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

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

The estimated amount of unrecognized actuarial net loss and prior service cost for the defined benefit pension plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year is $181 million\.

The estimated amount of unrecognized actuarial net gain and prior service benefit for the retiree medical and other postretirement benefits plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year is $269 million\.

***Assumptions***

The following actuarial assumptions were used to determine American’s benefit obligations and net periodic benefit cost for the periods presented:

|                                |                      |                      |                                                                  |                                                                  |
| ------------------------------ | -------------------- | -------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------- |
|                                | **Pension Benefits** | **Pension Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** |
|                                | **2018**             | **2017**             | **2018**                                                         | **2017**                                                         |
| Benefit obligations:           |                      |                      |                                                                  |                                                                  |
| Weighted average discount rate | 4\.40%               | 3\.80%               | 4\.30%                                                           | 3\.60%                                                           |

|                                                                           |                      |                      |                      |                                                                  |                                                                  |                                                                  |
| ------------------------------------------------------------------------- | -------------------- | -------------------- | -------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------- |
|                                                                           | **Pension Benefits** | **Pension Benefits** | **Pension Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** | **Retiree Medical and**

**Other Postretirement Benefits** |
|                                                                           | **2018**             | **2017**             | **2016**             | **2018**                                                         | **2017**                                                         | **2016**                                                         |
| Net periodic benefit cost:                                                |                      |                      |                      |                                                                  |                                                                  |                                                                  |
| Weighted average discount rate                                            | 3\.80%               | 4\.30%               | 4\.70%               | 3\.60%                                                           | 4\.10%                                                           | 4\.42%                                                           |
| Weighted average expected rate of return on plan assets                   | 8\.00%               | 8\.00%               | 8\.00%               | 8\.00%                                                           | 8\.00%                                                           | 8\.00%                                                           |
| Weighted average health care cost trend rate assumed for next year  ^(1)^ | N/A                  | N/A                  | N/A                  | 3\.91%                                                           | 4\.19%                                                           | 4\.25%                                                           |

|       |                                                                                |
| ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | The weighted average health care cost trend rate at  December 31, 2018  is assumed to decline gradually to  3\.45%  by 2026 and remain level thereafter\. |

As of December 31, 2018, American’s estimate of the long\-term rate of return on plan assets was 8% based on the target asset allocation\. Expected returns on long duration bonds are based on yields to maturity of the bonds held at year\-end\. Expected returns on other assets are based on a combination of long\-term historical returns, actual returns on plan assets achieved over the last ten years, current and expected market conditions, and expected value to be generated through active management and securities lending programs\.

A one percentage point change in the assumed health care cost trend rates would have the following effects on American’s retiree medical and other postretirement benefits plans (in millions):

|                                                                   |                 |                 |
| ----------------------------------------------------------------- | --------------- | --------------- |
|                                                                   | **1% Increase** | **1% Decrease** |
| Increase (decrease) on 2018 service and interest cost             | $2              | $(2)            |
| Increase (decrease) on benefit obligation as of December 31, 2018 | 47              | (43)            |

***Minimum Contributions***

American is required to make minimum contributions to its defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and various other laws for U\.S\. based plans as well as underfunding rules specific to countries where American maintains defined benefit plans\. Based on current funding assumptions, American has minimum required contributions of $780 million for 2019\. American expects to make supplemental contributions of $21 million to its U\.S\. based defined benefit pension plans in 2019\. American’s funding obligations will depend on the performance of American’s investments held in trust by the pension plans, interest rates for determining liabilities, the amount of and timing of any supplemental contributions and American’s actuarial experience\.

160


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

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

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

|                          |                             |                             |                             |
| ------------------------ | --------------------------- | --------------------------- | --------------------------- |
|                          | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                          | **2017**                    | **2016**                    | **2015**                    |
| DOT Domestic             | $29,612                     | $28,620                     | $28,761                     |
| DOT Latin America        | 5,422                       | 4,995                       | 5,539                       |
| DOT Atlantic             | 5,059                       | 4,769                       | 5,146                       |
| DOT Pacific              | 2,114                       | 1,796                       | 1,544                       |
| Total operating revenues | $42,207                     | $40,180                     | $40,990                     |

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

**14\. Share\-based Compensation**

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

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

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

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

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

121


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

***Marketing Relationships***

To improve access to each other’s markets, various U\.S\. and foreign air carriers, including American, have established marketing agreements with other airlines\. These marketing agreements generally provide enhanced customer choice by means of an expanded network with reciprocal loyalty program participation and joint sales cooperation\. American currently has marketing relationships with Air Tahiti Nui, Alaska Airlines, British Airways, Cape Air, Cathay Dragon, Cathay Pacific, China Southern Airlines, EL AL, Etihad Airways, Fiji Airways, Finnair, Gulf Air, Hainan Airlines, Hawaiian Airlines, Iberia, Interjet, Japan Airlines, Jetstar Group (includes Jetstar Airways and Jetstar Japan), Korean Air, LATAM (includes LATAM Airlines, LATAM Argentina, LATAM Brasil, LATAM Colombia, LATAM Ecuador, LATAM Paraguay, LATAM Peru), Malaysia Airlines, Qantas Airways, Qatar Airways, Royal Jordanian, S7 Airlines, Seaborne Airlines, Sri Lankan Airlines and WestJet\. Our marketing agreements with Etihad Airways and Qatar Airways are scheduled to end on March 25, 2018\.

**Loyalty Program**

Our loyalty program, AAdvantage^®^ was established to develop passenger loyalty by offering awards to travelers for their continued patronage\. AAdvantage was named Best Elite Program in the Americas at the 2017 Freddie Awards, annual awards that recognize the world’s most outstanding frequent travel programs\. AAdvantage members earn mileage credits by flying on American, any **one**world airline or other partner airlines, or by using the services of over 1,000 program participants, such as the Citi and Barclaycard US co\-branded credit cards, hotels and car rental companies\. Our members earn bonus mileage credits when elite status is obtained\. For every dollar spent, non\-status members earn five mileage credits, but Gold, Platinum, Platinum Pro and Executive Platinum status holders earn bonus mileage credits of seven, eight, nine and eleven mileage credits, respectively\.

All travel on eligible tickets counts toward qualification for elite status in the AAdvantage program\. Elite members can enjoy additional benefits of the AAdvantage program, including complimentary upgrades, mileage bonuses, complimentary access to Preferred Seats, checked bags at no charge, First and Business Class check\-in, priority security, priority boarding and priority baggage delivery\.

Mileage credits can be redeemed for free or upgraded travel on American and participating airlines, membership to our Admirals Club^®^ or for other non\-travel awards from our program participants\. Most travel awards are subject to capacity\-controlled seating\. A member’s mileage credit does not expire as long as that member has any type of qualifying activity at least once every 18 months\. Under our agreements with AAdvantage members and program partners, we reserve the right to change the AAdvantage program at any time without notice, and may end the program with six months’ notice\. Program rules, partners, special offers, awards and requisite mileage levels for awards are subject to change\.

During 2017, our members redeemed approximately 11 million awards including travel redemptions for flights and upgrades on American and other air carriers, as well as redemption of car and hotel awards, club memberships and merchandise\. Approximately 6\.1% of our 2017 total revenue passenger miles flown were from award travel\.

