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

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

10\.1  [Credit Agreement, dated as of April 19, 2018, among Delta Air Lines, Inc\., as Borrower and The Lenders and JP Morgan Chase Bank, N\.A\., as Administrative Agent, Barclays Bank PLC, BNP Paribas, Citigroup Global Markets Inc\., Compass Bank, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc\., Fifth Third Bank, Goldman Sachs Bank USA, Industrial and Commercial Bank of China Limited, New York Branch, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding, Inc\., PNC Bank, National Association, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, U\.S\. Bank National Association and Wells Fargo Bank, N\.A\., as Co\-Syndication Agents, and JP Morgan Chase Bank, N\.A\., Barclays Bank PLC, BNP Paribas, Citigroup Global Markets Inc\., Compass Bank, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc\., Fifth Third Bank, Goldman Sachs Bank USA, Industrial and Commercial Bank of China Limited, New York Branch, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding, Inc\., PNC Capital Markets LLC, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, U\.S\. Bank National Association, Wells Fargo Bank, N\.A\., Credit Agricole Corporate and Investment Bank and Natixis, New York Branch, as Joint Lead Arrangers and Joint Bookrunners (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2018)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000016/dal6302018ex101.htm)

10\.2  [Anchor Tenant Agreement dated as of December 9, 2010 between JFK International Air Terminal LLC and Delta Air Lines, Inc\. (Filed as Exhibit 10\.4 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2010)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000095012311014364/g24877exv10w4.htm)

10\.3  [Amended and Restated Agreement of Lease by and between The Port Authority of New York and New Jersey and Delta Air Lines, Inc\., dated as of September 13, 2017 (Filed as Exhibit 10\.1 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000017/dal9302017ex101.htm)

10\.4(a)  [Airbus A330\-900neo Aircraft and A350\-900 Aircraft Purchase Agreement dated as of November 24, 2014 between Airbus S\.A\.S and Delta Air Lines, Inc\. (Filed as Exhibit 10\.9 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2014)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790415000003/dal12312014ex109.htm)

10\.4(b)  [Amendment No\. 3, dated May 10, 2017, to Airbus A330\-900 Aircraft and A350\-900 Aircraft Purchase Agreement dated as of November 24, 2014 between Airbus S\.A\.S\. and Delta Air Lines, Inc\. (“Amendment No\. 3”) (Filed as Exhibit 10\.2(a) to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex102a.htm)

10\.4(c)  [Letter Agreements, dated May 10, 2017, relating to Amendment No\. 3 (Filed as Exhibit 10\.2(b) to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex102b.htm)

10\.4(d)  [Amendment No\. 8, dated as of October 30, 2018, to Airbus A330\-900 Aircraft and A350\-900 Aircraft Purchase Agreement dated as of November 24, 2014 between Airbus S\.A\.S\. and Delta Air Lines, Inc\. (“Amendment No\. 8”) (Filed as Exhibit 10\.7(d) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2018)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790419000003/dal12312018ex107d.htm)

10\.4(e)  [Letter Agreements, dated as of October 30, 2018, relating to Amendment No\. 8 (Filed as Exhibit 10\.7(e) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2018)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790419000003/dal12312018ex107e.htm)

10\.5(a)  [Airbus A321 Aircraft and A330 Aircraft Purchase Agreement dated as of September 3, 2013 between Airbus S\.A\.S\. and Delta Air Lines, Inc\., as amended through April 29, 2016 (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2016)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000026/dal6302016ex101.htm)

10\.5(b)  [Amendment No\. 9, dated May 10, 2017, to Airbus A321 Aircraft and A330 Aircraft Purchase Agreement dated as of September 3, 2013 between Airbus S\.A\.S\. and Delta Air Lines, Inc\. (“Amendment No\. 9”) (Filed as Exhibit 10\.1(a) to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex101a.htm)

10\.5(c)  [Letter Agreements, dated May 10, 2017, relating to Amendment No\. 9 (Filed as Exhibit 10\.1(b) to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex101b.htm)

100


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

|          |                                                                                |
| -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.6(b) | [Letter Agreement, dated August 24, 2011, relating to Revisions to Aircraft General Terms Agreement dated October 21, 1997 and Supplemental Agreement 13 (Filed as Exhibit 10\.3(b) to Delta's Quarterly Report on Form 10\-Q for the quarter ended September 30, 2011)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000144530511003058/dal9302011ex103b.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.6(c) | [Letter Agreement, dated December 16, 2015, relating to Revisions to Aircraft General Terms Agreement dated October 21, 1997 and Supplemental Agreement 17 (Filed as Exhibit 10\.8(c) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2015)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000018/dal12312015ex108c.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.7(a) | [Airbus A330\-900neo Aircraft and A350\-900 Aircraft Purchase Agreement dated as of November 24, 2014 between Airbus S\.A\.S and Delta Air Lines, Inc\. (Filed as Exhibit 10\.9 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2014)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790415000003/dal12312014ex109.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.7(b) | [Amendment No\. 3, dated May 10, 2017, to Airbus A330\-900 Aircraft and A350\-900 Aircraft Purchase Agreement dated as of November 24, 2014 between Airbus S\.A\.S\. and Delta Air Lines, Inc\. (“Amendment No\. 3”) (Filed as Exhibit 10\.2(a) to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex102a.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.7(c) | [Letter Agreements, dated May 10, 2017, relating to Amendment No\. 3 (Filed as Exhibit 10\.2(b) to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex102b.htm) |

