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

***We have significant pension and other postretirement benefit funding obligations, which may adversely affect our liquidity, results of operations and financial condition\.***

Our pension funding obligations are significant\. The amount of these obligations will depend on the performance of investments held in trust by the pension plans, interest rates for determining liabilities and actuarial experience\. The minimum funding obligation applicable to our pension plans was subject to favorable temporary funding rules that expired at the end of 2017\. Our minimum pension funding obligations are likely to increase materially beginning in 2019, when we will be required to make cash contributions corresponding to determinations made regarding the 2018 fiscal year\. In addition, we may have significant obligations for other postretirement benefits, the ultimate amount of which depends on, among other things, the outcome of an adversary proceeding related to retiree medical and other postretirement benefits and life insurance obligations filed in the Chapter 11 Cases\.

***If our financial condition worsens, provisions in our credit card processing and other commercial agreements may adversely affect our liquidity\.***

We have agreements with companies that process customer credit card transactions for the sale of air travel and other services\. These agreements allow these processing companies, under certain conditions (including, with respect to certain agreements, the failure of American to maintain certain levels of liquidity), to hold an amount of our cash (a holdback) equal to some or all of the advance ticket sales that have been processed by that credit card processor, but for which we have not yet provided the air transportation\. We are not currently required to maintain any holdbacks pursuant to these requirements\. These holdback requirements can be modified at the discretion of the credit card processing companies upon the occurrence of specific events, including material adverse changes in our financial condition\. An increase in the current holdbacks, up to and including 100% of relevant advanced ticket sales, could materially reduce our liquidity\. Likewise, other of our commercial agreements contain provisions that allow other entities to impose less\-favorable terms, including the acceleration of amounts due, in the event of material adverse changes in our financial condition\.

***Union disputes, employee strikes and other labor\-related disruptions may adversely affect our operations\.***

Relations between air carriers and labor unions in the U\.S\. are governed by the RLA\. Under the RLA, CBAs generally contain “amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi\-stage and usually lengthy series of bargaining processes overseen by the NMB\. For the dates that the CBAs with our major work groups become amendable under the RLA, see Part I, Item 1\. Business – “*Employees and Labor Relations*\.”

In the case of a CBA that is amendable under the RLA, if no agreement is reached during direct negotiations between the parties, either party may request that the NMB appoint a federal mediator\. The RLA prescribes no timetable for the direct negotiation and mediation processes, and it is not unusual for those processes to last for many months or even several years\. If no agreement is reached in mediation, the NMB in its discretion may declare that an impasse exists and proffer binding arbitration to the parties\. Either party may decline to submit to arbitration, and if arbitration is rejected by either party, a 30\-day “cooling off” period commences\. During or after that period, a PEB may be established, which examines the parties’ positions and recommends a solution\. The PEB process lasts for 30 days and is followed by another 30\-day “cooling off” period\. At the end of a “cooling off” period, unless an agreement is reached or action is taken by Congress, the labor organization may exercise “self\-help,” such as a strike, which could materially adversely affect our business, results of operations and financial condition\.

None of the unions representing our employees presently may lawfully engage in concerted refusals to work, such as strikes, slow\-downs, sick\-outs or other similar activity, against us\. Nonetheless, there is a risk that disgruntled employees, either with or without union involvement, could engage in one or more concerted refusals to work that could individually or collectively harm the operation of our airline and impair our financial performance\. See also Part I, Item 1\. Business – “*Employees and Labor Relations*\.”

19


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

We defer the amount for award travel obligation as part of loyalty program deferred revenue and recognize loyalty travel awards in passenger revenue as the mileage credits are used for travel\. Revenue allocated to services performed in conjunction with a passenger’s flight, such as baggage fee waivers, is recognized as travel\-related services in passenger revenue when the related service is performed\. Revenue allocated to access Delta Sky Club lounges is recognized as miscellaneous in other revenue as access is provided\. Revenue allocated to the remaining performance obligations, primarily brand value, is recorded as loyalty program in other revenue over time as miles are delivered\.

Current Activity of the Loyalty Program\.  Mileage credits are combined in one homogeneous pool and are not separately identifiable\. As such, the revenue is comprised of miles that were part of the loyalty program deferred revenue balance at the beginning of the period as well as miles that were issued during the period\.

The table below presents the activity of the current and noncurrent loyalty program liability, and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements\.

|                                      |                 |                 |
| ------------------------------------ | --------------- | --------------- |
| **(in millions)**                    | **2018**        | **2017**        |
| Balance at January 1                 | $6,321          | $5,922          |
| Mileage credits earned               | 3,142           | 2,948           |
| Travel mileage credits redeemed      | (2,651

) | (2,403

) |
| Non\-travel mileage credits redeemed | (171

)   | (146

)   |
| Balance at December 31               | $6,641          | $6,321          |

The timing of mileage redemptions can vary widely; however, the majority of new miles are redeemed within two years\.

Revenue by Geographic Region

Operating revenue for the airline segment is recognized in a specific geographic region based on the origin, flight path and destination of each flight segment\. The majority of the revenues of the refinery, consisting of fuel sales to the airline, have been eliminated in the Consolidated Financial Statements\. The remaining operating revenue for the refinery segment is included in the domestic region\. Our passenger and operating revenue by geographic region (as defined by the U\.S\. Department of Transportation) is summarized in the following table:

|                   |                             |                             |                             |                             |                             |                             |
| ----------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                   | **Passenger Revenue**       | **Passenger Revenue**       | **Passenger Revenue**       | **Operating Revenue**       | **Operating Revenue**       | **Operating Revenue**       |
|                   | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions)** | **2018**                    | **2017**                    | **2016**                    | **2018**                    | **2017**                    | **2016**                    |
| Domestic          | $28,159                     | $26,079                     | $25,002                     | $31,233                     | $28,850                     | $27,309                     |
| Atlantic          | 6,165                       | 5,537                       | 5,419                       | 7,042                       | 6,297                       | 6,115                       |
| Latin America     | 2,888                       | 2,862                       | 2,686                       | 3,181                       | 3,133                       | 2,939                       |
| Pacific           | 2,543                       | 2,469                       | 2,707                       | 2,982                       | 2,858                       | 3,087                       |
| Total             | $39,755                     | $36,947                     | $35,814                     | $44,438                     | $41,138                     | $39,450                     |

Cargo Revenue

Cargo revenue is recognized when we provide the transportation\.