See Part II, Item 7\. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “*Critical Accounting Policies and Estimate*s” for more information on our loyalty program\.

**Industry Competition**

***Domestic***

The markets in which we operate are highly competitive\. On most of our domestic nonstop routes, we currently face competing service from at least one, and sometimes more than one, domestic airline, including: Alaska Airlines, Allegiant Air, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines, Spirit Airlines and United Airlines\. Competition is even greater between cities that require a connection, where the major airlines compete via their respective hubs\. In addition, we face competition on some of our connecting routes from airlines operating point\-to\-point service on such routes\. We also compete with all\-cargo and charter airlines and, particularly on shorter segments, ground and rail transportation\.

On all of our routes, pricing decisions are affected, in large part, by the need to meet competition from other airlines\. Price competition occurs on a market\-by\-market basis through price discounts, changes in pricing structures, fare matching, targeted promotions and loyalty program initiatives\. Airlines typically use discount fares and other promotions to stimulate traffic during normally slack travel periods, when they begin service to new cities or when they have excess capacity, to generate cash flow, to maximize revenue per available seat mile and to establish, increase or preserve market share\. We have often elected to match discount or promotional fares initiated by other air carriers in certain markets in order to compete in those markets\. Most airlines will quickly match price reductions in a particular market\. In addition, low\-fare, low\-cost carriers, such as

7


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

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

NOTE 9 \- INVESTMENTS AND FAIR VALUE MEASUREMENTS

Fair Value Information\.  Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs\. These inputs are described in Note 7 of this report\. The table below presents disclosures about the fair value of financial assets and liabilities measured at fair value on a recurring basis in the Company's financial statements as of December 31 (in millions):

|                                                                              |           |             |             |             |           |             |             |             |
| ---------------------------------------------------------------------------- | --------- | ----------- | ----------- | ----------- | --------- | ----------- | ----------- | ----------- |
|                                                                              | **2019**  | **2019**    | **2019**    | **2019**    | **2018**  | **2018**    | **2018**    | **2018**    |
|                                                                              | **Total** | **Level 1** | **Level 2** | **Level 3** | **Total** | **Level 1** | **Level 2** | **Level 3** |
| Cash and cash equivalents                                                    | $2,762    | $2,762      | $—          | $—          | $1,694    | $1,694      | $—          | $—          |
| Short\-term investments:                                                     |           |             |             |             |           |             |             |             |
| Corporate debt                                                               | 1,045     | —           | 1,045       | —           | 1,023     | —           | 1,023       | —           |
| Asset\-backed securities                                                     | 690       | —           | 690         | —           | 746       | —           | 746         | **—**       |
| U\.S\. government and agency notes                                           | 124       | —           | 124         | —           | 108       | —           | 108         | —           |
| Certificates of deposit placed through an account registry service ("CDARS") | 35        | —           | 35          | —           | 75        | —           | 75          | —           |
| Other fixed\-income securities                                               | 95        | —           | 95          | —           | 116       | —           | 116         | —           |
| Other investments measured at NAV                                            | 193       | —           | —           | —           | 188       | —           | —           | —           |
| Restricted cash                                                              | 106       | 106         | —           | —           | 105       | 105         | —           | —           |
| Long\-term investments:                                                      |   <br>    |             |             |             |           |             |             |             |
| Equity securities                                                            | 385       | 385         | —           | —           | 249       | 249         | —           | —           |
| AVH Derivative Assets                                                        | 24        | —           | —           | 24          | 11        | —           | —           | 11          |

Available\-for\-sale investment maturities  \-  T he short\-term investments shown in the table above are classified as available\-for\-sale, with the exception of investments measured at NAV\. As of  December 31, 2019 , asset\-backed securities have remaining maturities of less than   one year  to approximately   15 years , corporate debt securities have remaining maturities of   three years  or less and CDARS have maturities of less than   one year \. U\.S\. government and agency notes have maturities of approximately   three years  or less and other fixed\-income securities have maturities of   two years  or less\.

Restricted cash  \-  Restricted cash primarily includes cash collateral for letters of credit and collateral associated with obligations for facility leases and other insurance\-related obligations\.

Equity securities  \- Equity securities represent United's investment in Azul, consisting of approximately   8%  of Azul's outstanding preferred shares (representing approximately   2%  of the total capital stock of Azul)\. The Company recognizes changes to the fair value of its equity investment in Azul in Unrealized gains (losses) on investments, net in its statements of consolidated operations\. The carrying value of our investment in Azul was   $385 million  at  December 31, 2019 \.

AVH Derivative Assets \-  As part of the BRW Term Loan Agreement and related agreements with Kingsland, United obtained  call options on AVH shares, AVH share appreciation rights and an AVH share\-based upside sharing agreement (collectively, the "AVH Derivative Assets")\. The AVH Derivative Assets are recorded at fair value as Other assets on the Company's balance sheet and are included in the table above\. Changes in the fair value of the AVH Derivative Assets are recorded as part of Unrealized gains (losses) on investments, net in its statements of consolidated operations\.

Investments presented in the table above have the same fair value as their carrying value\.

Other fair value information \- The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above as of December 31 (in millions)\. Carrying amounts include any related discounts, premiums and issuance costs:

|                 |                     |                |                |                |                |                     |                |                |                |                |
| --------------- | ------------------- | -------------- | -------------- | -------------- | -------------- | ------------------- | -------------- | -------------- | -------------- | -------------- |
|                 | **2019**            | **2019**       | **2019**       | **2019**       | **2019**       | **2018**            | **2018**       | **2018**       | **2018**       | **2018**       |
|                 | **Carrying Amount** | **Fair Value** | **Fair Value** | **Fair Value** | **Fair Value** | **Carrying Amount** | **Fair Value** | **Fair Value** | **Fair Value** | **Fair Value** |
|                 |                     | **Total**      | **Level 1**    | **Level 2**    | **Level 3**    |                     | **Total**      | **Level 1**    | **Level 2**    | **Level 3**    |
| Long\-term debt | $14,552             | $15,203        | $—             | $11,398        | $3,805         | $13,445             | $13,450        | $—             | $9,525         | $3,925         |

Fair value of the financial instruments included in the tables above was determined as follows:

75


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

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

Extended interruptions or disruptions in service at major airports in which we operate could have a material adverse impact on our operations\.

The airline industry is heavily dependent on business models that concentrate operations in major airports in the United States and throughout the world\. An extended interruption or disruption at an airport where we have significant operations could have a material impact on our business, financial condition and results of operation\.

The airline industry is subject to extensive government regulation, and new regulations may increase our operating costs\.

Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs\. For instance, the FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that necessitate significant expenditures\. We expect to continue incurring significant expenses to comply with the FAA's regulations\.

Other laws, regulations, taxes and airport rates and charges have also been imposed from time to time that significantly increase the cost of airline operations or reduce revenues\. The industry is heavily taxed\. For example, the Aviation and Transportation Security Act mandates the federalization of certain airport security procedures and imposes security requirements on airports and airlines, most of which are funded by a per ticket tax on passengers and a tax on airlines\. Additional taxes and fees, if implemented, could negatively impact our results of operations\.