|          |                                                                                |
| -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.7(d) | [Amendment No\. 8, dated as of October 30, 2018, to Airbus A330\-900 Aircraft and A350\-900 Aircraft Purchase Agreement dated as of November 24, 2014 between Airbus S\.A\.S\. and Delta Air Lines, Inc\. (“Amendment No\. 8”)\.\*\*](http://ir.delta.com/dal12312018ex107d.htm) |

|          |                                                                                |
| -------- | -------------------------------------------------------------------------------------------------------------------------------- |
| 10\.7(e) | [Letter Agreements, dated as of October 30, 2018, relating to Amendment No\. 8\.\*\*](http://ir.delta.com/dal12312018ex107e.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.8(a) | [Airbus A321 Aircraft and A330 Aircraft Purchase Agreement dated as of September 3, 2013 between Airbus S\.A\.S\. and Delta Air Lines, Inc\., as amended through April 29, 2016 (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2016)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000026/dal6302016ex101.htm) |

|          |                                                                                |
| -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.8(b) | [Amendment No\. 9, dated May 10, 2017, to Airbus A321 Aircraft and A330 Aircraft Purchase Agreement dated as of September 3, 2013 between Airbus S\.A\.S\. and Delta Air Lines, Inc\. (“Amendment No\. 9”) (Filed as Exhibit 10\.1(a) to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex101a.htm) |

|          |                                                                                |
| -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.8(c) | [Letter Agreements, dated May 10, 2017, relating to Amendment No\. 9 (Filed as Exhibit 10\.1(b) to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex101b.htm) |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.9 | [Airbus A321neo Aircraft Purchase Agreement dated as of December 15, 2017 between Airbus S\.A\.S\. and Delta Air Lines, Inc\. (Filed as Exhibit 10\.10 to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1010.htm) |

|        |                                                                                |
| ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 10\.10 | [Delta Air Lines, Inc\. Performance Compensation Plan (Filed as Exhibit 10\.2 to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000026/dal6302016ex102.htm) |

|        |                                                                                |
| ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.11 | [Delta Air Lines, Inc\. Officer and Director Severance Plan, as amended and restated as of June 1, 2016 (Filed as Exhibit 10\.3 to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000026/dal6302016ex103.htm) |

|        |                                                                                |
| ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 10\.12 | [Description of Certain Benefits of Members of the Board of Directors and Executive Officers (Filed as Exhibit 10\.11 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000004/dal12312016ex1011.htm) |

10\.13(a) [Delta Air Lines, Inc\. 2016 Long\-Term Incentive Program (Filed as Exhibit 10\.16 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2015)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000018/dal12312015ex1016.htm)

10\.13(b) [First Amendment to the Delta Air Lines, Inc\. 2016 Long Term Incentive Program (Filed as Exhibit 10\.15(b) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1015b.htm)

10\.13(c) [Model Award Agreement for the Delta Air Lines, Inc\. 2016 Long\-Term Incentive Program (Filed as Exhibit 10\.1 to Delta's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000022/dal3312016ex101.htm)

 103


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

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

The income tax provision differed from amounts computed at the statutory federal income tax rate as follows (in millions):

|                                                       |                             |                             |                             |
| ----------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                       | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                       | **2018**                    | **2017**                    | **2016**                    |
| Statutory income tax provision                        | $460                        | $1,244                      | $1,504                      |
| State income tax provision, net of federal tax effect | 46                          | 53                          | 61                          |
| Foreign income taxes, net of federal tax effect       | 22                          | 6                           | 6                           |
| Book expenses not deductible for tax purposes         | 10                          | 30                          | 32                          |
| Bankruptcy administration expenses                    | —                           | 1                           | 1                           |
| 2017 Tax Act                                          | —                           | 924                         | —                           |
| Change in valuation allowance                         | (6)                         | 4                           | (1)                         |
| Other, net                                            | 2                           | 8                           | 4                           |
| Income tax provision                                  | $534                        | $2,270                      | $1,607                      |

American provides a valuation allowance for its deferred tax assets, which include the net operating losses (NOLs), when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized\. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income\. American considers all available positive and negative evidence and makes certain assumptions in evaluating the realizability of its deferred tax assets\. Many factors are considered that impact American’s assessment of future profitability, including conditions which are beyond its control, such as the health of the economy, the level and volatility of fuel prices and travel demand\.

The total decrease to the valuation allowance was $6 million in 2018\. In 2017, the total increase to the valuation allowance was $12 million, $8 million of which is included in the 2017 Tax Act amount in the table above\. In 2016, the total decrease to the valuation allowance was $1 million\.

