial Statements in accordance with GAAP\. These estimates and assumptions affect the amounts reported in our Consolidated Financial Statements and the accompanying notes\. Actual results could differ materially from those estimates\.

Recent Accounting Standards

Standards Effective in Future Years

Comprehensive Income \. In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No\. 2018\-02, "Income Statement—Reporting Comprehensive Income (Topic 220)\." This standard provides an option to reclassify stranded tax effects within  accumulated other comprehensive income/(loss) ("AOCI")  to retained earnings due to the U\.S\. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017\. The adoption of the standard may impact tax amounts stranded in AOCI related to our pension plans\. This standard is effective for interim and annual reporting periods beginning after December 15, 2018\.

Recently Adopted Standards

Leases\.  In 2016, the FASB issued ASU No\. 2016\-02, "Leases (Topic 842)\." This ASU and subsequently issued amendments require leases with durations greater than 12 months to be recognized on the balance sheet\.  The standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted\.

 58


Annual Report of Southwest Airlines Co\. for year 2018

**Stock Performance Graph**

*The following Performance Graph and related information shall not be deemed "soliciting material" or "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934\.*

The following graph compares the cumulative total shareholder return on the Company’s common stock over the five\-year period ended December 31, 2018, with the cumulative total return during such period of the Standard and Poor’s 500 Stock Index and the NYSE ARCA Airline Index\. The comparison assumes $100 was invested on December 31, 2013, in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends\. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance\.

**COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG SOUTHWEST AIRLINES CO\., S&P 500 INDEX, AND NYSE ARCA AIRLINE INDEX**

![chart1\.jpg](https://www.example.com/chart1.jpg)

|                             |                |                |                |                |                |                |
| --------------------------- | -------------- | -------------- | -------------- | -------------- | -------------- | -------------- |
|                             | **12/31/2013** | **12/31/2014** | **12/31/2015** | **12/31/2016** | **12/31/2017** | **12/31/2018** |
| **Southwest Airlines Co\.** | $100           | $226           | $232           | $271           | $359           | $257           |
| **S&P 500**                 | $100           | $114           | $115           | $129           | $157           | $150           |
| **NYSE ARCA Airline**       | $100           | $150           | $127           | $164           | $174           | $137           |

35


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

This table presents our total passenger revenue and the year\-over\-year change in certain operating statistics:

|                   |                                  |                                                                |                                                                |                                                                |                                                                |                                                                |                                                                |
| ----------------- | -------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------- |
|                   |                                  | **Increase (Decrease)
vs\. Year Ended December 31, 2018** | **Increase (Decrease)
vs\. Year Ended December 31, 2018** | **Increase (Decrease)
vs\. Year Ended December 31, 2018** | **Increase (Decrease)
vs\. Year Ended December 31, 2018** | **Increase (Decrease)
vs\. Year Ended December 31, 2018** | **Increase (Decrease)
vs\. Year Ended December 31, 2018** |
|                   | **Year Ended December 31, 2019** | **Passenger**

**Revenue**                               | **RPMs**                                                       | **ASMs**                                                       | **Load**

**Factor**                                     | **Passenger**

**Yield**                                 | **PRASM**                                                      |
|                   | **(In millions)**                |                                                                |                                                                |                                                                |                                                                |                                                                |                                                                |
| Passenger revenue | $42,010                          | 3\.3%                                                          | 4\.4%                                                          | 1\.1%                                                          | 2\.6pts                                                        | (1\.0)%                                                        | 2\.2%                                                          |

Passenger revenue  increase d  $1\.3 billion , or  3\.3 %, in  2019  from  2018  due to continued strength in passenger demand resulting in a  4\.4%  increase in RPMs and a  2\.6  point increase in passenger load factor\. Domestic PRASM increased 2\.0% in 2019 as compared to 2018\. Latin America was the best performing international region in  2019 , with PRASM increasing 3\.4% followed by Pacific with PRASM increasing 3\.1%, while Atlantic PRASM declined 1\.5% principally due to lower transfer payments related to our joint business arrangement and foreign currency effects\.

Cargo revenue  decrease d  $150 million , or  14\.8 %, in  2019  from  2018  primarily due to a  14\.4 % decrease in cargo ton miles reflecting declines in international freight volumes, principally as a result of international schedule reductions\.

Other operating revenue increased  $43 million , or  1\.5 %, in  2019  from  2018  primarily due to higher revenue associated with our airport clubs and loyalty program\.

Total operating revenues in  2019  increase d  $1\.2 billion , or  2\.8 %, from  2018  driven principally by a  3\.3 % increase in passenger revenue as described above\. Our TRASM was  16\.05  cents in  2019 , a  1\.7 %  increase  as compared to  15\.79  cents in  2018 \.

Operating Expenses

|                                       |                                              |                                              |                                              |                                              |
| ------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- |
|                                       | **Year Ended December 31,**                  | **Year Ended December 31,**                  | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                       | **2019**                                     | **2018**                                     | **Increase
(Decrease)**                 | **Percent
Increase
(Decrease)**    |
|                                       | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** |
| Aircraft fuel and related taxes       | $7,526                                       | $8,053                                       | $(527)                                       | (6\.5)                                       |
| Salaries, wages and benefits          | 12,609                                       | 12,251                                       | 358                                          | 2\.9                                         |
| Maintenance, materials and repairs    | 2,380                                        | 2,050                                        | 330                                          | 16\.1                                        |
| Other rent and landing fees           | 2,055                                        | 1,900                                        | 155                                          | 8\.2                                         |
| Aircraft rent                         | 1,326                                        | 1,264                                        | 62                                           | 4\.9                                         |
| Selling expenses                      | 1,602                                        | 1,520                                        | 82                                           | 5\.4                                         |
| Depreciation and amortization         | 1,982                                        | 1,839                                        | 143                                          | 7\.7                                         |
| Mainline operating special items, net | 635                                          | 787                                          | (152)                                        | (19\.4)                                      |
| Other                                 | 5,087                                        | 5,088                                        | (1)                                          | —                                            |
| Regional expenses:                    |                                              |                                              |                                              |                                              |
| Aircraft fuel and related taxes       | 1,869                                        | 1,843                                        | 26                                           | 1\.4                                         |
| Other                                 | 5,632                                        | 5,290                                        | 342                                          | 6\.5                                         |
| Total operating expenses              | $42,703                                      | $41,885                                      | $818                                         | 2\.0                                         |

Total operating expenses  increase d  $818 million , or  2\.0 %, in  2019  from  2018 \. See detailed explanations below relating to changes in total CASM\.