Proposals to address congestion issues at certain airports or in certain airspace, particularly in the Northeast U\.S\., have included concepts such as "congestion\-based" landing fees, "slot auctions" or other alternatives that could impose a significant cost on the airlines operating in those airports or airspace and impact the ability of those airlines to respond to competitive actions by other airlines\. In addition, the failure of the federal government to upgrade the U\.S\. air traffic control system has resulted in delays and disruptions of air traffic during peak travel periods in certain congested markets\. The failure to improve the air traffic control system could lead to increased delays and inefficiencies in flight operations as demand for U\.S\. air travel increases, having a material adverse effect on our operations\. Failure to update the air traffic control system in a timely manner, and the substantial funding requirements of an updated system that may be imposed on air carriers, may have an adverse impact on our financial condition and results of operations\.

Future regulatory action concerning climate change, aircraft emissions and noise emissions could have a significant effect on the airline industry\. While the specific nature of future actions is hard to predict, new environmental laws or regulations adopted in the U\.S\. or other countries could impose significant additional costs on our operations, either through direct costs in our operations or through increases in costs that our suppliers pass along to us\.

We and other U\.S\. carriers are subject to domestic and foreign laws regarding privacy of passenger and employee data that are not consistent in all countries in which we operate\. In addition to the heightened level of concern regarding privacy of passenger data in the U\.S\., certain European government agencies are reviewing airline privacy practices\. Compliance with these regulatory regimes is expected to result in additional operating costs and could impact our operations and any future expansion\.

Prolonged periods of stagnant or weak economic conditions could have a material adverse effect on our business, financial condition and operating results\.

As a result of the discretionary nature of air travel, the airline industry has been cyclical and particularly sensitive to changes in economic conditions\. Because we operate globally, with approximately 30% of our revenues from operations outside of the U\.S\., our business is subject to economic conditions throughout the world\. During periods of unfavorable or volatile economic conditions in the global economy, demand for air travel can be significantly impacted as business and leisure travelers choose not to travel, seek alternative forms of transportation for short trips or conduct business through videoconferencing\. If unfavorable economic conditions occur, particularly for an extended period, our business, financial condition and results of operations may be adversely affected\. In addition, significant or volatile changes in exchange rates between the U\.S\. dollar and other currencies, and the imposition of exchange controls or other currency restrictions, may have a material adverse effect on our liquidity, financial conditions and results of operations\.

 18


Annual Report of Southwest Airlines Co\. for year 2019

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------- |
| • | changes to laws that affect the services that can be offered by airlines in particular markets and at particular airports; |

|   |                                        |
| - | -------------------------------------- |
| • | restrictions on competitive practices; |

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------------------------- |
| • | changes in laws that increase costs for safety, security, compliance, or other Customer Service standards; |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------- |
| • | changes in laws that may limit the Company's ability to enter into fuel derivative contracts to hedge against increases in fuel prices; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------- |
| • | changes in laws that may limit or regulate the Company's ability to promote the Company’s business or fares;  |

|   |                                     |
| - | ----------------------------------- |
| • | airspace closures or restrictions;  |

|   |                                                     |
| - | --------------------------------------------------- |
| • | grounding of commercial air traffic by the FAA; and |

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

The airline industry is affected by many conditions that are beyond its control, which can impact the Company's business strategies and results of operations\.

In addition to the unpredictable economic conditions and fuel costs discussed above, the Company, like the airline industry in general, is affected by conditions that are largely unforeseeable and outside of its control, including, among others:

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | adverse weather and natural disasters such as the weather\-related disruptions in fourth quarter 2019, which resulted in approximately 2,100 canceled flights;  |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| • | changes in consumer preferences, perceptions, spending patterns, or demographic trends (including, without limitation, changes in travel patterns due to government shutdowns or sequestration); |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | actual or potential disruptions in the air traffic control system (including, for example, as a result of inadequate FAA staffing levels due to government shutdowns or sequestration); |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | actual or perceived delays at various airports resulting from government shutdowns (including, for example, longer wait\-times at TSA checkpoints due to inadequate TSA staffing levels); |

|   |                                                                                |
| - | --------------------------------------------------------------------------------------------------------------- |
| • | changes in the competitive environment due to industry consolidation, industry bankruptcies, and other factors; |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | delays in deliveries of new aircraft (including, without limitation, due to FAA groundings of certain aircraft types or due to the closure of the FAA's aircraft registry during government shutdowns); |

|   |                           |
| - | ------------------------- |
| • | outbreaks of disease; and |

|   |                                                                                |
| - | ------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | actual or threatened war, terrorist attacks, government travel warnings to certain destinations, travel restrictions, and political instability\. |

The airline industry is intensely competitive\.

As discussed in more detail above under "Business \- Competition," the airline industry is intensely competitive\. The Company's primary competitors include other major domestic airlines, as well as regional and new entrant airlines, surface transportation, and alternatives to transportation such as videoconferencing and the Internet\. The Company's revenues are sensitive to the actions of other carriers with respect to pricing, routes, loyalty programs, scheduling, capacity, customer service, operational reliability, comfort and amenities, cost structure, aircraft fleet, and code\-sharing and similar activities\.

The Company's future results will suffer if it does not effectively manage its expanded international operations and/or Extended Operations ("ETOPS")\.

The Company's international flight offerings are subject to CBP\-mandated procedures, which can affect the Company's operations, costs, and Customer experience\. The Company has made, and is continuing to make, significant investments in facilities, equipment, and technologies at certain airports in order to improve the Customer experience and to assist