The components of American’s deferred tax assets and liabilities were (in millions):

|                                                    |                  |                  |
| -------------------------------------------------- | ---------------- | ---------------- |
|                                                    | **December 31,** | **December 31,** |
|                                                    | **2018**         | **2017**         |
| Deferred tax assets:                               |                  |                  |
| Operating loss carryforwards                       | $2,420           | $2,409           |
| Leases                                             | 2,176            | 107              |
| Pensions                                           | 1,421            | 1,549            |
| Loyalty program liability                          | 1,770            | 1,809            |
| Alternative minimum tax (AMT) credit carryforwards | 231              | 457              |
| Postretirement benefits other than pensions        | 145              | 170              |
| Rent expense                                       | 136              | 160              |
| Reorganization items                               | 33               | 35               |
| Other                                              | 588              | 638              |
| Total deferred tax assets                          | 8,920            | 7,334            |
| Valuation allowance                                | (19)             | (25)             |
| Net deferred tax assets                            | 8,901            | 7,309            |
| Deferred tax liabilities:                          |                  |                  |
| Accelerated depreciation and amortization          | (5,243)          | (4,999)          |
| Leases                                             | (2,068)          | —                |
| Other                                              | (321)            | (274)            |
| Total deferred tax liabilities                     | (7,632)          | (5,273)          |
| Net deferred tax asset                             | $1,269           | $2,036           |

154


Annual Report of Southwest Airlines Co\. for year 2017

**Reconciliation of Reported Amounts to Non\-GAAP Financial Measures** **(unaudited) (in millions, except per share and per ASM amounts)**

|                                                                                |                             |                             |             |
| ---------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | --------------------------- | ----------- |
|                                                                                | **Year ended December 31,** | **Year ended December 31,** | **Percent** |
|                                                                                | **2017**                    | **2016**                    | **Change**  |
| **Fuel and oil expense, unhedged**                                                                                | $3,524                      | $2,827                      |             |
| Add: Fuel hedge (gains) losses included in Fuel and oil expense, net                                                                     | 416                         | 820                         |             |
| **Fuel and oil expense, as reported**                                                                                | $3,940                      | $3,647                      |             |
| Add: Net impact from fuel contracts                                                                                | 156                         | 202                         |             |
| **Fuel and oil expense, excluding special items (economic)**                                                                             | $4,096                      | $3,849                      | 6\.4 %      |
| **Total operating expenses, as reported**                                                                                | $17,656                     | $16,665                     |             |
| Deduct: Contract ratification bonuses                                                                                | —                           | (356)                       |             |
| Add: Reclassification between Fuel and oil and Other (gains) losses, net,

 associated with current period settled contracts       | 6                           | 5                           |             |
| Add: Contracts settling in the current period, but for which gains and/or (losses)

 have been recognized in a prior period (a)   | 150                         | 197                         |             |
| Deduct: Asset impairment                                                                                | —                           | (21)                        |             |
| Deduct: Lease termination expense                                                                                | (33)                        | (22)                        |             |
| Deduct: Aircraft grounding charge                                                                                | (63)                        | —                           |             |
| **Total operating expenses, excluding special items**                                                                                | $17,716                     | $16,468                     | 7\.6 %      |
| **Operating income, as reported**                                                                                | $3,515                      | $3,760                      |             |
| Add: Contract ratification bonuses                                                                                | —                           | 356                         |             |
| Deduct: Reclassification between Fuel and oil and Other (gains) losses, net,

 associated with current period settled contracts    | (6)                         | (5)                         |             |
| Deduct: Contracts settling in the current period, but for which gains and/or (losses)

 have been recognized in a prior period (a) | (150)                       | (197)                       |             |
| Add: Asset impairment                                                                                | —                           | 21                          |             |
| Add: Lease termination expense                                                                                | 33                          | 22                          |             |
| Add: Aircraft grounding charge                                                                                | 63                          | —                           |             |
| **Operating income, excluding special items**                                                                                | $3,455                      | $3,957                      | (12\.7)%    |
| **Provision for income taxes, as reported**                                                                                | $(237)                      | $1,303                      |             |
| Add: Income tax impact of fuel and special items, excluding Tax reform

 impact (b)                                               | 17                          | 74                          |             |
| Add: Tax reform impact (c)                                                                                | 1,410                       | —                           |             |
| **Provision for income taxes, excluding special items**                                                                                | $1,190                      | $1,377                      | (13\.6)%    |
| **Net income, as reported**                                                                                | $3,488                      | $2,244                      |             |
| Add: Contract ratification bonuses                                                                                | —                           | 356                         |             |
| Add: Mark\-to\-market impact from fuel contracts settling in future periods                                                              | 69                          | 9                           |             |
| Add (Deduct): Ineffectiveness from fuel hedges settling in future periods                                                                | 31                          | (11)                        |             |
| Deduct: Other net impact of fuel contracts settling in the current or a prior period

 (excluding reclassifications)               | (150)                       | (197)                       |             |
| Add: Asset impairment                                                                                | —                           | 21                          |             |
| Add: Lease termination expense                                                                                | 33                          | 22                          |             |
| Add: Aircraft grounding charge                                                                                | 63                          | —                           |             |
| Deduct: Net income tax impact from fuel and special items (b)                                                                            | (17)                        | (74)                        |             |
| Deduct: Tax reform impact (c)                                                                                | (1,410)                     | —                           |             |
| **Net income, excluding special items**                                                                                | $2,107                      | $2,370                      | (11\.1)%    |

50


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

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

In addition, several joint ventures among U\.S\. and foreign carriers, including our transatlantic and transpacific joint ventures, have received grants of antitrust immunity allowing the participating carriers to coordinate schedules, pricing, sales and inventory\. Other joint ventures that have received antitrust immunity include a transatlantic alliance among United Airlines, Air Canada and Lufthansa German Airlines, a transpacific joint venture between United Airlines and All Nippon Airways, a transatlantic joint venture among American Airlines, British Airways and Iberia and a transpacific joint venture between American Airlines and Japan Air Lines\.