Total CASM

We sometimes use financial measures that are derived from the consolidated financial statements but that are not presented in accordance with GAAP to understand and evaluate our current operating performance and to allow for period\-to\-period comparisons\. We believe these non\-GAAP financial measures may also provide useful information to investors and others\. These non\-GAAP measures may not be comparable to similarly titled non\-GAAP measures of other companies, and should be considered in addition to, and not as a substitute for or superior to, any measure of performance,

53


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

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

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

2013 Credit Facilities

In November 2019, American and AAG entered into the Sixth Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 (as previously amended, the 2013 Credit Agreement; the revolving credit facility established thereunder, the 2013 Revolving Facility; the term loan facility established thereunder, the 2013 Term Loan Facility; and the 2013 Revolving Facility together with the 2013 Term Loan Facility, the 2013 Credit Facilities), which reduced the total aggregate commitments under the 2013 Revolving Facility to   $750 million  from   $1\.0 billion \. In addition, certain lenders party to the 2013 Credit Agreement extended the maturity date of their commitments under the 2013 Revolving Facility to October 2024 from October 2023\.

2014 Credit Facilities

In November 2019, American and AAG entered into the Seventh Amendment to Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (as previously amended, the 2014 Credit Agreement; the revolving credit facility established thereunder, the 2014 Revolving Facility; the term loan facility established thereunder, the 2014 Term Loan Facility; and the 2014 Revolving Facility together with the 2014 Term Loan Facility, the 2014 Credit Facilities), which increased the total aggregate commitments under the 2014 Revolving Facility to   $1\.6 billion  from   $1\.5 billion \. In addition, certain lenders party to the 2014 Credit Agreement extended the maturity date of their commitments under the 2014 Revolving Facility to October 2024 from October 2023\.

April 2016 Credit Facilities

In November 2019, American and AAG entered into the Fifth Amendment to Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (as previously amended, April 2016 Credit Agreement; the revolving credit facility established thereunder, the April 2016 Revolving Facility; the term loan facility established thereunder, the 2016 Term Loan Facility; and the April 2016 Revolving Facility together with the 2016 Term Loan Facility, the April 2016 Credit Facilities), which increased the total aggregate commitments under the April 2016 Revolving Facility to   $450 million  from   $300 million \. In addition, certain lenders party to the April 2016 Credit Agreement extended the maturity date of their commitments under the April 2016 Revolving Facility to October 2024 from October 2023\.

December 2016 Credit Facilities

In December 2016, American and AAG entered into the Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016 (as amended, the December 2016 Credit Agreement; the term loan facility established thereunder, the December 2016 Term Loan Facility; and together with the revolving credit facility that may be established thereunder in the future, the December 2016 Credit Facilities)\.

Certain details of American’s 2013 Credit Facilities, 2014 Credit Facilities, April 2016 Credit Facilities and December 2016 Credit Facilities (collectively referred to as the Credit Facilities) are shown in the table below as of  December 31, 2019 :

|                                                                                |                                |                                  |                            |                                  |                                  |                                        |                                     |
| ---------------------------------------------------------------------------------------- | ------------------------------ | -------------------------------- | -------------------------- | -------------------------------- | -------------------------------- | -------------------------------------- | ----------------------------------- |
|                                                                                | **2013 Credit Facilities**     | **2013 Credit Facilities**       | **2014 Credit Facilities** | **2014 Credit Facilities**       | **April 2016 Credit Facilities** | **April 2016 Credit Facilities**       | **December 2016 Credit Facilities** |
|                                                                                | **2013 Replacement Term Loan** | **2013
Revolving Facility** | **2014 Term
Loan**    | **2014
Revolving Facility** | **April 2016
Term Loan**    | **April 2016
Revolving Facility** | **December 2016 Term Loan**         |
| Aggregate principal issued

 or credit facility availability

 (in millions) | $1,919                         | $750                             | $1,250                     | $1,643                           | $1,000                           | $450                                   | $1,250                              |
| Principal outstanding or

 drawn (in millions)                                     | $1,807                         | $—                               | $1,202                     | $—                               | $970                             | $—                                     | $1,213                              |
| Maturity date                                                                            | June 2025                      | October 2024                     | October 2021               | October 2024                     | April 2023                       | October 2024                           | December 2023                       |
| LIBOR margin                                                                             | 1\.75%                         | 2\.00%                           | 2\.00%                     | 2\.00%                           | 2\.00%                           | 2\.00%                                 | 2\.00%                              |

The term loans under each of the Credit Facilities are repayable in annual installments in an amount equal to   1\.00%  of the aggregate principal amount issued, with any unpaid balance due on the respective maturity dates\. Voluntary prepayments may be made by American at any time\.

132


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

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

Co\-Brand Agreement \. United has a significant contract (the "Co\-Brand Agreement") to sell MileagePlus miles to its co\-branded credit card partner JPMorgan Chase Bank, N\.A\. ("Chase")\. Chase awards miles to MileagePlus members based on their credit card activity\. United identified the following significant separately identifiable performance obligations in the Co\-Brand Agreement:

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | MileagePlus miles awarded – United has a performance obligation to provide MileagePlus cardholders with miles to be used for air travel and non\-travel award redemptions\. The Company records Passenger revenue related to the travel awards when the transportation is provided and records Other revenue related to the non\-travel awards when the goods or services are delivered\. The Company records the cost associated with non\-travel awards in Other operating revenue\.  |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Marketing – United has a performance obligation to provide Chase access to United's customer list and the use of United's brand\. Marketing revenue is recorded to Other operating revenue as miles are delivered to Chase\.  |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Advertising – United has a performance obligation to provide advertising in support of the MileagePlus card in various customer contact points such as United's website, email promotions, direct mail campaigns, airport advertising and in\-flight advertising\. Advertising revenue is recorded to Other operating revenue as miles are delivered to Chase\.  |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | Other travel\-related benefits – United's performance obligations are comprised of various items such as waived bag fees, seat upgrades and lounge passes\. Lounge passes are recorded to Other operating revenue as customers use the lounge passes\. Bag fees and seat upgrades are recorded to Passenger revenue at the time of the associated travel\.  |

We account for all the payments received (including monthly and one\-time payments) under the Co\-Brand Agreement by allocating them to the separately identifiable performance obligations\. The fair value of the separately identifiable performance obligations is determined using management's estimated selling price of each component\. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand\-alone basis\. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed\. The Company estimated the selling prices and volumes over the term of the Co\-Brand Agreement in order to determine the allocation of proceeds to each of the components to be delivered\. We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated consideration from the Co\-Brand Agreement on a prospective basis\.

In  February 2020 , the Company announced that they had entered into a Third Amended and Restated Co\-Branded Card Marketing Services Agreement (as amended from time to time, the "Agreement") with Chase\. The Agreement, which replaces the Co\-Brand Agreement, also extends the term into 2029 and modifies certain other terms\. We will continue to account for the considerations received under the Agreement to the separately identifiable performance obligations using the estimated selling price allocation methodology explained above\. In connection with the Agreement the Company, entered into an Amended and Restated Co\-Branded Card Strategic Alliance Agreement with Visa U\.S\.A\. Inc\.

Estimate of Miles Not Expected to be Redeemed \. The Company's estimated selling price of miles is based on an equivalent ticket value less breakage, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles\. The equivalent ticket value is based on the prior 12 months' weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region\. The estimated selling price of miles is adjusted by breakage that considers a number of factors, including redemption patterns of various customer groups\. The Company's breakage model is based on the assumption that the likelihood that an account will redeem its miles can be estimated based on a consideration of the account's historical behavior\. The Company uses a logit regression model to estimate the probability that an account will redeem its current miles balance\. The Company reviews its breakage estimates annually based upon the latest available information\. The Company's estimate of the expected breakage of miles requires significant management judgment\. Current and future changes to breakage assumptions, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the program\. For the portion of the outstanding miles that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining miles are redeemed\.