27


Annual Report of Southwest Airlines Co\. for year 2017

**TABLE OF CONTENTS**

|                                                                         |                                                                                |                                                                                |
| ----------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ |
|                                                                         | **PART I**                                                                                |                                                                                |
| Item 1\.                                                                | [Business](https://www.example.com#s8CACB078D01F5E199D575A9D4BB07FE5)                                                                                |
[4](https://www.example.com#s8CACB078D01F5E199D575A9D4BB07FE5)             |
| Item 1A\.                                                               | [Risk Factors](https://www.example.com#s3E305E87B5855E8982B98D3E49F5701D)                                                                                |
[21](https://www.example.com#s3E305E87B5855E8982B98D3E49F5701D)            |
| Item 1B\.                                                               | [Unresolved Staff Comments](https://www.example.com#s5FB7FE874FC75715AEEBA4D9A455ECB1)                                                                                |
[27](https://www.example.com#s5FB7FE874FC75715AEEBA4D9A455ECB1)            |
| Item 2\.                                                                | [Properties](https://www.example.com#sD416F1B3E7875626A1D705FEB3EF0F70)                                                                                |
[28](https://www.example.com#sD416F1B3E7875626A1D705FEB3EF0F70)            |
| Item 3\.                                                                | [Legal Proceedings](https://www.example.com#s4DB798FAC67E50F4860BCF3825ABFDAA)                                                                                |
[30](https://www.example.com#s4DB798FAC67E50F4860BCF3825ABFDAA)            |
| Item 4\.                                                                | [Mine Safety Disclosures](https://www.example.com#sA175203B0A34516FA8080ADC8963A7C4)                                                                                |
[31](https://www.example.com#sA175203B0A34516FA8080ADC8963A7C4)            |
|                                                                         | **PART II**                                                                                |                                                                                |
| Item 5\.                                                                | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](https://www.example.com#sC9DEE18549CD52CAAE2BC1E67F6F4767) |
[34](https://www.example.com#sC9DEE18549CD52CAAE2BC1E67F6F4767)            |
| Item 6\.                                                                | [Selected Financial Data](https://www.example.com#sFB36BCF4E1135BFC8F2B9EA3C96F0C10)                                                                                |
[37](https://www.example.com#sFB36BCF4E1135BFC8F2B9EA3C96F0C10)            |
| Item 7\.                                                                | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](https://www.example.com#s754993E3789753CAB06975084773D1CF)                         |
[39](https://www.example.com#s754993E3789753CAB06975084773D1CF)            |
|                                                                         | [Liquidity and Capital Resources](https://www.example.com#sD22CB1608B015F4494A8884142337F65)                                                                               |
[55](https://www.example.com#sD22CB1608B015F4494A8884142337F65)            |
|                                                                         | [Off\-Balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and Commitments](https://www.example.com#s4A68CD19FD055BB2A88E418FE3AD8F46)          |
[57](https://www.example.com#s4A68CD19FD055BB2A88E418FE3AD8F46)            |
|                                                                         | [Critical Accounting Policies and Estimates](https://www.example.com#s12F63C13861357CA84F311F13222B664)                                                                    |
[59](https://www.example.com#s12F63C13861357CA84F311F13222B664)            |
| Item 7A\.                                                               | [Quantitative and Qualitative Disclosures About Market Risk](https://www.example.com#sFBDDEAC6295F5D138A2E613ABF686CED)                                                    |
[66](https://www.example.com#sFBDDEAC6295F5D138A2E613ABF686CED)            |
| Item 8\.                                                                | [Financial Statements and Supplementary Data](https://www.example.com#s011A96757716573AB6AC9366F7FE8CFA)                                                                   |
[71](https://www.example.com#s011A96757716573AB6AC9366F7FE8CFA)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Balance Sheet](https://www.example.com#sCDC9D9947F165AD1A3308B39CAD0E327)                                                            |
[71](https://www.example.com#sCDC9D9947F165AD1A3308B39CAD0E327)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Statement of Income](https://www.example.com#sD0F271D1667655F4AD0F5DE4AD45DF8A)                                                      |
[72](https://www.example.com#sD0F271D1667655F4AD0F5DE4AD45DF8A)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Statement of Comprehensive Income](https://www.example.com#sFBBAD60C18395E82BF9B297ED8266DC6)                                        |
[73](https://www.example.com#sFBBAD60C18395E82BF9B297ED8266DC6)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Statement of Stockholders’ Equity](https://www.example.com#s88FA8807426450E8A969C647DA9B47E0)                                        |
[73](https://www.example.com#s88FA8807426450E8A969C647DA9B47E0)            |
|                                                                         | [Southwest Airlines Co\. Consolidated Statement of Cash Flows](https://www.example.com#s769371C3879959ACB3C1B7A2BBFF5BD7)                                                  |
[74](https://www.example.com#s769371C3879959ACB3C1B7A2BBFF5BD7)            |
|                                                                         | [Notes to Consolidated Financial Statements](https://www.example.com#sCDCD4FFF862D548395A9F9800C6333A2)                                                                    |
[75](https://www.example.com#sCDCD4FFF862D548395A9F9800C6333A2)            |
| Item 9\.                                                                | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](https://www.example.com#s97D550C19E6B5EF29F2376AEA8C5CB27)                          |
[113](https://www.example.com#s97D550C19E6B5EF29F2376AEA8C5CB27)           |
| Item 9A\.                                                               | [Controls and Procedures](https://www.example.com#s6B3216642AEF5916823437033EAF7176)                                                                                |
[113](https://www.example.com#s6B3216642AEF5916823437033EAF7176)           |
| Item 9B\.                                                               | [Other Information](https://www.example.com#s574C9B1403BE5D0381C85B62858A4CCB)                                                                                |
[114](https://www.example.com#s574C9B1403BE5D0381C85B62858A4CCB)           |
|                                                                         | **PART III**                                                                                |                                                                                |
| Item 10\.                                                               | [Directors, Executive Officers, and Corporate Governance](https://www.example.com#s7402175E0A03502B93380C13BB51CB50)                                                       |
[115](https://www.example.com#s7402175E0A03502B93380C13BB51CB50)           |
| Item 11\.                                                               | [Executive Compensation](https://www.example.com#s3B84D45FAA675D2DA0B56F343C6B9244)                                                                                |
[115](https://www.example.com#s3B84D45FAA675D2DA0B56F343C6B9244)           |
| Item 12\.                                                               | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](https://www.example.com#sC4CD0C4AFB745F97AE9E71FA6F4259D2)                |
[115](https://www.example.com#sC4CD0C4AFB745F97AE9E71FA6F4259D2)           |
| Item 13\.                                                               | [Certain Relationships and Related Transactions, and Director Independence](https://www.example.com#s22B906B229DF52FF92461553EB18B793)                                     |
[116](https://www.example.com#s22B906B229DF52FF92461553EB18B793)           |
| Item 14\.                                                               | [Principal Accounting Fees and Services](https://www.example.com#s885DF2B30426532484C332CEC211B4DF)                                                                        |
[116](https://www.example.com#s885DF2B30426532484C332CEC211B4DF)           |
|                                                                         | **PART IV**                                                                                |                                                                                |
| Item 15\.                                                               | [Exhibits and Financial Statement Schedules](https://www.example.com#sC8195BF6911152768E2FF1CB1C2CCC99)                                                                    |
[117](https://www.example.com#sC8195BF6911152768E2FF1CB1C2CCC99)           |
| Item 16\.                                                               | [Form 10\-K Summary](https://www.example.com#s75cecd6c78874e1d965cdbeec0f3ee9c)                                                                                | [122](https://www.example.com#s75cecd6c78874e1d965cdbeec0f3ee9c)

 |
| [Signatures](https://www.example.com#sA39960FC1A0D566D8115C04C75632BDC) | [Signatures](https://www.example.com#sA39960FC1A0D566D8115C04C75632BDC)                                                                                |
[123](https://www.example.com#sA39960FC1A0D566D8115C04C75632BDC)           |