Regulatory Matters

The DOT and the Federal Aviation Administration (the "FAA") exercise regulatory authority over air transportation in the U\.S\. The DOT has authority to issue certificates of public convenience and necessity required for airlines to provide domestic air transportation\. An air carrier that the DOT finds fit to operate is given authority to operate domestic and international air transportation (including the carriage of passengers and cargo)\. Except for constraints imposed by regulations regarding "Essential Air Services," which are applicable to certain small communities, airlines may terminate service to a city without restriction\.

The DOT has jurisdiction over certain economic and consumer protection matters, such as unfair or deceptive practices and methods of competition, advertising, denied boarding compensation, baggage liability and disabled passenger transportation\. The DOT also has authority to review certain joint venture agreements between domestic and international carriers and engages in regulation of economic matters such as slot transactions\. The FAA has primary responsibility for matters relating to the safety of air carrier flight operations, including airline operating certificates, control of navigable air space, flight personnel, aircraft certification and maintenance and other matters affecting air safety\.

Authority to operate international routes and international codesharing arrangements is regulated by the DOT and by the governments of the foreign countries involved\. International certificate authorities are also subject to the approval of the U\.S\. President for conformance with national defense and foreign policy objectives\.

The Transportation Security Administration and the U\.S\. Customs and Border Protection, each a division of the Department of Homeland Security, are responsible for certain civil aviation security matters, including passenger and baggage screening at U\.S\. airports and international passenger prescreening prior to entry into or departure from the U\.S\.

Airlines are also subject to various other federal, state, local and foreign laws and regulations\. For example, the U\.S\. Department of Justice has jurisdiction over airline competition matters\. The U\.S\. Postal Service has authority over certain aspects of the transportation of mail\. Labor relations in the airline industry, as discussed below, are generally governed by the Railway Labor Act\. Environmental matters are regulated by various federal, state, local and foreign governmental entities\. Privacy of passenger and employee data is regulated by domestic and foreign laws and regulations\.

Fares and Rates

Airlines set ticket prices in all domestic and most international city pairs with minimal governmental regulation, and the industry is characterized by significant price competition\. Certain international fares and rates are subject to the jurisdiction of the DOT and the governments of the foreign countries involved\. Many of our tickets are sold by travel agents, and fares are subject to commissions, overrides and discounts paid to travel agents, brokers and wholesalers\.

 7


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

**PERFORMANCE GRAPH**

The following graph compares our cumulative total stockholder return since December 31, 2013 with the S&P 500 Index and the Dow Jones U\.S\. Airlines Index\. The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2013\.

![alk10\-k123\_chartx57832a02\.jpg](https://www.example.com/alk10-k123_chartx57832a02.jpg)