Other Revenue

|                                   |                             |                             |                             |
| --------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                   | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
| **(in millions)**                 | **2018**                    | **2017**                    | **2016**                    |
| Ancillary businesses and refinery | $1,801                      | $1,591                      | $1,293                      |
| Loyalty program                   | 1,459                       | 1,269                       | 1,110                       |
| Miscellaneous                     | 558                         | 587                         | 549                         |
| Total other revenue               | $3,818                      | $3,447                      | $2,952                      |

 67


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

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

*Equity and Fixed\-Income\.* Equities include investments in both developed market and emerging market equity securities\. Fixed\-income includes primarily U\.S\. and non\-U\.S\. government fixed\-income securities and U\.S\. and non\-U\.S\. corporate fixed\-income securities\.

*Deposit Administration Fund\.* This investment is a stable value investment product structured to provide investment income\.

*Alternatives\.* Alternative investments consist primarily of investments in hedge funds, real estate and private equity interests\.

*Other investments\.* Other investments consist of cash, insurance contracts and other funds\.

The reconciliation of United's defined benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31, 2018 and 2017 is as follows (in millions):

|                                                   |          |          |
| ------------------------------------------------- | -------- | -------- |
|                                                   | **2018** | **2017** |
| Balance at beginning of year                      | $383     | $287     |
| Actual return (loss) on plan assets:              |          |          |
| Sold during the year                              | 10       | 7        |
| Held at year end                                  | (21)     | 16       |
| Purchases, sales, issuances and settlements (net) | (22)     | 73       |
| Balance at end of year                            | $350     | $383     |

Funding requirements for tax\-qualified defined benefit pension plans are determined by government regulations\. United's contributions reflected above have satisfied its required contributions through the 2018 calendar year\. In 2019, employer anticipated contributions to all of United's pension and postretirement plans are at least $318 million and approximately $95 million, respectively\.

The estimated future benefit payments, net of expected participant contributions, in United's pension plans and other postretirement benefit plans as of December 31, 2018 are as follows (in millions):

|                   |             |                               |                                                 |
| ----------------- | ----------- | ----------------------------- | ----------------------------------------------- |
|                   | **Pension** | **Other
Postretirement** | **Other Postretirement—
subsidy receipts** |
| 2019              | $329        | $100                          | $5                                              |
| 2020              | 327         | 104                           | 6                                               |
| 2021              | 353         | 108                           | 6                                               |
| 2022              | 367         | 111                           | 6                                               |
| 2023              | 379         | 113                           | 7                                               |
| Years 2024 – 2028 | 2,022       | 575                           | 38                                              |

**Defined Contribution Plans**

Depending upon the employee group, employer contributions consist of matching contributions and/or non\-elective employer contributions\. United's employer contribution percentages vary from 1% to 16% of eligible earnings depending on the terms of each plan\. United recorded expenses for its defined contribution plans of $693 million, $656 million and $592 million in the years ended December 31, 2018, 2017 and 2016, respectively\.

**Multi\-Employer Plans**

United's participation in the IAM National Pension Plan ("IAM Plan") for the annual period ended December 31, 2018 is outlined in the table below\. There have been no significant changes that affect the comparability of 2018 and 2017 contributions\. The risks of participating in these multi\-employer plans are different from single\-employer plans, as United may be subject to additional risks that others do not meet their obligations, which in certain circumstances could revert to United\. The IAM Plan reported $435 million in employers' contributions for the year ended December 31, 2017\. For 2017, the Company's contributions to the IAM Plan represented more than 5% of total contributions to the IAM Plan\. The 2018