3


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

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

**Number** | **Description**                                                                                |
| 10\.66                        | [First Amendment to the American Airlines Group Inc\. 2013 Incentive Award Plan (incorporated by reference to Exhibit 10\.64 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620118000009/ex106410k2017.htm) †                                                                                |
| 10\.67                        | [Form of American Airlines Group Inc\. 2013 Incentive Award Plan Restricted Stock Unit (Cash\-Settled) Award Grant Notice and Award Agreement (incorporated by reference to Exhibit 10\.125 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex10125.htm) †                       |
| 10\.68                        | [Form of American Airlines Group Inc\. 2013 Incentive Award Plan Restricted Stock Unit (Stock\-Settled) Award Grant Notice and Award Agreement (incorporated by reference to Exhibit 10\.127 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex10127.htm) †                      |
| 10\.69                        | [Form of American Airlines Group Inc\. 2013 Incentive Award Plan Restricted Stock Unit (Stock\-Settled) Award Grant Notice and Award Agreement for Director Grants (incorporated by reference to Exhibit 10\.129 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex10129.htm) †  |
| 10\.70                        | [Form of Indemnification Agreement (incorporated by reference to Exhibit 10\.9 to AAG’s Current Report on Form 8\-K filed on December 9, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513466973/d640718dex109.htm) †                                                                                |
| 10\.71                        | [US Airways Group, Inc\. 2011 Incentive Award Plan (incorporated by reference to Exhibit 4\.1 to US Airways Group’s Registration Statement on Form S\-8 filed on July 1, 2011 (Registration No\. 333\-175323))\.](http://www.sec.gov/Archives/edgar/data/701345/000095012311063744/p18922exv4w1.htm) †                                                                                |
| 10\.72                        | [2014 Short\-Term Incentive Program Under 2013 Incentive Award Plan (incorporated by reference to Exhibit 10\.8 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000014/d759439dex108.htm) †                                                                                |
| 10\.73                        | [Form of Letter Agreement for Directors Travel Program (incorporated by reference to Exhibit 10\.106 to US Airways Group’s Annual Report on Form 10\-K for the year ended December 31, 2007 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095015308000353/p75006exv10w106.htm) †                                                                                |
| 10\.74                        | [Amended and Restated Employment Agreement, dated as of November 28, 2007, among US Airways Group, US Airways, Inc\. and W\. Douglas Parker (incorporated by reference to Exhibit 10\.1 to US Airways Group’s Current Report on Form 8\-K filed on November 29, 2007 (Commission File No\. 1\-8444))\.](http://www.sec.gov/Archives/edgar/data/701345/000095015307002500/p74691exv10w1.htm) †                        |
| 10\.75                        | [Form of Letter Agreement, dated April 25, 2017, by and between American Airlines Group Inc\. and each of Robert D\. Isom, Jr\., Elise Eberwein, Stephen L\. Johnson and Derek J\. Kerr (incorporated by reference to Exhibit 10\.1 to AAG’s Current Report on Form 8\-K filed on May 1, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517150428/d369665dex101.htm) † |
| 10\.76                        | [Letter Agreement, dated as of April 28, 2016, between American Airlines Group Inc\. and W\. Douglas Parker (incorporated by reference to Exhibit 10\.1 to AAG’s Current Report on Form 8\-K filed on April 29, 2016 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516566426/d189148dex101.htm) †                                                                          |
| 14\.1                         | [Code of Ethics (incorporated by reference to Exhibit 14\.1 to AAG’s Current Report on Form 8\-K filed on December 9, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312513466973/d640718dex141.htm)                                                                                |
| 21\.1                         | [Significant subsidiaries of AAG and American as of December 31, 2019\.](https://americanairlines.gcs-web.com/email-alerts/ex21110k2019.htm)                                                                                |
| 23\.1                         | [Consent of Independent Registered Public Accounting Firm – KPMG LLP\.](https://americanairlines.gcs-web.com/email-alerts/ex23110k2019.htm)                                                                                |
| 24\.1                         | [Powers of Attorney (included in signature page of this Annual Report on Form 10\-K)\.](https://americanairlines.gcs-web.com/email-alerts#sF9F146D3BABB5316B9931530D78304B2)                                                                                |
| 31\.1                         | [Certification of AAG Chief Executive Officer pursuant to Rule 13a\-14(a)\.](https://americanairlines.gcs-web.com/email-alerts/ex31110k2019.htm)                                                                                |
| 31\.2                         | [Certification of AAG Chief Financial Officer pursuant to Rule 13a\-14(a)\.](https://americanairlines.gcs-web.com/email-alerts/ex31210k2019.htm)                                                                                |
| 31\.3                         | [Certification of American Chief Executive Officer pursuant to Rule 13a\-14(a)\.](https://americanairlines.gcs-web.com/email-alerts/ex31310k2019.htm)                                                                                |
| 31\.4                         | [Certification of American Chief Financial Officer pursuant to Rule 13a\-14(a)\.](https://americanairlines.gcs-web.com/email-alerts/ex31410k2019.htm)                                                                                |
| 32\.1                         | [Certification pursuant to Rule 13a\-14(b) and section 906 of the Sarbanes\-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code)\.](https://americanairlines.gcs-web.com/email-alerts/ex32110k2019.htm)                                                                                |
| 32\.2                         | [Certification pursuant to Rule 13a\-14(b) and section 906 of the Sarbanes\-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code)\.](https://americanairlines.gcs-web.com/email-alerts/ex32210k2019.htm)                                                                                |
| 101\.1                        | Interactive data files pursuant to Rule 405 of Regulation S\-T, formatted in Inline XBRL (eXtensible Business

Reporting Language)\.                                                                                |
| 104\.1                        | Cover page interactive data file (formatted in Inline XBRL and contained in Exhibit 101\.1)\.                                                                                |

182


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

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

**NOTE 2 \- GOODWILL AND OTHER INTANGIBLE ASSETS**

The following table presents information about the Company's goodwill and other intangible assets at December 31 (in millions):

|                                     |                                                  |                                         |                                                  |                                         |
| ----------------------------------- | ------------------------------------------------ | --------------------------------------- | ------------------------------------------------ | --------------------------------------- |
|                                     | **2018**                                         | **2018**                                | **2017**                                         | **2017**                                |
| **Item**                            | **Gross**

**Carrying**

**Amount** | **Accumulated**

**Amortization** | **Gross**

**Carrying**

**Amount** | **Accumulated**

**Amortization** |
| Goodwill                            | $4,523                                           |                                         | $4,523                                           |                                         |
| Finite\-lived intangible assets     |                                                  |                                         |                                                  |                                         |
| Frequent flyer database             | $1,177                                           | $884                                    | $1,177                                           | $832                                    |
| Hubs                                | 145                                              | 97                                      | 145                                              | 89                                      |
| Contracts                           | 120                                              | 106                                     | 121                                              | 103                                     |
| Patents and tradenames              | 108                                              | 108                                     | 108                                              | 108                                     |
| Airport slots and gates             | 97                                               | 97                                      | 97                                               | 97                                      |
| Other                               | 109                                              | 88                                      | 109                                              | 84                                      |
| Total                               | $1,756                                           | $1,380                                  | $1,757                                           | $1,313                                  |
| Indefinite\-lived intangible assets |                                                  |                                         |                                                  |                                         |
| Route authorities                   | $1,240                                           |                                         | $1,562                                           |                                         |
| Airport slots and gates             | 546                                              |                                         | 536                                              |                                         |
| Tradenames and logos                | 593                                              |                                         | 593                                              |                                         |
| Alliances                           | 404                                              |                                         | 404                                              |                                         |
| Total                               | $2,783                                           |                                         | $3,095                                           |                                         |

Amortization expense in 2018, 2017 and 2016 was $67 million, $79 million and $90 million, respectively\. Projected amortization expense in 2019, 2020, 2021, 2022 and 2023 is $61 million, $55 million, $50 million, $40 million and $37 million, respectively\.

See Note 14 of this report for additional information related to impairment of intangible assets\.

**NOTE 3 \- COMMON STOCKHOLDERS' EQUITY AND PREFERRED SECURITIES**

In 2018, UAL repurchased approximately 17\.5 million shares of UAL common stock for $1\.2 billion\. In December 2017, UAL's Board of Directors authorized a $3\.0 billion share repurchase program to acquire UAL's common stock\. As of December 31, 2018, the Company had approximately $1\.8 billion remaining to purchase shares under its share repurchase program\. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws\. UAL may repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time\. See Part II, Item 5, Market for registrant's common equity, related stockholder matters and issuer purchases of equity securities, of this report for additional information\.