 28


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

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

**UNITED CONTINENTAL HOLDINGS, INC\.**

**STATEMENTS OF CONSOLIDATED CASH FLOWS**

**(In millions)**

|                                                                                |                             |                             |                             |
| ----------------------------------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                                                | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                                | **2018**                    | **2017 (a)**                | **2016 (a)**                |
| Operating Activities:                                                               |                             |                             |                             |
| Net income                                                                          | $2,129                      | $2,144                      | $2,234                      |
| Adjustments to reconcile net income to net cash provided by operating activities \- |                             |                             |                             |
| Deferred income taxes                                                               | 515                         | 973                         | 1,631                       |
| Depreciation and amortization                                                       | 2,240                       | 2,149                       | 1,977                       |
| Special charges, non\-cash portion                                                  | 416                         | 35                          | 391                         |
| Other operating activities                                                          | 170                         | 141                         | 109                         |
| Changes in operating assets and liabilities \-                                      |                             |                             |                             |
| Increase in receivables                                                             | (29)                        | (183)                       | (16)                        |
| (Increase) decrease in other assets                                                 | 29                          | (533)                       | (296)                       |
| Increase (decrease) in advance ticket sales                                         | 441                         | 145                         | (28)                        |
| Increase (decrease) in frequent flyer deferred revenue                              | 222                         | (107)                       | (55)                        |
| Increase in accounts payable                                                        | 130                         | 66                          | 239                         |
| Decrease in advanced purchase of miles                                              | —                           | (942)                       | (206)                       |
| Decrease in other liabilities                                                       | (82)                        | (475)                       | (438)                       |
| Net cash provided by operating activities                                           | 6,181                       | 3,413                       | 5,542                       |
| Investing Activities:                                                               |                             |                             |                             |
| Capital expenditures                                                                | (4,177)                     | (3,998)                     | (3,223)                     |
| Purchases of short\-term and other investments                                      | (2,552)                     | (3,241)                     | (2,768)                     |
| Proceeds from sale of short\-term and other investments                             | 2,616                       | 3,177                       | 2,712                       |
| Loans made to others                                                                | (466)                       | (30)                        | (56)                        |
| Investment in affiliates                                                            | (139)                       | (2)                         | (14)                        |
| Other, net                                                                          | 155                         | 164                         | 111                         |
| Net cash used in investing activities                                               | (4,563)                     | (3,930)                     | (3,238)                     |
| Financing Activities:                                                               |                             |                             |                             |
| Proceeds from issuance of long\-term debt and airport construction financing        | 1,740                       | 2,765                       | 808                         |
| Payments of long\-term debt                                                         | (1,727)                     | (901)                       | (1,215)                     |
| Repurchases of common stock                                                         | (1,235)                     | (1,844)                     | (2,614)                     |
| Principal payments under capital leases                                             | (134)                       | (124)                       | (136)                       |
| Capitalized financing costs                                                         | (37)                        | (80)                        | (64)                        |
| Other, net                                                                          | (17)                        | (11)                        | 8                           |
| Net cash used in financing activities                                               | (1,410)                     | (195)                       | (3,213)                     |
| Net increase (decrease) in cash, cash equivalents and restricted cash               | 208                         | (712)                       | (909)                       |
| Cash, cash equivalents and restricted cash at beginning of year                     | 1,591                       | 2,303                       | 3,212                       |
| Cash, cash equivalents and restricted cash at end of year                           | $1,799                      | $1,591                      | $2,303                      |
| Investing and Financing Activities Not Affecting Cash:                              |                             |                             |                             |
| Property and equipment acquired through the issuance of debt and capital leases     | $174                        | $935                        | $386                        |
| Debt associated with termination of a maintenance service agreement                 | 163                         | —                           | —                           |
| Investment in Republic Airways Holdings, Inc\. received from bankruptcy claims      | —                           | 92                          | —                           |
| Airport construction financing                                                      | 12                          | 42                          | 91                          |
| Operating lease conversions to capital lease                                        | 52                          | —                           | 12                          |
| Cash Paid During the Period for:                                                    |                             |                             |                             |
| Interest                                                                            | $651                        | $571                        | $584                        |
| Income taxes                                                                        | 19                          | 20                          | 14                          |

(a) Amounts adjusted due to the adoption of Accounting Standards Update No\. 2014\-09, *Revenue from Contracts with Customers (Topic 606)\.* See Note 1 to the financial statements contained in Part II, Item 8 of this report for additional information\.

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements\.

46


Annual Report of Southwest Airlines Co\. for year 2018

**Southwest Airlines Co\.**

**Consolidated Statement of Stockholders' Equity**

(in millions, except per share amounts)

|                                                                        |                                                  |                                                          |                                                  |                                                                                |                                                  |                                                  |
| ---------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------------------------- | ------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------ |
|                                                                        | **Year ended December 31, 2018, 2017, and 2016** | **Year ended December 31, 2018, 2017, and 2016**         | **Year ended December 31, 2018, 2017, and 2016** | **Year ended December 31, 2018, 2017, and 2016**                                   | **Year ended December 31, 2018, 2017, and 2016** | **Year ended December 31, 2018, 2017, and 2016** |
|                                                                        | **Common**

**Stock**                      | **Capital in**

**excess of**

**par value** | **Retained**

**earnings**                 | **Accumulated**

**other**

**comprehensive**

**income (loss)** | **Treasury**

**stock**                    | **Total**                                        |
| Balance at December 31, 2015 (as reported)                             | $808                                             | $1,374                                                   | $9,409                                           | $(1,051)                                                                           | $(3,182)                                         | $7,358                                           |
| Cumulative effect of new accounting standards (see Note 2)             | —                                                | —                                                        | (596)                                            | —                                                                                | —                                                | (596)                                            |
| Balance at December 31, 2015 (as recast)                               | $808                                             | $1,374                                                   | $8,813                                           | $(1,051)                                                                           | $(3,182)                                         | $6,762                                           |
| Repurchase of common stock                                             | —                                                | —                                                        | —                                                | —                                                                                | (1,750)                                          | (1,750)                                          |
| Issuance of common and treasury stock pursuant to Employee stock plans | —                                                | 8                                                        | —                                                | —                                                                                | 12                                               | 20                                               |
| Conversion of 5\.25% senior notes to common stock