74


Annual Report of Southwest Airlines Co\. for year 2018

|                                                                                |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| [Supplemental Agreement No\. 65 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238010000079/ex10_1.htm) ; [Supplemental Agreement No\. 66 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238010000099/ex10_1.htm) ; [Supplemental Agreement No\. 67 (incorporated by reference to Exhibit 10\.1(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312511026045/dex101a.htm) ; [Supplemental Agreement No\. 68 (incorporated by reference to Exhibit 10\.1(b) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312511026045/dex101b.htm) ; [Supplemental Agreement No\. 69 (incorporated by reference to Exhibit 10\.1(c) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312511026045/dex101c.htm) ; [Supplemental Agreement No\. 70 (incorporated by reference to Exhibit 10\.1(d) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2010 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312511026045/dex101d.htm) ;[ Supplemental Agreement No\. 71 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238011000020/ex10_1.htm) ; [Supplemental Agreement No\. 72 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238011000020/ex10_2.htm) ; [Supplemental Agreement No\. 73 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238011000070/ex10_1.htm) ; [Supplemental Agreement No\. 74 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238011000088/ex10_1.htm) ; [Supplemental Agreement No\. 75 (incorporated by reference to Exhibit 10\.1(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2011 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000119312512049647/d293991dex101a.htm) ; [Supplemental Agreement No\. 76 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2012 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238012000089/ex10_1.htm) ; [Supplemental Agreement No\. 77 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2012 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238012000089/ex10_2.htm) ; [Supplemental Agreement No\. 78 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2012 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238012000103/ex10_1.htm) ; [Supplemental Agreement No\. 79 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2012 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238012000103/ex10_2.htm) ;[ Supplemental Agreement No\. 80 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2013 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238013000020/sa80topa18101redacted.htm) ; [Supplemental Agreement No\. 81 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2013 (File No\. 1\-7259))](http://www.sec.gov/Archives/edgar/data/92380/000009238013000020/sa81topa1810redacted.htm) ; [Supplemental Agreement No\. 82 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2013 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238013000097/sa-82topax1810_redacted.htm) [Supplemental Agreement No\. 83 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2013 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238013000097/sa-83topax1810_redacted.htm) [Supplemental Agreement No\. 84 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2013 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238013000111/sa-84topax1810redacted.htm) [Supplemental Agreement No\. 85 (incorporated by reference to Exhibit 10\.1(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2013 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238014000010/luv-12312013xex101a.htm) [Supplemental Agreement No\. 86 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238014000024/sa-86topax18101redacted.htm) [Supplemental Agreement No\. 87 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238014000117/sa-87topax1810redacted.htm) [Supplemental Agreement No\. 88 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238014000151/sa-88pax18101redacted.htm) [Supplemental Agreement No\. 89 (incorporated by reference to Exhibit 10\.1(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238015000027/luv-12312014xex101a.htm) [Supplemental Agreement No\. 90 (incorporated by reference to Exhibit 10\.1(b) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2014 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238015000027/luv-12312014xex101b.htm) [Supplemental Agreement No\. 91 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2015 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238015000098/luv-6302015xex101.htm) [Supplemental Letter Agreement No\. 1810\-LA\-1501773 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2015 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238015000129/luv-9302015xex101.htm) [Supplemental Agreement No\. 92 (incorporated by reference to Exhibit 10\.1(a) to the Company’s Annual Report on Form 10\-K for the year ended December 31, 2015 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238016000175/luv-12312015xex101a.htm) [Supplemental Agreement No\. 93 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2016 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238016000213/luv-3312016xex101.htm) [Supplemental Agreement No\. 94 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2016 (File No\. 1\-7259)); ](http://www.sec.gov/Archives/edgar/data/92380/000009238016000252/luv-6302016xex101.htm)[Supplemental Agreement No\. 95 (incorporated by reference to Exhibit 10\.1 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2016 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238016000270/luv-9302016xex101.htm) [Supplemental Agreement No\. 96 (incorporated by reference to Exhibit 10\.2 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2016 (File No\. 1\-7259));](http://www.sec.gov/Archives/edgar/data/92380/000009238016000270/luv-9302016xex102.htm) [Supplemental Agreement No\. 97 (incorporated by reference to Exhibit 10\.3 to the Company’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2016 (File No\. 1\-7259)); ](http://www.sec.gov/Archives/edgar/data/92380/000009238016000270/luv-9302016xex103.htm)<br><br>  <br> |

125


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

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

September 2008 to September 2010, Mr\. Hart served as Vice President Network Strategy of Continental\. Mr\. Hart joined Continental in 1997\.

Linda P\. Jojo\.  Age 54\. Ms\. Jojo has served as Executive Vice President Technology and Chief Digital Officer of UAL and United since May 2017\. From November 2014 to May 2017, Ms\. Jojo served as Executive Vice President and Chief Information Officer of UAL and United\. From July 2011 to October 2014, Ms\. Jojo served as Executive Vice President and Chief Information Officer of Rogers Communications, Inc\., a Canadian communications and media company\. From October 2008 to June 2011, Ms\. Jojo served as Chief Information Officer of Energy Future Holdings, a Dallas\-based privately held energy company and electrical utility provider\.

Chris Kenny\.  Age 55\. Mr\. Kenny has served as Vice President and Controller of UAL and United since October 2010\. From September 2003 to September 2010, Mr\. Kenny served as Vice President and Controller of Continental\. Mr\. Kenny joined Continental in 1997\.

J\. Scott Kirby\.  Age 52\. Mr\. Kirby has served as President of UAL and United since August 2016\. Prior to joining the Company, from December 2013 to August 2016, Mr\. Kirby served as President of American Airlines Group and American Airlines, Inc\. Mr\. Kirby also previously served as President of US Airways from October 2006 to December 2013\. Mr\. Kirby held significant other leadership roles at US Airways and at America West prior to the 2005 merger of those carriers, including Executive Vice President—Sales and Marketing (2001 to 2006); Senior Vice President, e\-business (2000 to 2001); Vice President, Revenue Management (1998 to 2000); Vice President, Planning (1997 to 1998); and Senior Director, Scheduling and Planning (1995 to 1998)\. Prior to joining America West, Mr\. Kirby worked for American Airlines Decision Technologies and at the Pentagon\.

In December 2019, the Company announced that Mr\. Kirby will become Chief Executive Officer of UAL and United following UAL's 2020 Annual Meeting of Stockholders, scheduled for May 20, 2020 (the "2020 Annual Meeting")\.

Gerald Laderman\.  Age 62 \.  Mr\. Laderman has served as Executive Vice President and Chief Financial Officer since August 2018\. Mr\. Laderman served as Senior Vice President Finance, Procurement and Treasurer for UAL and United from 2013 to August 2015, and again from August 2016 to May 2018\. Mr\. Laderman additionally was acting Chief Financial Officer from August 2015 to August 2016 and from May 2018 to August 2018\. Mr\. Laderman served as Senior Vice President Finance and Treasurer for the Company from 2010 to 2013\. From 2001 to 2010, Mr\. Laderman served as Senior Vice President of Finance and Treasurer for Continental\. Mr\. Laderman joined Continental in 1988 as senior director legal affairs, finance and aircraft programs\.

Oscar Munoz\.  Age 61\. Mr\. Munoz has served as Chief Executive Officer of UAL and United since September 2015, and also as President of UAL and United from September 2015 until August 2016\. From February 2015 to September 2015, Mr\. Munoz served as President and Chief Operating Officer of CSX Corporation ("CSX"), a railroad and intermodal transportation services company, overseeing operations, sales and marketing, human resources, service design and information technology\. Prior to his appointment as President and Chief Operating Officer of CSX, Mr\. Munoz served as Executive Vice President and Chief Operating Officer of CSX from January 2012 to February 2015 and as Executive Vice President and Chief Financial Officer of CSX from 2003 to 2012\. Mr\. Munoz has been a member of the UAL Board of Directors since 2010\.