The following table summarizes information related to the Company's Frequent flyer deferred revenue liability:

|                                                                                |        |
| ----------------------------------------------------------------------------------------------------------------------------------- | ------ |
| Frequent flyer deferred revenue at December 31, 2019 (in millions)                                                                  | $5,276 |
| Percentage of miles earned not expected to be redeemed                                                                              | 14%    |
| Impact of 1% change in outstanding miles expected to be redeemed or weighted average ticket value on deferred revenue (in millions) | $53    |

35


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

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

(n) Share\-based Compensation

American accounts for its share\-based compensation expense based on the fair value of the stock award at the time of grant, which is recognized ratably over the vesting period of the stock award\. The majority of American’s stock awards are time vested restricted stock units, and the fair value of such awards is based on the market price of the underlying shares of AAG common stock on the date of grant\. See Note 13 for further discussion of share\-based compensation\.

(o) Foreign Currency Gains and Losses

Foreign currency gains and losses are recorded as part of other income, net within total nonoperating expense, net in American’s consolidated statements of operations\. For the years ended  December 31, 2019 ,  2018  and  2017 , respectively, foreign currency  losses  were   $32 million ,   $54 million  and   $4 million \.

(p) Other Operating Expenses

Other operating expenses includes costs associated with ground and cargo handling, crew travel, aircraft food and catering, passenger accommodation, airport security, international navigation fees and certain general and administrative expenses\.

(q) Regional Expenses

Expenses associated with American Eagle operations are classified as regional expenses on American’s consolidated statements of operations\.Regional expenses consist of the following (in millions):

|                                                               |                             |                             |                             |
| ------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                               | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                               | **2019**                    | **2018**                    | **2017**                    |
| Aircraft fuel and related taxes                               | $1,869                      | $1,843                      | $1,382                      |
| Salaries, wages and benefits                                  | 325                         | 338                         | 356                         |
| Capacity purchases from third\-party regional carriers  ^(1)^ | 3,562                       | 3,267                       | 3,283                       |
| Maintenance, materials and repairs                            | 30                          | 8                           | 7                           |
| Other rent and landing fees                                   | 621                         | 583                         | 602                         |
| Aircraft rent                                                 | 29                          | 27                          | 27                          |
| Selling expenses                                              | 402                         | 369                         | 361                         |
| Depreciation and amortization                                 | 286                         | 267                         | 262                         |
| Special items, net                                            | —                           | —                           | 3                           |
| Other                                                         | 394                         | 362                         | 289                         |
| Total regional expenses                                       | $7,518                      | $7,064                      | $6,572                      |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | In  2019 ,  2018 , and  2017 , American recognized   $590 million ,   $565 million  and   $544 million , respectively, of expense under its capacity purchase agreement with Republic Airline Inc\. (Republic)\. American holds a   25%  equity interest in Republic Airways Holdings Inc\. (Republic Holdings), the parent company of Republic\. |

129


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

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

This section of this Form 10\-K does not address certain items regarding the year ended December 31, 2017\. Discussion and analysis of 2017 and year\-to\-year comparisons between 2018 and 2017 not included in this Form 10\-K can be found in "Item 7\. Management's Discussion and Analysis" of our Annual Report on Form 10\-K for the year ended December 31, 2018\.

Year in Review

Delta had a strong year in 2019, delivering record financial results and making significant progress on strategic priorities\. We leveraged our brand momentum to drive strong revenue growth and improvement in pre\-tax income, margin, earnings per share and free cash flow over 2018\. Strategic accomplishments during the year include our renewed agreement with American Express and announcing plans to enter into a strategic alliance with LATAM\.

Our pre\-tax income for 2019 was $6\.2 billion, representing a $1 billion, or 20%,  increase compared to the prior year\. Diluted earnings per share of $7\.30 improved 29% over 2018\. Our $8\.4 billion of cash flows from operations helped fund $4\.9 billion in capital expenditures, resulting in free cash flow of $4\.2 billion, representing a $1\.8 billion improvement to the prior year\. We returned 72% of free cash flow, or $3 billion, to shareholders through share repurchases and dividends\. The improvement in earnings and cash flow primarily resulted from a $2\.6 billion increase in revenue and lower fuel expense on an 8% decrease in the market price per gallon of fuel and improved fuel efficiency\.

We continued to run the world’s most reliable airline and set a new record for zero cancel days with 165 cancel\-free days across the system and 281 on our mainline operations\. Industry\-leading operational performance, our culture of service and continued product investments supported record customer satisfaction scores\. In 2019, we increased net promoter scores in every geographic region, highlighted by a 5\-point improvement in the Domestic region to 50%\.

Strong Brand Drives Revenue Growth

Compared to 2018, our operating revenue increased $2\.6 billion, or 5\.8%, on balanced growth across our diverse revenue streams, with premium product ticket revenue driving nearly half of the improvement, and strong growth in both loyalty and MRO revenue\. Total revenue per available seat mile ("TRASM") and TRASM, adjusted (a non\-GAAP financial measure) increased 1\.2% and 2\.8%, respectively, compared to the prior year, led by (1) unit revenue growth in our Domestic and Latin regions, (2) demand strength in both business and leisure segments and (3) strong growth in premium products and non\-ticket revenues\. Total loyalty revenue grew 18% in 2019\.

Solid Cost Performance

Operating Expense\.  Operating expense increased $1\.2 billion, or 3\.1%, primarily due to higher revenue\- and capacity\-related expenses including wages and profit sharing for employees and contracted services expense\. Salaries and related costs were higher due to pay rate increases for eligible employees implemented during 2019, while profit sharing was higher due to increased profitability in 2019\. The increase in contracted services expense predominantly relates to services performed by Delta Global Services ("DGS") that were recorded in salaries and related costs prior to the sale of that business in December 2018\. These increases were partially offset by lower fuel expense on an 8% decrease in the market price per gallon of fuel and improved fuel efficiency driven by our ongoing fleet transformation\.

Our operating cost per available seat mile ("CASM") decreased 1\.3% to 14\.67 cents compared to 2018, primarily due to lower fuel expense and a 4\.6% increase in capacity\. Non\-fuel unit costs ("CASM\-Ex", a non\-GAAP financial measure) increased 2\.0% to 10\.52 cents due to the higher revenue\- and capacity\-related expense increases discussed above\.

Non\-Operating Expense\.  Total non\-operating expense was $420 million during 2019 compared to $113 million in 2018, primarily due to an increase in pension and related expense compared to the prior year, partially offset by higher gains on investments\.

29


Annual Report of Southwest Airlines Co\. for year 2019

extend MAX\-related flight schedule adjustments\. The FAA will determine the timing of MAX return to service, and the Company offers no assurances that current estimations and timelines are correct\. The Company continues to be focused on proactively managing cancellations, minimizing operational disruptions, reaccommodating Customers, and minimizing the impact on its ontime performance\.