        | —                                                | (5)                                                      | —                                                | —                                                                                | 48                                               | 43                                               |
| Share\-based compensation                                              | —                                                | 33                                                       | —                                                | —                                                                                | —                                                | 33                                               |
| Cash dividends, $\.3750 per share                                      | —                                                | —                                                        | (235)                                            | —                                                                                | —                                                | (235)                                            |
| Comprehensive income                                                   | —                                                | —                                                        | 2,183                                            | 728                                                                                | —                                                | 2,911                                            |
| Balance at December 31, 2016 as recast                                 | $808                                             | $1,410                                                   | $10,761                                          | $(323)                                                                             | $(4,872)                                         | $7,784                                           |
| Repurchase of common stock                                             | —                                                | —                                                        | —                                                | —                                                                                | (1,600)                                          | (1,600)                                          |
| Issuance of common and treasury stock pursuant to Employee stock plans | —                                                | 4                                                        | —                                                | —                                                                                | 10                                               | 14                                               |
| Share\-based compensation                                              | —                                                | 37                                                       | —                                                | —                                                                                | —                                                | 37                                               |
| Cash dividends, $\.4750 per share                                      | —                                                | —                                                        | (286)                                            | —                                                                                | —                                                | (286)                                            |
| Comprehensive income                                                   | —                                                | —                                                        | 3,357                                            | 335                                                                                | —                                                | 3,692                                            |
| Balance at December 31, 2017 as recast                                 | $808                                             | $1,451                                                   | $13,832                                          | $12                                                                                | $(6,462)                                         | $9,641                                           |
| Cumulative effect of new accounting standards (see Note 2)             | —                                                | —                                                        | 18                                               | (18)                                                                               | —                                                | —                                                |
| Repurchase of common stock                                             | —                                                | —                                                        | —                                                | —                                                                                | (2,000)                                          | (2,000)                                          |
| Issuance of common and treasury stock pursuant to Employee stock plans | —                                                | 13                                                       | —                                                | —                                                                                | 10                                               | 23                                               |
| Share\-based compensation                                              | —                                                | 46                                                       | —                                                | —                                                                                | —                                                | 46                                               |
| Cash dividends, $\.6050 per share                                      | —                                                | —                                                        | (348)                                            | —                                                                                | —                                                | (348)                                            |
| Comprehensive income                                                   | —                                                | —                                                        | 2,465                                            | 26                                                                                | —                                                | 2,491                                            |
| Balance at December 31, 2018                                           | $808                                             | $1,510                                                   | $15,967                                          | $20                                                                                | $(8,452)                                         | $9,853                                           |

See accompanying notes\.

70


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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholder and the Board of Directors of United Airlines, Inc\.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of United Airlines, Inc\. (the "Company") as of  December 31, 2019  and  2018 , and the related statements of consolidated operations, comprehensive income (loss), cash flows, and stockholder's equity, for each of the three years in the period ended  December 31, 2019 , and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "consolidated financial statements")\. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at  December 31, 2019  and  2018 , and the results of its operations and its cash flows for each of the three years in the period ended  December 31, 2019 , in conformity with U\.S\. generally accepted accounting principles\.

Adoption of ASU No\. 2016\-02

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019, 2018 and 2017 due to the adoption of ASU 2016\-02,  Leases (Topic 842)\.

Basis for Opinion

These financial statements are the responsibility of the Company's management\. Our responsibility is to express an opinion on the Company's financial statements based on our audits\. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U\.S\. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB\.

We conducted our audits in accordance with the standards of the PCAOB\. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud\. The Company is not required to have, nor were we engaged to perform, an audit of the Company's internal control over financial reporting\. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting\. Accordingly, we express no such opinion\.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks\. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements\. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements\. We believe that our audits provide a reasonable basis for our opinion\.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2009\.

Chicago, Illinois

February 24, 2020

42


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

Passenger revenue increased $2\.1 billion, or 5\.6%, in 2017 from 2016 primarily due to a 4\.3% year\-over\-year increase in yields driven by strong demand\. Domestic yield increased 4\.8% and international yields rose 4\.0%, due principally to improved performance in Latin America\.

Cargo revenue increased $105 million, or 13\.3%, in 2017 from 2016 driven primarily by an increase in freight volume\.

Other revenue increased $289 million, or 12\.5%, in 2017 from 2016 driven by higher revenue associated with our loyalty program\. In 2017 and 2016, loyalty revenue included in other revenue was $2\.1 billion and $1\.9 billion, respectively\.

Total operating revenues in 2017increased $2\.5 billion, or 6\.2%, from 2016 driven principally by a 5\.6% increase in passenger revenue as described above\. Our TRASM was 15\.42 cents in 2017, a 5\.0%increase as compared to 14\.68 cents in 2016\.

*Operating Expenses*

|                                    |                                              |                                              |                                              |                                                       |
| ---------------------------------- | -------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ----------------------------------------------------- |
|                                    | **Year Ended December 31,**                  | **Year Ended December 31,**                  | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                                    | **2017**                                     | **2016**                                     | **Increase**

**(Decrease)**           | **Percent**

**Increase**

**(Decrease)** |
|                                    | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)** | **(In millions, except percentage changes)**          |
| Aircraft fuel and related taxes    | $6,128                                       | $5,071                                       | $1,057                                       | 20\.8                                                 |
| Salaries, wages and benefits       | 11,954                                       | 10,967                                       | 987                                          | 9\.0                                                  |
| Maintenance, materials and repairs | 1,959                                        | 1,834                                        | 125                                          | 6\.8                                                  |
| Other rent and landing fees        | 1,806                                        | 1,772                                        | 34                                           | 1\.9                                                  |
| Aircraft rent                      | 1,197                                        | 1,203                                        | (6)                                          | (0\.4)                                                |
| Selling expenses                   | 1,477                                        | 1,323                                        | 154                                          | 11\.6                                                 |
| Depreciation and amortization      | 1,702                                        | 1,525                                        | 177                                          | 11\.6                                                 |
| Special items, net                 | 712                                          | 709                                          | 3                                            | 0\.5                                                  |
| Other                              | 4,910                                        | 4,634                                        | 276                                          | 5\.9                                                  |
| Regional expenses:                 |                                              |                                              |                                              |                                                       |
| Aircraft fuel and related taxes    | 1,382                                        | 1,109                                        | 273                                          | 24\.6                                                 |
| Other                              | 5,164                                        | 4,935                                        | 229                                          | 4\.6                                                  |
| Total operating expenses           | $38,391                                      | $35,082                                      | $3,309                                       | 9\.4                                                  |

Total operating expenses increased $3\.3 billion, or 9\.4%, in 2017 from 2016\. The increase in operating expenses was primarily driven by an increase in fuel costs and higher wage rates\. See detailed explanations below relating to changes in total CASM\.