In December 2019, the Company announced that Mr\. Munoz will transition from the role of Chief Executive Officer of UAL and United following UAL's 2020 Annual Meeting and assume the role of Executive Chairman of the Board of Directors of UAL\.

Andrew Nocella\.  Age 50\. Mr\. Nocella has served as Executive Vice President and Chief Commercial Officer of UAL and United since September 2017\. From February 2017 to September 2017, he served as Executive Vice President and Chief Revenue Officer of UAL and United\. Prior to joining the Company, from August 2016 to February 2017, Mr\. Nocella served as Senior Vice President, Alliances and Sales of American Airlines, Inc\. From December 2013 to August 2016, he served as Senior Vice President and Chief Marketing Officer of American Airlines, Inc\. From August 2007 to December 2013, he served as Senior Vice President, Marketing and Planning of US Airways\.

9


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

**AMERICAN AIRLINES GROUP INC\.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In millions)**

|                                                                                |                  |                  |                  |
| -------------------------------------------------------------------------------- | ---------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** | **December 31,** |
|                                                                                | **2017**         | **2016**         | **2015**         |
| **Cash flows from operating activities:**                                        |                  |                  |                  |
| Net income                                                                       | $1,919           | $2,676           | $7,610           |
| Adjustments to reconcile net income to net cash provided by operating activities |                  |                  |                  |
| Depreciation and amortization                                                    | 2,017            | 1,818            | 1,609            |
| Deferred income tax provision (benefit)                                          | 1,141            | 1,611            | (3,014)          |
| Debt discount and lease amortization                                             | (114)            | (119)            | (122)            |
| Special items, non\-cash                                                         | 272              | 270              | 273              |
| Pension and postretirement                                                       | (132)            | (68)             | (193)            |
| Share\-based compensation                                                        | 90               | 100              | 284              |
| Other, net                                                                       | (39)             | (18)             | (12)             |
| **Changes in operating assets and liabilities:**                                 |                  |                  |                  |
| Decrease (increase) in accounts receivable                                       | (190)            | (160)            | 352              |
| Increase in other assets                                                         | (433)            | (184)            | (27)             |
| Increase in accounts payable and accrued liabilities                             | 299              | 307              | 173              |
| Increase (decrease) in air traffic liability                                     | 66               | 164              | (505)            |
| Increase (decrease) in loyalty program liability                                 | 2                | 264              | (295)            |
| Contributions to pension plans                                                   | (286)            | (32)             | (6)              |
| Increase (decrease) in other liabilities                                         | 132              | (105)            | 122              |
| Net cash provided by operating activities                                        | 4,744            | 6,524            | 6,249            |
| **Cash flows from investing activities:**                                        |                  |                  |                  |
| Capital expenditures and aircraft purchase deposits                              | (5,971)          | (5,731)          | (6,151)          |
| Proceeds from sale of property and equipment and sale\-leaseback transactions    | 947              | 125              | 35               |
| Purchases of short\-term investments                                             | (4,633)          | (6,241)          | (8,126)          |
| Sales of short\-term investments                                                 | 5,915            | 6,092            | 8,517            |
| Decrease in restricted cash and short\-term investments                          | 319              | 57               | 79               |
| Purchase of equity investment                                                    | (203)            | —                | —                |
| Proceeds from sale of an investment                                              | —                | —                | 52               |
| Net cash used in investing activities                                            | (3,626)          | (5,698)          | (5,594)          |
| **Cash flows from financing activities:**                                        |                  |                  |                  |
| Proceeds from issuance of long\-term debt                                        | 3,058            | 7,701            | 5,009            |
| Payments on long\-term debt and capital leases                                   | (2,332)          | (3,827)          | (2,153)          |
| Deferred financing costs                                                         | (85)             | (77)             | (87)             |
| Treasury stock repurchases                                                       | (1,615)          | (4,500)          | (3,846)          |
| Dividend payments                                                                | (198)            | (224)            | (278)            |
| Other financing activities                                                       | 27               | 33               | 96               |
| Net cash used in financing activities                                            | (1,145)          | (894)            | (1,259)          |
| Net decrease in cash                                                             | (27)             | (68)             | (604)            |
| Cash at beginning of year                                                        | 322              | 390              | 994              |
| Cash at end of year                                                              | $295             | $322             | $390             |

See accompanying notes to consolidated financial statements\.

84


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

The fair value of each option grant was estimated on the date of grant using the Black\-Scholes option\-pricing model with the following weighted\-average assumptions used for grants:

|                                                    |             |          |          |
| -------------------------------------------------- | ----------- | -------- | -------- |
|                                                    | **2018**    | **2017** | **2016** |
| Expected volatility                                | **30%**     | 51%      | 51%      |
| Expected term                                      | **6 years** | 6 years  | 6 years  |
| Risk\-free interest rate                           | **2\.61%**  | 2\.04%   | 1\.23%   |
| Expected dividend yield                            | **1\.94%**  | 1\.10%   | 1\.50%   |
| Weighted\-average grant date fair value per share  | **$17\.18** | $41\.19  | $27\.14  |
| Estimated fair value of options granted (millions) | **$1**      | $4       | $2       |

The expected market price volatility and expected term are based on historical results\. The risk\-free interest rate is based on the U\.S\. Treasury yield curve in effect at the time of the grant\. The expected dividend yield is based on the estimated weighted average dividend yield over the expected term\. The expected forfeiture rates are based on historical experience\.