As of  December 31, 2019 , the Company had firm orders in place with Boeing for  219  737 MAX 8 aircraft and  30  737 MAX 7 aircraft\. As previously disclosed, Boeing is not currently delivering new MAX aircraft and, therefore, not meeting its contractual delivery schedule\. The Company had 41 MAX aircraft on order from Boeing or third parties from 2019 that have yet to be delivered, one of which contractually shifted to 2021\. As a result of the MAX groundings, the Company deferred the planned retirement of seven of its owned Boeing 737\-700 aircraft to future years\. The Company retired  one  737\-700 aircraft during third quarter 2019 and an additional  three  737\-700 aircraft during fourth quarter 2019\. The Company also returned  two  leased 737\-700 aircraft during fourth quarter 2019\. See Part I, Item 2 and Note 16 to the Consolidated Financial Statements for further information\.

Based on the Company's MAX\-related flight schedule adjustments through June 6, 2020, the Company currently expects its  first quarter 2020  ASMs to decrease in the range of 1\.5 to 2\.5 percent, compared with  first quarter 2019 \. Based on continued uncertainty regarding the MAX return to service that could materially impact current and future flight schedules, the Company is unable to provide annual 2020 available seat mile guidance at this time\.

During 2019, the following events took place regarding the Company's unionized Employee groups in contract negotiations:

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | The Company's Mechanics and Related Employees, represented by Aircraft Mechanics Fraternal Association, ratified a new collective\-bargaining agreement with the Company\. The newly ratified contract becomes amendable in August 2024\.  |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | The Company's Flight Simulator Technicians, represented by International Brotherhood of Teamsters, ratified a new collective\-bargaining agreement with the Company\. The newly ratified contract becomes amendable in May 2024\.  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | The Company's Material Specialists, represented by International Brotherhood of Teamsters Local 19, ratified a new collective\-bargaining agreement with the Company\. The newly ratified contract becomes amendable in April 2024\.  |

2019  Compared with  2018

Operating Revenues

Passenger revenues for  2019  increase d by  $321 million , or  1\.6  percent, compared with  2018 \. On a unit basis, Passenger revenues  increase d  3\.2 percent , year\-over\-year, largely driven by a  3\.1 percent  increase  in Passenger revenue yield and a slight  increase  in Load factor, year\-over\-year, to  83\.5 percent \. The Company's capacity  decrease d  1\.6 percent  in 2019, as compared with 2018\. The  increase  in Passenger revenue yield was the result of an increase in average fare\. In addition, prior year results included negative revenue effects from its Flight 1380 accident in April 2018\. On April 17, 2018, Southwest Airlines Flight 1380 from New York\-LaGuardia to Dallas Love Field suffered an uncontained failure of its port CFM56\-7B engine, resulting in a Customer fatality\. The nominal dollar  increase  was partially offset by several unexpected events during  2019  that contributed to a negative revenue impact, including the MAX groundings, unscheduled maintenance disruptions in first quarter, and the U\.S\. government shutdown in first quarter\.

Freight revenues for  2019  decrease d by  $3 million , or  1\.7 percent , compared with  2018 , primarily due to  decrease d demand\. Based on current trends, the Company currently expects Freight revenues in  first quarter 2020  to increase, compared with  first quarter 2019 \.

Other revenues for  2019  increase d by  $145 million , or  10\.9  percent, compared with  2018 \. The increase was primarily due to an increase in revenues associated with cardholder spend on the Company's co\-branded Chase ^®^  Visa credit card, driven by the Company's bonus point offers in the second, third, and fourth quarters of 2019, and the success of its

42


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

|                                                                                |                                                                                |                                                                                |
| ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |
| ITEM 7\. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ITEM 7\. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 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 2019 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\. We have recast our financial information to reflect the impact of those standards\. This section also includes forward\-looking statements regarding our view of 2020\.

• 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\.

This section of the Form 10\-K covers discussion of 2019 and 2018 results, and comparisons between those years\. Discussion of 2017 results and comparisons between 2018 and 2017 have been removed from this Form 10\-K, and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10\-K for the fiscal year ended December 31, 2018\.

YEAR IN REVIEW

In 2019, we posted our 16th consecutive annual profit on an adjusted basis and an adjusted pretax margin of 12%, which ranks among the top quartile of the industry\. Our pretax income was $1\.0 billion, compared to $585 million in 2018\. Our 2019 pretax income on an adjusted basis (a non\-GAAP financial measure) was $1\.1 billion, an increase of 43% from the same measure in 2018\. Adjusted pretax income for 2019 excludes $44 million of merger\-related costs associated with our acquisition of Virgin America and $6 million of mark\-to\-market fuel hedge adjustments\.

The increase in adjusted pretax income was driven largely by an increase in operating revenues of $517 million, and a decrease in fuel expense of $58 million due to lower fuel prices as compared to the prior year\. These improvements were partially offset by an increase in operating expenses, excluding fuel and special items, of $243 million\.

Revenue growth of $517 million was largely driven by initiatives we launched in late 2018 and early 2019, most notably our new Saver Fare product, and continued network expansion resulting in capacity growth of about 2%\.

The $243 million increase in operating expenses, excluding fuel and special items, was largely due to growth in wages and benefits cost from new collective bargaining agreements and growth in our overall business, requiring an increase in frontline staffing\. One of these agreements was a joint collective bargaining agreement with our aircraft mechanics, marking the last of the work groups to integrate from the Virgin America merger\. This was a significant achievement and marks 2019 as the year in which we completed substantially all of the integration milestones\.

See “Results of Operations” below for further discussion of changes in revenues and operating expenses and our reconciliation of non\-GAAP measures to the most directly comparable GAAP measure\.

31


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

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | restrictions on airport operations, such as restrictions on the use of slots at airports or the auction or reallocation of slot rights currently held by us; and |

|   |                                                                        |
| - | ---------------------------------------------------------------------- |
| • | the adoption of more restrictive locally\-imposed noise restrictions\. |

Each additional regulation or other form of regulatory oversight increases costs and adds greater complexity to airline operations and, in some cases, may reduce the demand for air travel\. There can be no assurance that our compliance with new rules, anticipated rules or other forms of regulatory oversight will not have a material adverse effect on us\.

Any significant reduction in air traffic capacity at and in the airspace serving key airports in the U\.S\. or overseas could have a material adverse effect on our business, results of operations and financial condition\. In addition, the United States National Airspace System (the ATC system) is not successfully modernizing to meet the growing demand for U\.S\. air travel\. Air traffic controllers rely on outdated procedures and technologies that routinely compel airlines to fly inefficient routes or take significant delays on the ground\. The ATC system’s inability to manage existing travel demand has led government agencies to implement short\-term capacity constraints during peak travel periods or adverse weather conditions in certain markets, resulting in delays and disruptions of air traffic\. The outdated technologies also cause the ATC to be less resilient in the event of a failure\. For example, an automation failure and an evacuation, in 2015 and 2017, respectively, at the Washington Air Route Control Center resulted in cancellations and delays of hundreds of flights traversing the greater Washington, D\.C\. airspace\.