*Total CASM*

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

The table below presents the reconciliation of total operating expenses (GAAP measure) to total operating costs excluding special items and fuel (non\-GAAP measure)\. Management uses total operating costs excluding special items and fuel to evaluate our current operating performance and for period\-to\-period comparisons\. The price of fuel, over which we have no control, impacts the comparability of period\-to\-period financial performance\. The adjustment to exclude aircraft fuel and special items allows management an additional tool to understand and analyze our non\-fuel costs and core operating performance\.

56


Annual Report of ALASKA AIR GROUP, INC\. for year 2017

Operating segment information is as follows (in millions):

|                                     |              |              |             |                                     |                                  |                             |                  |
| ----------------------------------- | ------------ | ------------ | ----------- | ----------------------------------- | -------------------------------- | --------------------------- | ---------------- |
| **Year Ended December 31, 2017**    | **Mainline** | **Regional** | **Horizon** | **Consolidating & Other** **^(b)^** | **Air Group Adjusted** **^(c)^** | **Special Items** **^(d)^** | **Consolidated** |
| **Operating revenues**              |              |              |             |                                     |                                  |                             |                  |
| Passenger                           |              |              |             |                                     |                                  |                             |                  |
| Mainline                            | $5,858       | $—           | $—          | $—                                  | $5,858                           | $—                          | $5,858           |
| Regional                            | —            | 960          | —           | —                                   | 960                              | —                           | 960              |
| Total passenger revenues            | 5,858        | 960          | —           | —                                   | 6,818                            | —                           | 6,818            |
| CPA revenues                        | —            | —            | 426         | (426)                               | —                                | —                           | —                |
| Freight and mail                    | 110          | 4            | —           | —                                   | 114                              | —                           | 114              |
| Other\-net                          | 922          | 74           | 4           | 1                                   | 1,001                            | —                           | 1,001            |
| **Total operating revenues**        | 6,890        | 1,038        | 430         | (425)                               | 7,933                            | —                           | 7,933            |
| **Operating expenses**              |              |              |             |                                     |                                  |                             |                  |
| Operating expenses, excluding fuel  | 4,257        | 851          | 427         | (427)                               | 5,108                            | 118                         | 5,226            |
| Fuel expense                        | 1,282        | 172          | —           | —                                   | 1,454                            | (7)                         | 1,447            |
| **Total operating expenses**        | 5,539        | 1,023        | 427         | (427)                               | 6,562                            | 111                         | 6,673            |
| **Nonoperating income (expense)**   |              |              |             |                                     |                                  |                             |                  |
| Interest income                     | 39           | —            | —           | (5)                                 | 34                               | —                           | 34               |
| Interest expense                    | (92)         | —            | (13)        | 2                                   | (103)                            | —                           | (103)            |
| Other                               | 14           | —            | 2           | —                                   | 16                               | —                           | 16               |
|                                     | (39)         | —            | (11)        | (3)                                 | (53)                             | —                           | (53)             |
| **Income (loss) before income tax** | $1,312       | $15          | $(8)        | $(1)                                | $1,318                           | $(111)                      | $1,207           |

|                                     |                        |              |             |                                     |                                  |                             |                  |
| ----------------------------------- | ---------------------- | ------------ | ----------- | ----------------------------------- | -------------------------------- | --------------------------- | ---------------- |
| **Year Ended December 31, 2016**    | **Mainline** **^(a)^** | **Regional** | **Horizon** | **Consolidating & Other** **^(b)^** | **Air Group Adjusted** **^(c)^** | **Special Items** **^(d)^** | **Consolidated** |
| **Operating revenues**              |                        |              |             |                                     |                                  |                             |                  |
| Passenger                           |                        |              |             |                                     |                                  |                             |                  |
| Mainline                            | $4,098                 | $—           | $—          | $—                                  | $4,098                           | $—                          | $4,098           |
| Regional                            | —                      | 908          | —           | —                                   | 908                              | —                           | 908              |
| Total passenger revenues            | 4,098                  | 908          | —           | —                                   | 5,006                            | —                           | 5,006            |
| CPA revenues                        | —                      | —            | 424         | (424)                               | —                                | —                           | —                |
| Freight and mail                    | 104                    | 5            | —           | (1)                                 | 108                              | —                           | 108              |
| Other\-net                          | 738                    | 74           | 4           | 1                                   | 817                              | —                           | 817              |
| **Total operating revenues**        | 4,940                  | 987          | 428         | (424)                               | 5,931                            | —                           | 5,931            |
| **Operating expenses**              |                        |              |             |                                     |                                  |                             |                  |
| Operating expenses, excluding fuel  | 2,883                  | 769          | 407         | (425)                               | 3,634                            | 117                         | 3,751            |
| Fuel expense                        | 719                    | 125          | —           | —                                   | 844                              | (13)                        | 831              |
| **Total operating expenses**        | 3,602                  | 894          | 407         | (425)                               | 4,478                            | 104                         | 4,582            |
| **Nonoperating income (expense)**   |                        |              |             |                                     |                                  |                             |                  |
| Interest income                     | 26                     | —            | 1           | —                                   | 27                               | —                           | 27               |
| Interest expense                    | (42)                   | —            | (9)         | (4)                                 | (55)                             | —                           | (55)             |
| Other                               | 19                     | —            | 1           | 4                                   | 24                               | —                           | 24               |
|                                     | 3                      | —            | (7)         | —                                   | (4)                              | —                           | (4)              |
| **Income (loss) before income tax** | $1,341                 | $93          | $14         | $1                                  | $1,449                           | $(104)                      | $1,345           |