The tables below summarize stock option activity for the year ended December 31, 2018:

|                                               |             |                                                            |                                                                       |                                                                    |
| --------------------------------------------- | ----------- | ---------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------ |
|                                               | **Shares**  | **Weighted\-**

**Average Exercise Price Per Share** | **Weighted\-**

**Average**

**Contractual Life (Years)** | **Aggregate Intrinsic**

**Value**

**(in millions)** |
| Outstanding, December 31, 2017                | 441,467     | $52\.34                                                    | 6\.0                                                                  | $11                                                                |
| Granted                                       | 204,700     | 66\.67                                                     |                                                                       |                                                                    |
| Exercised                                     | (40,848)    | 32\.76                                                     |                                                                       |                                                                    |
| Canceled                                      | (6,937)     | 67\.12                                                     |                                                                       |                                                                    |
| Forfeited or expired                          | (25,140)    | 72\.67                                                     |                                                                       |                                                                    |
| Outstanding, December 31, 2018                | 573,242     | $57\.78                                                    | 6\.6                                                                  | $6                                                                 |
| Exercisable, December 31, 2018                | **265,113** | **$41\.47**                                                | **4\.5**                                                              | **$6**                                                             |
| Vested or expected to vest, December 31, 2018 | **573,242** | **$57\.78**                                                | **6\.6**                                                              | **$6**                                                             |

|                                               |          |          |          |
| --------------------------------------------- | -------- | -------- | -------- |
|  ***(in millions)***                          | **2018** | **2017** | **2016** |
| Intrinsic value of option exercises           | **$1**   | $6       | $9       |
| Cash received from stock option exercises     | **1**    | 3        | 3        |
| Tax benefit related to stock option exercises | **—**    | 2        | 3        |
| Fair value of options vested                  | **2**    | 3        | 3        |

***Stock Awards***

Restricted Stock Units (RSUs) are awarded to eligible employees and entitle the grantee to receive shares of common stock at the end of the vest period\. The fair value of the RSUs is based on the stock price on the date of grant\. Generally, RSUs “cliff vest” after three years, or the period from the date of grant to the employee’s retirement eligibility, and expense is recognized accordingly\. Performance Share Units (PSUs) are awarded to certain executives to receive shares of common stock if specific performance goals and market conditions are achieved\. There are several tranches of PSUs which vest when performance goals and market conditions are met\.

 88


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

Fuel

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

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

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

**(in millions)** | **Cost** **^(1)(2)^**  **(in millions)** | **Average Price Per Gallon** **^(1)(2)^** | **Percentage of Total Operating Expense** **^(1)(2)^** |
| 2018     | 4,113                                                    | $9,020                                   | $2\.20                                    | 23\.0%                                                 |
| 2017     | 4,032                                                    | $6,756                                   | $1\.68                                    | 19\.2%                                                 |
| 2016     | 4,016                                                    | $5,985                                   | $1\.49                                    | 18\.3%                                                 |

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

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

Monroe Energy

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

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

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

Fuel Hedging Program

Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s refining margins\.  We may utilize different contract and commodity types in this program and frequently test their economic effectiveness against our financial targets\. We closely monitor the hedge portfolio and rebalance the portfolio based on market conditions, which may result in locking in gains or losses on hedge contracts prior to their settlement dates\.

Fuel Supply Availability

We are currently able to obtain adequate supplies of aircraft fuel, including fuel produced by Monroe or procured through the exchange of non\-jet fuel products the refinery produces, and crude oil for Monroe's operations\. However, it is impossible to predict the future availability or price of aircraft fuel and crude oil\. Weather\-related events, natural disasters, political disruptions or wars involving oil\-producing countries, changes in government policy concerning aircraft fuel production, transportation, taxes or marketing, changes in refining capacity, environmental concerns and other unpredictable events may result in future fuel supply shortages and fuel price increases\.

Other Businesses

Cargo

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

 5


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

|                               |                                                                                |
| ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Exhibit**

**Number** | **Description**                                                                                |
| 4\.120                        | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (included in Exhibit B to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex46.htm)                                                                                |
| 4\.121                        | [Form of First Amendment to Participation Agreement (First Amendment to Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (included in Exhibit D to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex46.htm)                                                                                |
| 4\.122                        | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (included in Exhibit C to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex46.htm)                                                                                |
| 4\.123                        | [Form of First Amendment to Indenture and Security Agreement (First Amendment to Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (included in Exhibit E to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex46.htm)                                                                                |
| 4\.124                        | [Form of Pass Through Trust Certificate, Series 2016\-2B (included in Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex42.htm)                                                                                |
| 4\.125                        | [Revolving Credit Agreement (2016\-2B), dated as of July 8, 2016, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2016\-2B, as Borrower, and KfW IPEX Bank GmbH, as liquidity Provider (incorporated by reference to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on July 12, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516646353/d210431dex412.htm)                                                                                |
| 4\.126                        | [Trust Supplement No\. 2016\-3AA, dated as of October 3, 2016, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex42.htm)                                                                                |
| 4\.127                        | [Trust Supplement No\. 2016\-3A, dated as of October 3, 2016, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex43.htm)                                                                                |
| 4\.128                        | [Intercreditor Agreement (2016\-3), dated as of October 3, 2016, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2016\-3AA and as Trustee of the American Airlines Pass Through Trust 2016\-3A, KfW IPEX\-Bank GmbH, as Class AA Liquidity Provider and Class A Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex44.htm)                                                                                |
| 4\.129                        | [Amended and Restated Intercreditor Agreement (2016\-3), dated as of October 4, 2017, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2016\-3AA, as Trustee of the American Airlines Pass Through Trust 2016\-3A and as Trustee of the American Airlines Pass Through Trust 2016\-3B, KfW IPEX\-Bank GmbH, as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on October 5, 2017 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517304687/d466899dex43.htm) |
| 4\.130                        | [Deposit Agreement (Class AA), dated as of October 3, 2016, between Wilmington Trust, National Association, as Escrow Agent, and Citibank, N\.A\., as Depositary (incorporated by reference to Exhibit 4\.5 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex45.htm)                                                                                |
| 4\.131                        | [Deposit Agreement (Class A), dated as of October 3, 2016, between Wilmington Trust, National Association, as Escrow Agent, and Citibank, N\.A\., as Depositary (incorporated by reference to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex46.htm)                                                                                |
| 4\.132                        | [Escrow and Paying Agent Agreement (Class AA), dated as of October 3, 2016, among Wilmington Trust, National Association, as Escrow Agent, Morgan Stanley & Co\. LLC and Goldman, Sachs & Co\., for themselves and on behalf of the several Underwriters, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2016\-3AA, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.7 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex47.htm)                         |
| 4\.133                        | [Escrow and Paying Agent Agreement (Class A), dated as of October 3, 2016, among Wilmington Trust, National Association, as Escrow Agent, Morgan Stanley & Co\. LLC and Goldman, Sachs & Co\., for themselves and on behalf of the several Underwriters, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2016\-3A, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.8 to American’s Current Report on Form 8\-K filed on October 4, 2016 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516730454/d359659dex48.htm)                           |