In the early 2000s, the FAA embarked on a path to modernize the national airspace system, including migration from the current radar\-based ATC system to a GPS\-based system\. This ATC modernization, generally referred to as “NextGen,” has been plagued by delays and cost overruns, and it remains uncertain when the full array of benefits expected from ATC modernization will be available to the public and the airlines\. Failure to update the ATC system in a timely manner and the substantial funding requirements that may be imposed on airlines of a modernized ATC system may have a material adverse effect on our business\. We support legislative efforts that would establish a nimble not\-for\-profit entity better suited to manage the long\-term investments in technology and provide a governance structure needed to successfully implement NextGen and improve the operation of the ATC system\.

Our operating authority in international markets is subject to aviation agreements between the U\.S\. and the respective countries or governmental authorities, such as the EU, and in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign governments\. Moreover, alliances with international carriers may be subject to the jurisdiction and regulations of various foreign agencies\. Bilateral and multilateral agreements among the U\.S\. and various foreign governments of countries we serve are subject to periodic renegotiation\. We currently operate a number of international routes under government arrangements that limit the number of airlines permitted to operate on the route, the capacity of the airlines providing services on the route, or the number of airlines allowed access to particular airports\. If an open skies policy were to be adopted for any of these routes, such an event could have a material adverse impact on us and could result in the impairment of material amounts of our related tangible and intangible assets\. In addition, competition from revenue\-sharing joint ventures, JBAs, and other alliance arrangements by and among other airlines could impair the value of our business and assets on the open skies routes\. For example, the open skies air services agreement between the U\.S\. and the EU, which took effect in March 2008, provides airlines from the U\.S\. and EU member states open access to each other’s markets, with freedom of pricing and unlimited rights to fly from the U\.S\. to any airport in the EU, including LHR\. As a result of the agreement, we face increased competition in these markets, including LHR\. The pending withdrawal of the United Kingdom from the EU, commonly referred to as Brexit, will mandate further modification in the current regulatory regime\. Among other things, Brexit will likely require a transition arrangement or new air services agreement involving the U\.S\. and United Kingdom, and the United Kingdom and EU, to permit our current air services (including those involving our joint business and code share partners) to continue as we currently conduct them\. More generally, changes in U\.S\. or foreign government aviation policies could result in the alteration or termination of such agreements, diminish the value of route authorities, slots or other assets located abroad, or otherwise adversely affect our international operations\. The U\.S\. government has negotiated “open skies” agreements with many countries, which allow unrestricted route authority access between the U\.S\. and the foreign markets\. While the U\.S\. has worked to increase the number of countries with which open skies agreements are in effect, a number of markets important to us, including China, do not have open skies agreements\.

23


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

STRATEGY

The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on our business\. If we cannot successfully compete in the marketplace, our business, financial condition, and operating results will be materially adversely affected\.

The U\.S\. airline industry is characterized by substantial price competition\. In recent years, the market share held by low\-cost carriers and ultra low\-cost carriers has increased significantly and is expected to continue to increase\. Airlines also compete for market share by increasing or decreasing their capacity, route systems, and the number of markets served\. Several of our competitors have increased their capacity in markets we serve, particularly in our key West Coast markets\. The resulting increased competition in both domestic and international markets may have a material adverse effect on our results of operations, financial condition, or liquidity\.

We strive toward maintaining and improving our competitive cost structure by setting aggressive unit cost\-reduction goals\. This is an important part of our business strategy of offering the best value to our guests through low fares while achieving acceptable profit margins and return on capital\. If we are unable to maintain our cost advantage over the long\-term and achieve sustained targeted returns on invested capital, we will likely not be able to grow our business in the future or weather industry downturns\. Therefore, our financial results may suffer\.

The airline industry may undergo further restructuring, consolidation, or the creation or modification of alliances or joint ventures, any of which could have a material adverse effect on our business, financial condition and results of operations\.

We continue to face strong competition from other carriers due to restructuring, consolidation, and the creation and modification of alliances and joint ventures\. Since deregulation, both the U\.S\. and international airline industries have experienced consolidation through a number of mergers and acquisitions\. Carriers may also improve their competitive positions through airline alliances, slot swaps/acquisitions and/or joint ventures\. Certain airline joint ventures further competition by allowing airlines to coordinate routes, pool revenues and costs, and enjoy other mutual benefits, achieving many of the benefits of consolidation\.

Our concentration in certain markets could cause us to be disproportionately impacted by adverse changes in circumstances in those locations\.

Our strategy includes being the premier carrier for people living on the West Coast\. This results in a high concentration of our business in key West Coast markets\. A significant portion of our flights occur to and from our Seattle, Portland, and Bay Area hubs\. In 2019, passengers to and from Seattle, Portland, and the Bay Area accounted for 83% of our total guests\.

We believe that concentrating our service offerings in this way allows us to maximize our investment in personnel, aircraft and ground facilities, as well as to gain greater advantage from sales and marketing efforts in those regions\. As a result, we remain highly dependent on our key markets\. Our business could be harmed by any circumstances causing a reduction in demand for air transportation in our key markets\. An increase in competition in our key markets could also cause us to reduce fares or take other competitive measures that, if sustained, could harm our business, financial condition and results of operations\.

We are dependent on a limited number of suppliers for aircraft and parts\.

Alaska is dependent on Boeing and Airbus as its sole suppliers for aircraft and many aircraft parts\. Horizon is similarly dependent on De Havilland and Embraer\. Additionally, each carrier is dependent on sole suppliers for aircraft engines for each aircraft type\. As a result, we are more vulnerable to issues associated with the supply of those aircraft and parts including design defects, mechanical problems, contractual performance by the manufacturers, or adverse perception by the public that would result in customer avoidance or in actions by the FAA\. Should we be unable to resolve known issues with certain of our aircraft or engine suppliers, it may result in the inability to operate our aircraft for extended periods\. Should these suppliers be unable to manufacture or deliver new aircraft, we may not be able to grow our fleet at our intended rate, which could impact our financial position\. Specifically, the Boeing 737 MAX aircraft was grounded by the FAA in March 2019 and remains grounded\. We have 32 MAX9 aircraft on order, with 10 aircraft deliveries currently anticipated in 2020\. If we are unable to receive these aircraft and future aircraft in a timely manner, our growth plans could be significantly impacted\. Additionally, further consolidation amongst aircraft and aircraft parts manufacturers could further limit the number of suppliers\. This could result in an inability to operate our aircraft or instability in the foreign countries in which the aircraft and its parts are manufactured\.

22


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

31\.1  [Rule 13a\-14(a)/15d\-14(a) Certification of Chief Executive Officer\.](http://ir.delta.com/dal12312019ex311.htm)

31\.2  [Rule 13a\-14(a)/15d\-14(a) Certification of Chief Financial Officer\.](http://ir.delta.com/dal12312019ex312.htm)

32  [Certification pursuant to 18 U\.S\.C\. Section 1350, as adopted pursuant to Section 906 of the Sarbanes\-Oxley Act 2002\.](http://ir.delta.com/dal12312019ex32.htm)

101\.INS XBRL Instance Document \- The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document\.