At December 31, 2018, approximately 10 million shares of UAL's common stock were reserved for future issuance related to the issuance of equity\-based awards under the Company's incentive compensation plans\.

As of December 31, 2018, UAL had two shares of junior preferred stock (par value $0\.01 per share) outstanding\. In addition, UAL is authorized to issue 250 million shares of preferred stock (without par value) under UAL's amended and restated certificate of incorporation\.

64


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

AMERICAN AIRLINES, INC\.

CONSOLIDATED BALANCE SHEETS

(In millions, except share and par value)

|                                                                                |                  |                  |
| ------------------------------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **December 31,** | **December 31,** |
|                                                                                | **2019**         | **2018**         |
| **ASSETS**                                                                      |                  |                  |
| **Current assets**                                                              |                  |                  |
| Cash                                                                            | $267             | $265             |
| Short\-term investments                                                         | 3,543            | 4,482            |
| Restricted cash and short\-term investments                                     | 158              | 154              |
| Accounts receivable, net                                                        | 1,770            | 1,755            |
| Receivables from related parties, net                                           | 12,451           | 10,666           |
| Aircraft fuel, spare parts and supplies, net                                    | 1,754            | 1,442            |
| Prepaid expenses and other                                                      | 584              | 493              |
| Total current assets                                                            | 20,527           | 19,257           |
| **Operating property and equipment**                                            |                  |                  |
| Flight equipment                                                                | 42,213           | 41,180           |
| Ground property and equipment                                                   | 9,089            | 8,466            |
| Equipment purchase deposits                                                     | 1,674            | 1,277            |
| Total property and equipment, at cost                                           | 52,976           | 50,923           |
| Less accumulated depreciation and amortization                                  | (18,335

) | (17,123

) |
| Total property and equipment, net                                               | 34,641           | 33,800           |
| **Operating lease right\-of\-use assets**                                       | 8,694            | 9,094            |
| **Other assets**                                                                |                  |                  |
| Goodwill                                                                        | 4,091            | 4,091            |
| Intangibles, net of accumulated amortization of $704 and $663, respectively     | 2,084            | 2,137            |
| Deferred tax asset                                                              | 689              | 1,280            |
| Other assets                                                                    | 1,164            | 1,219            |
| Total other assets                                                              | 8,028            | 8,727            |
| **Total assets**                                                                | $71,890          | $70,878          |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                        |                  |                  |
| **Current liabilities**                                                         |                  |                  |
| Current maturities of long\-term debt and finance leases                        | $2,358           | $2,547           |
| Accounts payable                                                                | 1,990            | 1,707            |
| Accrued salaries and wages                                                      | 1,461            | 1,363            |
| Air traffic liability                                                           | 4,808            | 4,339            |
| Loyalty program liability                                                       | 3,193            | 3,267            |
| Operating lease liabilities                                                     | 1,695            | 1,639            |
| Other accrued liabilities                                                       | 2,055            | 2,259            |
| Total current liabilities                                                       | 17,560           | 17,121           |
| **Noncurrent liabilities**                                                      |                  |                  |
| Long\-term debt and finance leases, net of current maturities                   | 20,684           | 20,650           |
| Pension and postretirement benefits                                             | 6,008            | 6,863            |
| Loyalty program liability                                                       | 5,422            | 5,272            |
| Operating lease liabilities                                                     | 7,388            | 7,857            |
| Other liabilities                                                               | 1,406            | 1,345            |
| Total noncurrent liabilities                                                    | 40,908           | 41,987           |
| **Commitments and contingencies (Note 10)**                                     |
           |
           |
| **Stockholder’s equity**                                                        |                  |                  |
| Common stock, $1\.00 par value; 1,000 shares authorized, issued and outstanding | —                | —                |
| Additional paid\-in capital                                                     | 16,903           | 16,802           |
| Accumulated other comprehensive loss                                            | (6,423

)  | (5,992

)  |
| Retained earnings                                                               | 2,942            | 960              |
| Total stockholder’s equity                                                      | 13,422           | 11,770           |
| **Total liabilities and stockholder’s equity**                                  | $71,890          | $70,878          |

See accompanying notes to consolidated financial statements\.

119


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

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

Aircraft fuel prices have in the past, and may in the future, experience substantial volatility\. We cannot predict the future availability, price volatility or cost of aircraft fuel\. Natural disasters (including hurricanes or similar events in the U\.S\. Southeast and on the Gulf Coast where a significant portion of domestic refining capacity is located), political disruptions or wars involving oil\-producing countries, economic sanctions imposed against oil\-producing countries or specific industry participants, changes in fuel\-related governmental policy, the strength of the U\.S\. dollar against foreign currencies, changes in the cost to transport or store petroleum products, changes in access to petroleum product pipelines and terminals, speculation in the energy futures markets, changes in aircraft fuel production capacity or competing demand for fuel from other transport industries, such as maritime shipping, environmental concerns and other unpredictable events may result in fuel supply shortages, distribution challenges, additional fuel price volatility and cost increases in the future\. See Part I, Item 1A\. Risk Factors – “ Our business is very dependent on the price and availability of aircraft fuel\. Continued periods of high volatility in fuel costs, increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity \.”

Seasonality and Other Factors

Due to the greater demand for air travel during the summer months, revenues in the airline industry in the second and third quarters of the year tend to be greater than revenues in the first and fourth quarters of the year\. General economic conditions, fears of terrorism or war, fare initiatives, fluctuations in fuel prices, labor actions, weather, natural disasters, outbreaks of disease and other factors could impact this seasonal pattern\. Therefore, our quarterly results of operations are not necessarily indicative of operating results for the entire year, and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results\.

Domestic and Global Regulatory Landscape

General

Airlines are subject to extensive domestic and international regulatory requirements\. Domestically, the DOT and the Federal Aviation Administration (FAA) exercise significant regulatory authority over air carriers\.

The DOT, among other things, oversees and regulates domestic and international codeshare agreements, international route authorities, competition and consumer protection matters such as advertising, denied boarding compensation and baggage liability\. The Antitrust Division of the Department of Justice (DOJ), along with the DOT in certain instances, have jurisdiction over airline antitrust matters\.

The FAA similarly exercises safety oversight and regulates most operational matters of our business, including how we operate and maintain our aircraft\. FAA requirements cover, among other things, required technology and necessary onboard equipment; systems, procedures and training necessary to ensure the continuous airworthiness of our fleet of aircraft; safety measures and equipment; crew scheduling limitations and experience requirements; and many other technical aspects of airline operations\. Additionally, our pilots and other employees are subject to rigorous certification standards, and our pilots and other crew members must adhere to flight time and rest requirements\.

The FAA also controls the national airspace system, including operational rules and fees for air traffic control (ATC) services\. The efficiency, reliability and capacity of the ATC network has a significant impact on our costs and on the timeliness of our operations\.

The U\.S\. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services\.