185


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

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

Aircraft Fuel and Related Taxes\.  Including our regional carriers, fuel expense decreased $1\.6 billion compared to the prior year due to an 18% decrease in the market price per gallon of fuel and lower fuel hedge losses, partially offset by a loss from our refinery segment in the current year compared to a profit in the prior year and a 0\.7% increase in consumption\.

The table below presents fuel expense, including our regional carriers:

|                                                                           |                             |                             |                |                  |
| ------------------------------------------------------------------------- | --------------------------- | --------------------------- | -------------- | ---------------- |
|                                                                           | **Year Ended December 31,** | **Year Ended December 31,** | **(Decrease)** | **% (Decrease)** |
| **(in millions)**                                                         | **2016**                    | **2015**                    | **(Decrease)** | **% (Decrease)** |
| Aircraft fuel and related taxes ^(1)^                                     | $5,133                      | $6,544                      | $(1,411)       |                  |
| Aircraft fuel and related taxes included within regional carriers expense | 852                         | 1,035                       | (183)          |                  |
| Total fuel expense                                                        | $5,985                      | $7,579                      | $(1,594)       | (21\.0)%         |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------- |
| ^(1)^ | Includes the impact of fuel hedging and refinery results described further in the table below\. |

The table below shows the impact of hedging and the refinery on fuel expense and average price per gallon, adjusted:

|                                           |                             |                             |                                    |                              |                              |                                    |
| ----------------------------------------- | --------------------------- | --------------------------- | ---------------------------------- | ---------------------------- | ---------------------------- | ---------------------------------- |
|                                           |                             |                             |                                    | **Average Price Per Gallon** | **Average Price Per Gallon** | **Average Price Per Gallon**       |
|                                           | **Year Ended December 31,** | **Year Ended December 31,** | **Increase**

**(Decrease)** | **Year Ended December 31,**  | **Year Ended December 31,**  | **Increase**

**(Decrease)** |
| **(in millions, except per gallon data)** | **2016**                    | **2015**                    | **Increase**

**(Decrease)** | **2016**                     | **2015**                     | **Increase**

**(Decrease)** |
| Fuel purchase cost ^(1)^                  | $5,579                      | $6,934                      | $(1,355)                           | $1\.39                       | $1\.74                       | $(0\.35)                           |
| Airline segment fuel hedge losses ^(2)^   | 281                         | 935                         | (654)                              | 0\.07                        | 0\.23                        | (0\.16)                            |
| Refinery segment impact ^(2)^             | 125                         | (290)                       | 415                                | 0\.03                        | (0\.07)                      | 0\.10                              |
| Total fuel expense                        | $5,985                      | $7,579                      | $(1,594)                           | $1\.49                       | $1\.90                       | $(0\.41)                           |
| MTM adjustments and settlements ^(3)^     | 450                         | 1,301                       | (851)                              | 0\.11                        | 0\.33                        | (0\.22)                            |
| Total fuel expense, adjusted              | $6,435                      | $8,880                      | $(2,445)                           | $1\.60                       | $2\.23                       | $(0\.63)                           |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------- |
| ^(1)^ | Market price for jet fuel at airport locations, including related taxes and transportation costs\. |

|       |                                                                                |
| ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(2)^ | Includes the impact of pricing arrangements between the airline and refinery segments with respect to the refinery's inventory price risk\. For additional information regarding the refinery segment impact, see "Refinery Segment" below\. |

|       |                                                                                |
| ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(3)^ | MTM adjustments and settlements include the effects of the derivative transactions discussed in  Note 4  of the Notes to the Consolidated Financial Statements\. For additional information and the reason for adjusting fuel expense, see "Supplemental Information" below\. |

Regional Carriers Expense\.  The increase in regional carriers expense was primarily due to increases in aircraft maintenance and scheduled contract carrier rate escalations, partially offset by lower fuel cost from the decrease in the market price of fuel\.

Contracted Services\.  The increase in contracted services expense predominantly related to costs associated with the 2\.1% increase in capacity and additional temporary staffing\.

Profit Sharing\.  The decrease in profit sharing was primarily due to an adjustment to the profit sharing calculation during 2016 (paid out in 2017) for merit, ground and flight attendant employees\. This adjusted calculation paid 10% of annual profit (as defined by the terms of the program) and, if we exceeded our prior\-year results, the program paid 20% of the year\-over\-year increase in profit to eligible employees\. In 2015, our profit sharing program paid 10% to all eligible employees for the first $2\.5 billion of annual profit and 20% of annual profit above $2\.5 billion\. The profit sharing program for pilots remained unchanged from the prior year\.

 34


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

were completed in 2019, while the interior reconfiguration is expected to wrap up in early 2021\. We began installation of next\-generation Gogo inflight satellite based Wi\-Fi on our entire Boeing and Airbus fleets in 2018, which is planned to be complete in 2020\.

Our employees are a key element of our product\. We have a highly engaged workforce that strives to provide genuine and caring service to our guests, both at the airport and onboard\. We heavily emphasize our service standards with our employees through training and education programs and monetary incentives related to operational performance and guest satisfaction\.