101\.SCH XBRL Taxonomy Extension Schema Document

101\.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101\.DEF XBRL Taxonomy Extension Definition Linkbase Document

101\.LAB XBRL Taxonomy Extension Labels Linkbase Document

101\.PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 The cover page from this Annual Report on Form 10\-K for the year ended December 31, 2019 formatted in Inline XBRL

\_\_\_\_\_\_\_\_\_\_\_\_

\* Incorporated by reference\.

\*\* Portions of this exhibit have been omitted as confidential information\.

ITEM 16\. FORM 10\-K SUMMARY

Not applicable\.

102


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

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

Identifiable Intangible Assets\.  Indefinite\-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to SkyTeam and collaborative arrangements\. Definite\-lived intangible assets consist primarily of marketing and maintenance service agreements and are amortized on a straight\-line basis or under the undiscounted cash flows method over the estimated economic life of the respective agreements\. Costs incurred to renew or extend the term of an intangible asset are expensed as incurred\.

We assess our indefinite\-lived assets under a qualitative or quantitative approach\. We analyze market factors to determine if events and circumstances have affected the fair value of the indefinite\-lived intangible assets\. If we determine that it is more likely than not that the asset value may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment\. We perform the quantitative impairment test for indefinite\-lived intangible assets by comparing the asset's fair value to its carrying value\. Fair value  is estimated based on (1) recent market transactions, where available, (2) the royalty method for the Delta tradename (which assumes hypothetical royalties generated from using our tradename) or (3) projected discounted future cash flows (an income approach)\.  We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value\.

Income Taxes

We account for deferred income taxes under the liability method\. We recognize deferred tax assets and liabilities based on the tax effects of temporary differences between the financial statement and tax basis of assets and liabilities, as measured by current enacted tax rates\. Deferred tax assets and liabilities are recorded net as noncurrent deferred income taxes\.

A valuation allowance is recorded to reduce deferred tax assets when necessary\. We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets\. We establish valuation allowances if it is not likely we will realize our deferred income tax assets\. In making this determination, we consider all available positive and negative evidence and make certain assumptions\. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies\.

Fuel Card Obligation

We have a purchasing card with American Express for the purpose of buying jet fuel and crude oil\. The card currently carries a maximum credit limit of   $1\.1 billion  and must be paid monthly\. At  December 31, 2017  and  December 31, 2016 , we had   $1\.1 billion  and   $431 million , respectively, outstanding on this purchasing card, which was classified as a financing activity in our Consolidated Statements of Cash Flows\.

Retirement of Repurchased Shares

We immediately retire shares repurchased pursuant to our share repurchase program\. We allocate the share purchase price in excess of par value between APIC and retained earnings\.

Passenger Tickets

We record sales of passenger tickets in air traffic liability\. Passenger revenue is recognized when we provide transportation or when the ticket expires unused, reducing the related air traffic liability\. We periodically evaluate the estimated air traffic liability and record any adjustments in our Consolidated Statements of Operations\. These adjustments relate primarily to refunds, exchanges, transactions with other airlines and other items for which final settlement occurs in periods subsequent to the sale of the related tickets at amounts other than the original sales price\.

Passenger Taxes and Fees

We are required to charge certain taxes and fees on our passenger tickets, including U\.S\. federal transportation taxes, federal security charges, airport passenger facility charges and foreign arrival and departure taxes\. These taxes and fees are assessments on the customer for which we act as a collection agent\. Because we are not entitled to retain these taxes and fees, we do not include such amounts in passenger revenue\. We record a liability when the amounts are collected and reduce the liability when payments are made to the applicable government agency or operating carrier\.

 60


Annual Report of Southwest Airlines Co\. for year 2017

**Economic and Operational Regulation**

***Consumer Protection Regulation by the U\.S\. Department of Transportation***

The DOT regulates economic operating authority for air carriers and consumer protection for airline passengers\. The FAA, a sub\-agency of the DOT, regulates aviation safety\. The DOT may impose civil penalties on air carriers for violating its regulations\.

To provide passenger transportation in the United States, a domestic airline is required to hold both a Certificate of Public Convenience & Necessity from the DOT and an Air Carrier Operating Certificate from the FAA\. A Certificate of Public Convenience & Necessity is unlimited in duration, and the Company’s certificate generally permits it to operate among any points within the United States and its territories and possessions\. Additional DOT authority, in the form of a certificate or exemption from certificate requirements, is required for a U\.S\. airline to serve foreign destinations either with its own aircraft or via code\-sharing with another airline\. Exemptions granted by the DOT to serve international markets are generally limited in duration and are subject to periodic renewal requirements\. The DOT also has jurisdiction over international tariffs and pricing in certain markets\. The DOT may revoke a certificate or exemption, in whole or in part, for intentional failure to comply with federal aviation statutes, regulations, orders, or the terms of the certificate itself\.

The DOT's consumer protection and enforcement activities relate to areas such as unfair and deceptive practices and unfair competition by air carriers, deceptive airline advertising (concerning, e\.g\., fares, ontime performance, schedules, and code\-sharing), and violations of rules concerning denied boarding compensation, ticket refunds, and baggage liability requirements\. The DOT is also charged with prohibiting discrimination by airlines against consumers on the basis of race, religion, national origin, sex, or ancestry\.

Under the above\-described authority, the DOT has adopted so\-called "Passenger Protection Rules," which address a wide variety of matters, including flight delays on the tarmac, chronically delayed flights, denied boarding compensation, and advertising of airfares, among others\. Under the Passenger Protection Rules, U\.S\. passenger airlines are required to adopt contingency plans that include the following: (i) assurances that no domestic flight will remain on the airport tarmac for more than three hours before beginning to return to the gate and that no international flight will remain on the tarmac at a U\.S\. airport for more than four hours before beginning to return to the gate, unless the pilot\-in\-command determines there is a safety\-related or security\-related impediment to deplaning passengers, or air traffic control advises the pilot\-in\-command that returning to the gate or permitting passengers to disembark elsewhere would significantly disrupt airport operations; (ii) an assurance that air carriers will provide adequate food and potable drinking water no later than two hours after the aircraft leaves the gate (in the case of departure) or touches down (in the case of arrival) if the aircraft remains on the tarmac, unless the pilot\-in\-command determines that safety or security considerations preclude such service; and (iii) an assurance of operable lavatories, as well as adequate medical attention, if needed\. Air carriers are required to publish their contingency plans on their websites\.

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

The Passenger Protection Rules also require airlines to (i) pay up to $1,350 in compensation to each passenger denied boarding involuntarily from an oversold flight; (ii) refund any checked bag fee for permanently lost luggage; (iii) prominently disclose all potential fees for optional ancillary services on their websites; and (iv) refund passenger fees paid for ancillary services if a flight cancels or oversells and a passenger is unable to take advantage of such services\.