Airport Access and Operations

Domestically, any U\.S\. airline authorized by the DOT is generally free to operate scheduled passenger service between any two points within the U\.S\. and its territories, with the exception of certain airports that require landing and take\-off rights and authorizations (slots) and other facilities, and certain airports that impose geographic limitations on operations or curtail operations based on the time of day\. Operations at three major domestic airports we serve (John F\. Kennedy International Airport (JFK) and La Guardia Airport (LGA) in New York City, and Ronald Reagan Washington National Airport (DCA) in Washington, D\.C\.) and many foreign airports we serve (including LHR) are regulated by governmental entities through allocations of slots or similar regulatory mechanisms that limit the rights of carriers to conduct operations at those airports\.

11


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

ALASKA AIR GROUP, INC\.

ANNUAL REPORT ON FORM 10\-K FOR THE YEAR ENDED DECEMBER 31, 2019

TABLE OF CONTENTS

|                                              |                                              |                                              |                                                                                |                                                                                |                                                                                |                                       |                                       |                                       |
| -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------- |
| [PART I](https://www.example.com#i_0_10)     | [PART I](https://www.example.com#i_0_10)     | [PART I](https://www.example.com#i_0_10)     |                                                                                |                                                                                |                                                                                | [4](https://www.example.com#i_0_10)   | [4](https://www.example.com#i_0_10)   | [4](https://www.example.com#i_0_10)   |
| [ITEM 1\.](https://www.example.com#i_0_13)   | [ITEM 1\.](https://www.example.com#i_0_13)   | [ITEM 1\.](https://www.example.com#i_0_13)   | [OUR BUSINESS](https://www.example.com#i_0_13)                                                                                | [OUR BUSINESS](https://www.example.com#i_0_13)                                                                                | [OUR BUSINESS](https://www.example.com#i_0_13)                                                                                | [4](https://www.example.com#i_0_13)   | [4](https://www.example.com#i_0_13)   | [4](https://www.example.com#i_0_13)   |
| [ITEM 1A\.](https://www.example.com#i_0_73)  | [ITEM 1A\.](https://www.example.com#i_0_73)  | [ITEM 1A\.](https://www.example.com#i_0_73)  | [RISK FACTORS](https://www.example.com#i_0_73)                                                                                | [RISK FACTORS](https://www.example.com#i_0_73)                                                                                | [RISK FACTORS](https://www.example.com#i_0_73)                                                                                | [19](https://www.example.com#i_0_73)  | [19](https://www.example.com#i_0_73)  | [19](https://www.example.com#i_0_73)  |
| [ITEM 1B\.](https://www.example.com#i_0_76)  | [ITEM 1B\.](https://www.example.com#i_0_76)  | [ITEM 1B\.](https://www.example.com#i_0_76)  | [UNRESOLVED STAFF COMMENTS](https://www.example.com#i_0_76)                                                                                | [UNRESOLVED STAFF COMMENTS](https://www.example.com#i_0_76)                                                                                | [UNRESOLVED STAFF COMMENTS](https://www.example.com#i_0_76)                                                                                | [26](https://www.example.com#i_0_76)  | [26](https://www.example.com#i_0_76)  | [26](https://www.example.com#i_0_76)  |
| [ITEM 2\.](https://www.example.com#i_0_79)   | [ITEM 2\.](https://www.example.com#i_0_79)   | [ITEM 2\.](https://www.example.com#i_0_79)   | [PROPERTIES](https://www.example.com#i_0_79)                                                                                | [PROPERTIES](https://www.example.com#i_0_79)                                                                                | [PROPERTIES](https://www.example.com#i_0_79)                                                                                | [26](https://www.example.com#i_0_79)  | [26](https://www.example.com#i_0_79)  | [26](https://www.example.com#i_0_79)  |
| [ITEM 3\.](https://www.example.com#i_0_88)   | [ITEM 3\.](https://www.example.com#i_0_88)   | [ITEM 3\.](https://www.example.com#i_0_88)   | [LEGAL PROCEEDINGS](https://www.example.com#i_0_88)                                                                                | [LEGAL PROCEEDINGS](https://www.example.com#i_0_88)                                                                                | [LEGAL PROCEEDINGS](https://www.example.com#i_0_88)                                                                                | [27](https://www.example.com#i_0_88)  | [27](https://www.example.com#i_0_88)  | [27](https://www.example.com#i_0_88)  |
| [ITEM 4\.](https://www.example.com#i_0_91)   | [ITEM 4\.](https://www.example.com#i_0_91)   | [ITEM 4\.](https://www.example.com#i_0_91)   | [MINE SAFETY DISCLOSURES](https://www.example.com#i_0_91)                                                                                | [MINE SAFETY DISCLOSURES](https://www.example.com#i_0_91)                                                                                | [MINE SAFETY DISCLOSURES](https://www.example.com#i_0_91)                                                                                | [27](https://www.example.com#i_0_91)  | [27](https://www.example.com#i_0_91)  | [27](https://www.example.com#i_0_91)  |
| [PART II](https://www.example.com#i_0_94)    | [PART II](https://www.example.com#i_0_94)    | [PART II](https://www.example.com#i_0_94)    |                                                                                |                                                                                |                                                                                | [27](https://www.example.com#i_0_94)  | [27](https://www.example.com#i_0_94)  | [27](https://www.example.com#i_0_94)  |
| [ITEM 5\.](https://www.example.com#i_0_97)   | [ITEM 5\.](https://www.example.com#i_0_97)   | [ITEM 5\.](https://www.example.com#i_0_97)   | [MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES](https://www.example.com#i_0_97) | [MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES](https://www.example.com#i_0_97) | [MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES](https://www.example.com#i_0_97) | [27](https://www.example.com#i_0_97)  | [27](https://www.example.com#i_0_97)  | [27](https://www.example.com#i_0_97)  |
| [ITEM 6\.](https://www.example.com#i_0_109)  | [ITEM 6\.](https://www.example.com#i_0_109)  | [ITEM 6\.](https://www.example.com#i_0_109)  | [SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA](https://www.example.com#i_0_109)                                                               | [SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA](https://www.example.com#i_0_109)                                                               | [SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA](https://www.example.com#i_0_109)                                                               | [29](https://www.example.com#i_0_109) | [29](https://www.example.com#i_0_109) | [29](https://www.example.com#i_0_109) |
| [ITEM 7\.](https://www.example.com#i_0_112)  | [ITEM 7\.](https://www.example.com#i_0_112)  | [ITEM 7\.](https://www.example.com#i_0_112)  | [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](https://www.example.com#i_0_112)                            | [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](https://www.example.com#i_0_112)                            | [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](https://www.example.com#i_0_112)                            | [31](https://www.example.com#i_0_112) | [31](https://www.example.com#i_0_112) | [31](https://www.example.com#i_0_112) |
| [ITEM 7A\.](https://www.example.com#i_0_142) | [ITEM 7A\.](https://www.example.com#i_0_142) | [ITEM 7A\.](https://www.example.com#i_0_142) | [QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK](https://www.example.com#i_0_142)                                                        | [QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK](https://www.example.com#i_0_142)                                                        | [QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK](https://www.example.com#i_0_142)                                                        | [46](https://www.example.com#i_0_142) | [46](https://www.example.com#i_0_142) | [46](https://www.example.com#i_0_142) |