• Routes served, flight schedules, codesharing and interline relationships, and frequent flyer programs

We also compete with other airlines based on markets served, the frequency of service to those markets and frequent flyer opportunities\. Some airlines have more extensive route structures than we do, and they offer significantly more international routes\. In order to expand opportunities for our guests, we enter into codesharing and interline relationships with other airlines that provide reciprocal frequent flyer mileage credit and redemption privileges\. These relationships allow us to offer our guests access to more destinations than we can on our own, gain exposure in markets we do not serve and allow our guests more opportunities to earn and redeem frequent flyer miles\. Our Mileage Plan™ offers some of the most comprehensive benefits to our members with the ability to earn and redeem miles on 18 partner carriers\. For the fifth year in a row, Mileage Plan™ was ranked first in U\.S\. News and World Report's list of Best Travel Rewards Programs\.

In addition to domestic or foreign airlines that we compete with on most of our routes, we compete with ground transportation in our short\-haul markets\. To some extent, our airlines also compete with technology, such as video conferencing and internet\-based meeting tools that have changed the need for, or frequency of, face\-to\-face business meetings\.

TICKET DISTRIBUTION

Our tickets are distributed through three primary channels:

• Direct to customer:  It is less expensive for us to sell through our direct channel at alaskaair\.com\. We believe direct sales through this channel are preferable from a branding and customer relationship standpoint in that we can establish ongoing communication with the guest and tailor offers accordingly\. As a result, we continue to take steps to drive more business to our website\.

• Traditional and online travel agencies:  Both traditional and online travel agencies typically use Global Distribution Systems (GDS) to obtain their fare and inventory data from airlines\. Bookings made through these agencies result in a fee that is charged to the airline\. Many of our large corporate customers require us to use these agencies\. Some of our competitors do not use this distribution channel and, as a result, have lower ticket distribution costs\.

• Reservation call centers:  Our call centers are located in Phoenix, AZ, Kent, WA, and Boise, ID\. We generally charge a $15 fee for booking reservations through the call centers\.

Our sales by channel are as follows:

|                          |                          |                          |       |       |  |  |  |       |       |  |  |  |       |       |  |  |  |            |            |  |  |  |       |       |
|:------------------------ |:------------------------ |:------------------------ | -----:| -----:|:- |:- |:- | -----:| -----:|:- |:- |:- | -----:| -----:|:- |:- |:- | ----------:| ----------:|:- |:- |:- | -----:| -----:|
|                          |                          |                          |  2019 |  2019 |  |  |  |  2018 |  2018 |  |  |  |  2017 |  2017 |  |  |  | 2016 ^(a)^ | 2016 ^(a)^ |  |  |  |  2015 |  2015 |
| Direct to customer       | Direct to customer       | Direct to customer       |  65 % |  65 % |  |  |  |  63 % |  63 % |  |  |  |  62 % |  62 % |  |  |  |       61 % |       61 % |  |  |  |  60 % |  60 % |
| Traditional agencies     | Traditional agencies     | Traditional agencies     |  20 % |  20 % |  |  |  |  22 % |  22 % |  |  |  |  22 % |  22 % |  |  |  |       23 % |       23 % |  |  |  |  23 % |  23 % |
| Online travel agencies   | Online travel agencies   | Online travel agencies   |  11 % |  11 % |  |  |  |  11 % |  11 % |  |  |  |  11 % |  11 % |  |  |  |       11 % |       11 % |  |  |  |  11 % |  11 % |
| Reservation call centers | Reservation call centers | Reservation call centers |   4 % |   4 % |  |  |  |   4 % |   4 % |  |  |  |   5 % |   5 % |  |  |  |        5 % |        5 % |  |  |  |   6 % |   6 % |
| Total                    | Total                    | Total                    | 100 % | 100 % |  |  |  | 100 % | 100 % |  |  |  | 100 % | 100 % |  |  |  |      100 % |      100 % |  |  |  | 100 % | 100 % |

(a) Includes results for Virgin America for the period December 14, 2016 through December 31, 2016\.

12


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

**ITEM 6\. SELECTED CONSOLIDATED FINANCIAL DATA**

We adopted three new accounting standards as of January 1, 2018: Accounting Standards Update (ASU) 2016\-02: Leases (Topic 842) (the New Lease Standard), ASU 2014\-09: Revenue from Contracts with Customers (the New Revenue Standard) and ASU 2017\-07: Compensation \- Retirement Benefits (the New Retirement Standard)\. The 2017 and 2016 financial information presented within Item 6\. Selected Consolidated Financial Data has been recast to reflect the impact of the adoption of the New Revenue Standard and the New Retirement Standard\. The New Lease Standard did not require the recast of prior periods\. See Note 1(b) to AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, for further information on the impacts of these new accounting standards\.

**Selected Consolidated Financial Data of AAG**

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 are derived from AAG’s audited consolidated financial statements\.