The Passenger Protection Rules also require that (i) advertised airfares include all government\-mandated taxes and fees; (ii) passengers be allowed to either hold a reservation for up to 24 hours without making a payment or cancel a paid reservation without penalty for 24 hours after the reservation is made, as long as the reservation is made at least seven days in advance of travel; (iii) fares may not increase after purchase; (iv) baggage fees must be disclosed to the

11


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

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

***Impacts to*** ***2016*** ***Results***

The effects of the adoption of the New Revenue Standard and New Retirement Standard to our consolidated statement of operations for the twelve months ended December 31, 2016 were as follows (in millions):

|                                       |                 |                             |                                         |                                   |                             |               |
| ------------------------------------- | --------------- | --------------------------- | --------------------------------------- | --------------------------------- | --------------------------- | ------------- |
|                                       |                 | **New Revenue Standard**    | **New Revenue Standard**                | **New Revenue Standard**          | **New Retirement Standard** |               |
| **Year Ended  <br>December 31, 2016** | **As Reported** | **Deferred Revenue Method** | **Ancillary Revenue Reclassifications** | **Gross Versus Net Presentation** | **Reclassifications**       | **As Recast** |
| Operating revenues:                   |                 |                             |                                         |                                   |                             |               |
|  Passenger                            | $34,579         | $(147)                      | $2,571                                  | $42                               | $—                          | $37,045       |
|  Cargo                                | 700             | —                           | 36                                      | 49                                | —                           | 785           |
|  Other                                | 4,901           | —                           | (2,607)                                 | 18                                | —                           | 2,312         |
|  Total operating revenues             | 40,180          | (147)                       | —                                       | 109                               | —                           | 40,142        |
|  Total operating expenses             | 34,896          | —                           | —                                       | 109                               | 77                          | 35,082        |
| Operating income                      | 5,284           | (147)                       | —                                       | —                                 | (77)                        | 5,060         |
| Total nonoperating expense, net       | (985)           | —                           | —                                       | —                                 | 77                          | (908)         |
| Income before income taxes            | 4,299           | (147)                       | —                                       | —                                 | —                           | 4,152         |
| Income tax provision                  | 1,623           | (55)                        | —                                       | —                                 | —                           | 1,568         |
| Net income                            | $2,676          | $(92)                       | $—                                      | $—                                | $—                          | $2,584        |
| Diluted earnings per common share     | $4\.81          |                             |                                         |                                   |                             | $4\.65        |

*Standards Effective for 2019 Reporting Periods*

***ASU 2018\-02: Income Statement \- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income***

This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings due to the U\.S\. federal corporate income tax rate change as a result of the 2017 Tax Act\. The amount of the reclassification is the difference between the amount initially charged or credited directly to other comprehensive income at the previously enacted U\.S\. federal corporate income tax rate that remains in accumulated other comprehensive income and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U\.S\. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations\. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted\. We will adopt this standard effective January 1, 2019\. The adoption of the standard may impact tax amounts stranded in accumulated other comprehensive income related to our pension and retiree medical and other postretirement benefit plans\.

***(c) Short\-term Investments***

Short\-term investments are classified as available\-for\-sale and stated at fair value\. Realized gains and losses are recorded in nonoperating expense on our consolidated statements of operations\. Unrealized gains and losses are recorded in accumulated other comprehensive loss on our consolidated balance sheets\.

***(d) Restricted Cash and Short\-term Investments***

We have restricted cash and short\-term investments related primarily to collateral held to support workers’ compensation obligations\.

***(e) Aircraft Fuel, Spare Parts and Supplies, Net***

Aircraft fuel is recorded on a first\-in, first\-out basis\. Spare parts and supplies are recorded at average costs less an allowance for obsolescence\. These items are expensed when used\.

89


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

covered by defined benefit plans accrue retirement benefits in the form of a single life annuity payable upon retirement on a monthly basis until the employee’s death, and may elect certain alternative forms of benefit payments\. Plaintiffs contend that the mortality tables used by American for purposes of calculations related to these alternative forms of benefits are outdated and that more recent mortality tables would have provided more generous benefits and should have been used to make those calculations\. The court has denied our motion to dismiss the complaint\. We believe this lawsuit is without merit and intend to vigorously defend against the allegations\.

General \. In addition to the specifically identified legal proceedings, we and our subsidiaries are also engaged in other legal proceedings from time to time\. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control\. Therefore, although we will vigorously defend ourselves in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain but could be material\. See Part I, Item 1A\. Risk Factors – “We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity”  for additional discussion\.

ITEM 4\. MINE SAFETY DISCLOSURES

Not Applicable\.

41


Annual Report of Southwest Airlines Co\. for year 2018

**Issuer Repurchases**

|                                                     |                                           |                                           |                                           |                                           |                                           |
| --------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------------------------------------- |
| Issuer Purchases of Equity Securities (1)           | Issuer Purchases of Equity Securities (1) | Issuer Purchases of Equity Securities (1) | Issuer Purchases of Equity Securities (1) | Issuer Purchases of Equity Securities (1) | Issuer Purchases of Equity Securities (1) |
|                                                     | **(a)**                                   | **(b)**                                   |                                           | **(c)**                                   | **(d)**                                   |
|                                                     |                                           |                                           |                                           | **Total number of**                       | **Maximum dollar**                        |
|                                                     |                                           |                                           |                                           | **shares purchased**                      | **value of shares that**                  |
|                                                     | **Total number**                          | **Average**                               |                                           | **as part of publicly**                   | **may yet be purchased**                  |
|                                                     | **of shares**                             | **price paid**                            |                                           | **announced plans**                       | **under the plans**                       |
| **Period**                                          | **purchased**                             | **per share**                             |                                           | **or programs**                           | **or programs**                           |
| October 1, 2018 through

 October 31, 2018   | 1,848,814                                 | $—                                        | (2)(3)                                    | 1,848,814                                 | $1,350,032,588                            |
| November 1, 2018 through

 November 30, 2018 | —                                         | $—                                        |                                           | —                                         | $1,350,032,588                            |
| December 1, 2018 through

 December 31, 2018 | 9,835,633                                 | $—                                        | (3)                                       | 9,835,633                                 | $1,350,032,588                            |
| Total                                               | 11,684,447                                |                                           |                                           | 11,684,447                                |                                           |

|     |                                                                                |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (1) | On  May 17, 2017 , the Company's Board of Directors authorized the repurchase of up to  $2\.0 billion  of the Company's common stock\. On  May 16, 2018 , the Company’s Board of Directors authorized the repurchase of up to an additional  $2\.0 billion  of the Company’s common stock in a new share repurchase authorization, upon the completion of the May 2017 share repurchase authorization\. Repurchases are made in accordance with applicable securities laws in open market or private, including accelerated, repurchase transactions from time to time, depending on market conditions, and may be discontinued at any time\. |