| [ITEM 8\.](https://www.example.com#i_0_151)  | [ITEM 8\.](https://www.example.com#i_0_151)  | [ITEM 8\.](https://www.example.com#i_0_151)  | [CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](https://www.example.com#i_0_151)                                                         | [CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](https://www.example.com#i_0_151)                                                         | [CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](https://www.example.com#i_0_151)                                                         | [47](https://www.example.com#i_0_151) | [47](https://www.example.com#i_0_151) | [47](https://www.example.com#i_0_151) |
| [ITEM 9\.](https://www.example.com#i_0_238)  | [ITEM 9\.](https://www.example.com#i_0_238)  | [ITEM 9\.](https://www.example.com#i_0_238)  | [CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](https://www.example.com#i_0_238)                             | [CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](https://www.example.com#i_0_238)                             | [CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](https://www.example.com#i_0_238)                             | [83](https://www.example.com#i_0_238) | [83](https://www.example.com#i_0_238) | [83](https://www.example.com#i_0_238) |
| [ITEM 9A\.](https://www.example.com#i_0_241) | [ITEM 9A\.](https://www.example.com#i_0_241) | [ITEM 9A\.](https://www.example.com#i_0_241) | [CONTROLS AND PROCEDURES](https://www.example.com#i_0_241)                                                                                | [CONTROLS AND PROCEDURES](https://www.example.com#i_0_241)                                                                                | [CONTROLS AND PROCEDURES](https://www.example.com#i_0_241)                                                                                | [84](https://www.example.com#i_0_241) | [84](https://www.example.com#i_0_241) | [84](https://www.example.com#i_0_241) |
| [ITEM 9B\.](https://www.example.com#i_0_256) | [ITEM 9B\.](https://www.example.com#i_0_256) | [ITEM 9B\.](https://www.example.com#i_0_256) | [OTHER INFORMATION](https://www.example.com#i_0_256)                                                                                | [OTHER INFORMATION](https://www.example.com#i_0_256)                                                                                | [OTHER INFORMATION](https://www.example.com#i_0_256)                                                                                | [87](https://www.example.com#i_0_256) | [87](https://www.example.com#i_0_256) | [87](https://www.example.com#i_0_256) |
| [PART III](https://www.example.com#i_0_259)  | [PART III](https://www.example.com#i_0_259)  | [PART III](https://www.example.com#i_0_259)  |                                                                                |                                                                                |                                                                                | [87](https://www.example.com#i_0_259) | [87](https://www.example.com#i_0_259) | [87](https://www.example.com#i_0_259) |
| [ITEM 10\.](https://www.example.com#i_0_262) | [ITEM 10\.](https://www.example.com#i_0_262) | [ITEM 10\.](https://www.example.com#i_0_262) | [DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](https://www.example.com#i_0_262)                                                           | [DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](https://www.example.com#i_0_262)                                                           | [DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](https://www.example.com#i_0_262)                                                           | [87](https://www.example.com#i_0_262) | [87](https://www.example.com#i_0_262) | [87](https://www.example.com#i_0_262) |
| [ITEM 11\.](https://www.example.com#i_0_265) | [ITEM 11\.](https://www.example.com#i_0_265) | [ITEM 11\.](https://www.example.com#i_0_265) | [EXECUTIVE COMPENSATION](https://www.example.com#i_0_265)                                                                                | [EXECUTIVE COMPENSATION](https://www.example.com#i_0_265)                                                                                | [EXECUTIVE COMPENSATION](https://www.example.com#i_0_265)                                                                                | [87](https://www.example.com#i_0_265) | [87](https://www.example.com#i_0_265) | [87](https://www.example.com#i_0_265) |
| [ITEM 12\.](https://www.example.com#i_0_268) | [ITEM 12\.](https://www.example.com#i_0_268) | [ITEM 12\.](https://www.example.com#i_0_268) | [SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS](https://www.example.com#i_0_268)                  | [SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS](https://www.example.com#i_0_268)                  | [SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS](https://www.example.com#i_0_268)                  | [87](https://www.example.com#i_0_268) | [87](https://www.example.com#i_0_268) | [87](https://www.example.com#i_0_268) |
| [ITEM 13\.](https://www.example.com#i_0_271) | [ITEM 13\.](https://www.example.com#i_0_271) | [ITEM 13\.](https://www.example.com#i_0_271) | [CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](https://www.example.com#i_0_271)                                        | [CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](https://www.example.com#i_0_271)                                        | [CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](https://www.example.com#i_0_271)                                        | [88](https://www.example.com#i_0_271) | [88](https://www.example.com#i_0_271) | [88](https://www.example.com#i_0_271) |
| [ITEM 14\.](https://www.example.com#i_0_274) | [ITEM 14\.](https://www.example.com#i_0_274) | [ITEM 14\.](https://www.example.com#i_0_274) | [PRINCIPAL ACCOUNTANT FEES AND SERVICES ](https://www.example.com#i_0_274)                                                                          | [PRINCIPAL ACCOUNTANT FEES AND SERVICES ](https://www.example.com#i_0_274)                                                                          | [PRINCIPAL ACCOUNTANT FEES AND SERVICES ](https://www.example.com#i_0_274)                                                                          | [88](https://www.example.com#i_0_274) | [88](https://www.example.com#i_0_274) | [88](https://www.example.com#i_0_274) |
| [PART IV](https://www.example.com#i_0_277)   | [PART IV](https://www.example.com#i_0_277)   | [PART IV](https://www.example.com#i_0_277)   |                                                                                |                                                                                |                                                                                | [88](https://www.example.com#i_0_277) | [88](https://www.example.com#i_0_277) | [88](https://www.example.com#i_0_277) |
| [ITEM 15\.](https://www.example.com#i_0_280) | [ITEM 15\.](https://www.example.com#i_0_280) | [ITEM 15\.](https://www.example.com#i_0_280) | [EXHIBITS](https://www.example.com#i_0_280)                                                                                | [EXHIBITS](https://www.example.com#i_0_280)                                                                                | [EXHIBITS](https://www.example.com#i_0_280)                                                                                | [88](https://www.example.com#i_0_280) | [88](https://www.example.com#i_0_280) | [88](https://www.example.com#i_0_280) |
|                                              |                                              |                                              | [SIGNATURES](https://www.example.com#i_0_283)                                                                                | [SIGNATURES](https://www.example.com#i_0_283)                                                                                | [SIGNATURES](https://www.example.com#i_0_283)                                                                                | [89](https://www.example.com#i_0_283) | [89](https://www.example.com#i_0_283) | [89](https://www.example.com#i_0_283) |

As used in this Form 10\-K, the terms “Air Group,” the "Company," “our,” “we” and "us," refer to Alaska Air Group, Inc\. and its subsidiaries, unless the context indicates otherwise\. Alaska Airlines, Inc\., Virgin America Inc\. (through July 20, 2018, at which point it was legally merged into Alaska Airlines, Inc\.), and Horizon Air Industries, Inc\. are referred to as “Alaska,” "Virgin America" and “Horizon,” respectively, and together as our “airlines\.”

CAUTIONARY NOTE REGARDING FORWARD\-LOOKING STATEMENTS

In addition to historical information, this Form 10\-K contains forward\-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995\. Forward\-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters\. You can generally identify forward\-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions, although not all forward\-looking statements contain these identifying words\. Forward\-looking statements involve

2