|                                                                     |                                                    |                                                    |                                                    |                                                    |                                                    |
| ------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- |
|                                                                     | **Year Ended December 31,**                        | **Year Ended December 31,**                        | **Year Ended December 31,**                        | **Year Ended December 31,**                        | **Year Ended December 31,**                        |
|                                                                     | **2018**                                           | **2017**                                           | **2016**                                           | **2015**                                           | **2014**                                           |
|                                                                     | **(In millions, except share and per share data)** | **(In millions, except share and per share data)** | **(In millions, except share and per share data)** | **(In millions, except share and per share data)** | **(In millions, except share and per share data)** |
| **Consolidated Statements of Operations data:**                     |                                                    |                                                    |                                                    |                                                    |                                                    |
| Total operating revenues                                            | $44,541                                            | $42,622                                            | $40,142                                            | $40,990                                            | $42,650                                            |
| Total operating expenses                                            | 41,885                                             | 38,391                                             | 35,082                                             | 34,786                                             | 38,401                                             |
| Operating income                                                    | 2,656                                              | 4,231                                              | 5,060                                              | 6,204                                              | 4,249                                              |
| Net income                                                          | 1,412                                              | 1,282                                              | 2,584                                              | 7,610                                              | 2,882                                              |
| Earnings per common share:                                          |                                                    |                                                    |                                                    |                                                    |                                                    |
| Basic                                                               | $3\.04                                             | $2\.62                                             | $4\.68                                             | $11\.39                                            | $4\.02                                             |
| Diluted                                                             | 3\.03                                              | 2\.61                                              | 4\.65                                              | 11\.07                                             | 3\.93                                              |
| Shares used for computation (in thousands):                         |                                                    |                                                    |                                                    |                                                    |                                                    |
| Basic                                                               | 464,236                                            | 489,164                                            | 552,308                                            | 668,393                                            | 717,456                                            |
| Diluted                                                             | 465,660                                            | 491,692                                            | 556,099                                            | 687,355                                            | 734,016                                            |
| Cash dividends declared per common share                            | $0\.40                                             | $0\.40                                             | $0\.40                                             | $0\.40                                             | $0\.20                                             |
| **Consolidated Balance Sheet data**

**(at end of period):** |                                                    |                                                    |                                                    |                                                    |                                                    |
| Total assets                                                        | $60,580                                            | $52,785                                            | $53,610                                            | $48,415                                            | $43,225                                            |
| Debt and finance leases                                             | 24,473                                             | 25,065                                             | 24,344                                             | 20,561                                             | 17,720                                             |
| Pension and postretirement obligations  ^(1)^                       | 6,937                                              | 7,596                                              | 7,946                                              | 7,566                                              | 7,689                                              |
| Operating lease liabilities                                         | 9,556                                              | —                                                  | —                                                  | —                                                  | —                                                  |
| Stockholders’ equity (deficit)                                      | (169)                                              | (780)                                              | (286)                                              | 5,635                                              | 2,021                                              |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | Substantially all defined benefit pension plans were frozen effective November 1, 2012\. See Note 10 to AAG's Consolidated Financial Statements in Part II, Item 8A for further information on pension and postretirement benefits\. |

**Reconciliation of GAAP to Non\-GAAP Financial Measures**

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, cash flow or liquidity prepared in accordance with GAAP\. We are providing a reconciliation of reported non\-GAAP financial measures to their comparable financial measures on a GAAP basis\.

43


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

|                               |                                                                                |
| ----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Exhibit**

**Number** | **Description**                                                                                |
| 4\.168                        | [Trust Supplement No\. 2019\-1AA (Aircraft EETC), dated as of August 15, 2019, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex42.htm)                                                                                |
| 4\.169                        | [Trust Supplement No\. 2019\-1A (Aircraft EETC), dated as of August 15, 2019, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex43.htm)                                                                                |
| 4\.170                        | [Trust Supplement No\. 2019\-1B (Aircraft EETC), dated as of August 15, 2019, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex44.htm)                                                                                |
| 4\.171                        | [Intercreditor Agreement (2019\-1), dated as of August 15, 2019, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2019\-1AA (Aircraft EETC), as Trustee of the American Airlines Pass Through Trust 2019\-1A (Aircraft EETC) and as Trustee of the American Airlines Pass Through Trust 2019\-1B (Aircraft EETC), National Australia Bank Limited, as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.5 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex45.htm) |
| 4\.172                        | [Deposit Agreement (Class AA), dated as of August 15, 2019, between Wilmington Trust, National Association, as Escrow Agent, and Citibank, N\.A\., as Depositary (incorporated by reference to Exhibit 4\.6 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex46.htm)                                                                                |
| 4\.173                        | [Deposit Agreement (Class A), dated as of August 15, 2019, between Wilmington Trust, National Association, as Escrow Agent, and Citibank, N\.A\., as Depositary (incorporated by reference to Exhibit 4\.7 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex47.htm)                                                                                |
| 4\.174                        | [Deposit Agreement (Class B), dated as of August 15, 2019, between Wilmington Trust, National Association, as Escrow Agent, and Citibank, N\.A\., as Depositary (incorporated by reference to Exhibit 4\.8 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex48.htm)                                                                                |
| 4\.175                        | [Escrow and Paying Agent Agreement (Class AA), dated as of August 15, 2019, among Wilmington Trust, National Association, as Escrow Agent, Citigroup Global Markets Inc\. and Credit Suisse Securities (USA) LLC, for themselves and on behalf of the several Underwriters, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2019\-1AA (Aircraft EETC), and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.9 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex49.htm)                              |
| 4\.176                        | [Escrow and Paying Agent Agreement (Class A), dated as of August 15, 2019, among Wilmington Trust, National Association, as Escrow Agent, Citigroup Global Markets Inc\. and Credit Suisse Securities (USA) LLC, for themselves and on behalf of the several Underwriters, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2019\-1A (Aircraft EETC), and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.10 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex410.htm)                              |
| 4\.177                        | [Escrow and Paying Agent Agreement (Class B), dated as of August 15, 2019, among Wilmington Trust, National Association, as Escrow Agent, Citigroup Global Markets Inc\. and Credit Suisse Securities (USA) LLC, for themselves and on behalf of the several Underwriters, Wilmington Trust Company, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of American Airlines Pass Through Trust 2019\-1B (Aircraft EETC), and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.11 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex411.htm)                              |
| 4\.178                        | [Note Purchase Agreement, dated as of August 15, 2019, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex412.htm)                                                                                |
| 4\.179                        | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit B to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex412.htm)                                                                                |
| 4\.180                        | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit C to Exhibit 4\.12 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex412.htm)                                                                                |
| 4\.181                        | [Form of Pass Through Trust Certificate, Series 2019\-1AA (Aircraft EETC) (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on August 15, 2019 (Commission File No\. 1\-02691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519222562/d774498dex42.htm)                                                                                |

176