|     |                                                                                |
| --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| (2) | Under an accelerated share repurchase program entered into by the Company with a third party financial institution in third quarter 2018 (the "Third Quarter 2018 ASR Program"), the Company paid  $500 million  and received an initial delivery of  6,349,325  shares during August 2018, representing an estimated 75 percent of the shares to be purchased by the Company under the Third Quarter 2018 ASR Program based on a volume\-weighted average price of  $59\.0614  per share of the Company’s common stock on the New York Stock Exchange during a calculation period between August 1, 2018 and August 22, 2018\. Final settlement of the Third Quarter 2018 ASR Program occurred in October 2018 and was determined based generally on a discount to the volume\-weighted average price per share of the Company's common stock during a calculation period completed in October 2018\. Upon settlement, the third party financial institution delivered  1,848,814  additional shares of the Company’s common stock to the Company\. In total, the average purchase price per share for the  8,198,139  shares repurchased under the Third Quarter 2018 ASR Program, upon completion of the Third Quarter 2018 ASR Program in October 2018, was  $60\.9895\.  |

|     |                                                                                |
| --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| (3) | Under an accelerated share repurchase program entered into by the Company with a third party financial institution in fourth quarter 2018 (the "Fourth Quarter 2018 ASR Program"), the Company paid  $500 million  in October 2018 and received an initial delivery of  7,827,176  shares during December 2018, representing an estimated 75 percent of the shares to be purchased by the Company under the Fourth Quarter 2018 ASR Program based on a price of  $47\.91  per share, which was the closing price of the Company’s common stock on the New York Stock Exchange on October 29, 2018\. The third party financial institution delivered an additional 1,472,253 shares to the Company in further partial settlements of the Fourth Quarter 2018 ASR Program in December 2018, which was determined based generally on a discount to the volume\-weighted average price per share of the Company's common stock during calculation periods completed in December 2018\. Final settlement of the Fourth Quarter 2018 ASR Program occurred in December 2018 and was determined based generally on a discount to the volume\-weighted average price per share of the Company's common stock during a calculation period completed in December 2018\. Upon settlement, the third party financial institution delivered  536,204  additional shares of the Company’s common stock to the Company\. In total, the average purchase price per share for the  9,835,633  shares repurchased under the Fourth Quarter 2018 ASR Program, upon completion of the Fourth Quarter 2018 ASR Program in December 2018, was  $50\.8356 \. |

36


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

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

Additionally, deterioration in the Company’s financial condition could negatively affect its ability to enter into new hedge contracts in the future\.

***Union disputes, employee strikes or slowdowns, and other labor\-related disruptions could adversely affect the Company’s operations and could result in increased costs that impair its financial performance\.***

United is a highly unionized company\. As of December 31, 2017, the Company and its subsidiaries had approximately 89,800 active employees, of whom approximately 80% were represented by various U\.S\. labor organizations\.

There is a risk that unions or individual employees might pursue judicial or arbitral claims arising out of changes implemented as a result of the Company entering into collective bargaining agreements with its represented employee groups\. There is also a possibility that employees or unions could engage in job actions such as slowdowns, work\-to\-rule campaigns, sick\-outs or other actions designed to disrupt the Company’s normal operations, in an attempt to pressure the Company in collective bargaining negotiations\. Although the RLA makes such actions unlawful until the parties have been lawfully released to self\-help, and the Company can seek injunctive relief against premature self\-help, such actions can cause significant harm even if ultimately enjoined\. In addition, collective bargaining agreements with the Company’s represented employee groups increase the Company’s labor costs, which increase could be material for any applicable reporting period\.

***An outbreak of a disease or similar public health threat could have a material adverse impact on the Company’s business, financial position and results of operations\.***

An outbreak of a disease or similar public health threat that affects travel demand, travel behavior, or travel restrictions could have a material adverse impact on the Company’s business, financial condition and results of operations\.

***Extensive government regulation could increase the Company’s operating costs and restrict its ability to conduct its business\.***

Airlines are subject to extensive regulatory and legal oversight\. Compliance with U\.S\. and international regulations imposes significant costs and may have adverse effects on the Company\. Laws, regulations, taxes and airport rates and charges, both domestically and internationally, have been proposed from time to time that could significantly increase the cost of airline operations or reduce airline revenue\.

United provides air transportation under certificates of public convenience and necessity issued by the DOT\. If the DOT altered, amended, modified, suspended or revoked these certificates, it could have a material adverse effect on the Company’s business\. The FAA regulates the safety of United’s operations\. United operates pursuant to an air carrier operating certificate issued by the FAA\. In 2014, the FAA’s more stringent pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations took effect, which has increased costs for all carriers\. Additionally, minimum qualifications took effect for air carrier first officers\. These regulations will continue to impact the industry and the Company for years to come, as they have caused mainline airlines to hire regional pilots, while simultaneously significantly reducing the pool of new pilots from which regional carriers themselves can hire\. Although this is an industry issue, it directly affects the Company and requires it to reduce regional partner flying, as several regional partners have experienced difficulty flying their schedules due to reduced pilot availability\. From time to time, the FAA also issues orders, airworthiness directives and other regulations relating to the maintenance and operation of aircraft that require material expenditures or operational restrictions by the Company\. These FAA orders and directives could include the temporary grounding of an entire aircraft type if the FAA identifies design, manufacturing, maintenance or other issues requiring immediate corrective action\. These FAA directives or requirements could have a material adverse effect on the Company\.

In 2018, the U\.S\. Congress will continue to consider legislation to reauthorize the FAA, which encompasses all significant aviation tax and policy related issues\. As with previous reauthorization legislation, the U\.S\. Congress may consider a range of policy changes that could impact the Company’s operations and costs\.

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

As of December 31, 2018, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption\. 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\. 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\. Based on our 2019 forecasted fuel consumption, we estimate that a one cent per gallon increase in aviation fuel price would increase our 2019 annual fuel expense by $45 million\.

***Foreign Currency***

We are exposed to the effect of foreign exchange rate fluctuations on the U\.S\. dollar value of foreign currency\-denominated operating revenues and expenses\. Our largest exposure comes from the British pound, Euro, Canadian dollar and various Latin American currencies, primarily the Brazilian real\. We do not currently have a foreign currency hedge program\. A uniform 10% strengthening in the value of the U\.S\. dollar from 2018 levels relative to each of the currencies in which we have foreign currency exposure would have resulted in a decrease in operating income of approximately $200 million for the year ended December 31, 2018\.

Generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by us and can significantly affect the value of our assets located outside the United States\. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect our business, results of operations and financial condition\. See Part I, Item 1A\. Risk Factors – *“We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control”* for additional discussion of this and other currency risks\.

***Interest***

Our earnings and cash flow are affected by changes in interest rates due to the impact those changes have on our interest expense from variable rate debt instruments and our interest income from short\-term, interest bearing investments\.

Our largest exposure with respect to variable rate debt comes from changes in LIBOR\. We had variable rate debt instruments representing approximately 40% of our total long\-term debt at December 31, 2018\. We currently do not have an interest rate hedge program\. If annual interest rates increase 100 basis points, based on our December 31, 2018 variable\-rate debt and short\-term investments balances, annual interest expense on variable rate debt would increase by approximately $100 million and annual interest income on short\-term investments would increase by approximately $50 million\. Additionally, the fair value of fixed\-rate debt would have decreased by approximately $565 million for AAG and $550 million for American\.

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