 92


Annual Report of ALASKA AIR GROUP, INC\. for year 2017

that is charged to the airline\. Many of our large corporate customers require us to use these agencies\. Some of our competitors do not use this distribution channel and, as a result, have lower ticket distribution costs\.

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

Our sales by channel are as follows:

|                          |          |                     |          |          |          |
| ------------------------ | -------- | ------------------- | -------- | -------- | -------- |
|                          | **2017** | **2016**  **^(a)^** | **2015** | **2014** | **2013** |
| Direct to customer       | 62%      | 61%                 | 60%      | 57%      | 55%      |
| Traditional agencies     | 22%      | 23%                 | 23%      | 25%      | 27%      |
| Online travel agencies   | 11%      | 11%                 | 11%      | 12%      | 13%      |
| Reservation call centers | 5%       | 5%                  | 6%       | 6%       | 5%       |
| Total                    | 100%     | 100%                | 100%     | 100%     | 100%     |

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

**SEASONALITY AND OTHER FACTORS**

Our results of operations for any interim period are not necessarily indicative of those for the entire year because our business is subject to seasonal fluctuations\. Our profitability is generally lowest during the first and fourth quarters due principally to fewer departures and passengers\. Profitability typically increases in the second quarter and then reaches its highest level during the third quarter as a result of vacation travel, including increased activity in the state of Alaska\. However, we have significantly improved the seasonality of our operations by our continued growth from the West Coast to leisure destinations, like Hawaii and Costa Rica, and expansion to leisure and business destinations in the mid\-continental and eastern U\.S\.

In addition to passenger loads, factors that could cause our quarterly operating results to vary include:

|   |                                               |
| - | --------------------------------------------- |
| • | pricing initiatives by us or our competitors, |

• changes in fuel costs,

|   |                                                   |
| - | ------------------------------------------------- |
| • | increases in competition at our primary airports, |

|   |                                                                            |
| - | -------------------------------------------------------------------------- |
| • | general economic conditions and resulting changes in passenger demand, and |

|   |                                                                         |
| - | ----------------------------------------------------------------------- |
| • | increases or decreases in passenger and volume\-driven variable costs\. |

Many of the markets we serve experience inclement weather conditions in the winter, causing increased costs associated with deicing aircraft, canceling flights and accommodating displaced passengers\. Due to our geographic area of operations, we can be more susceptible to adverse weather conditions, particularly in the state of Alaska and the Pacific Northwest, than some of our competitors who may be better able to spread weather\-related risks over larger route systems\. We also are susceptible to Air Traffic Control due to our heavy concentration of departures from Seattle and San Francisco\.

No material part of our business, or that of our subsidiaries, is dependent upon a single customer, or upon a few high\-volume customers\.

**EMPLOYEES**

Our business is labor intensive\. As of December 31, 2017, we employed 23,156 (13,896 at Alaska, 3,538 at Virgin America, 3,943 at Horizon, and 1,779 at McGee Air Services) active full\-time and part\-time employees\. Wages and benefits, including variable incentive pay, represented approximately 39% of our total non\-fuel operating expenses in 2017 and 40% in 2016\.

Most major airlines, including Alaska, Virgin America, and Horizon, have employee groups that are covered by collective bargaining agreements (CBA)\. Airlines with unionized work forces generally have higher labor costs than carriers without unionized work forces, and they may not have the ability to adjust labor costs downward quickly enough to respond to new competition or slowing demand\.

 13


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

[Table of Contents](https://www.example.com#s224F7B9EEB1BD1A21ECD5D19E2663F6A)

**PART I**

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

Alaska Air Group is a Delaware corporation incorporated in 1985 that operates two airlines, Alaska and Horizon\. Alaska was organized in 1932 and incorporated in 1937 in the state of Alaska\. Horizon Air is a Washington corporation that was incorporated and began service in 1981\. It was acquired by Air Group in 1986\. Virgin America has been a member of Air Group since it was acquired in 2016\. In 2018, Virgin America and Alaska combined operating certificates to become a single airline, and legally merged into a single entity\. The Company also includes McGee Air Services, an aviation services provider that was established as a wholly\-owned subsidiary of Alaska in 2016\.

Alaska and Horizon operate as separate airlines, with individual business plans, competitive factors and economic risks\. Together with our regional partner airlines, we fly to 115 destinations with over 1,200 daily departures through an expansive network across the United States, Mexico, Canada, and Costa Rica\. With global airline partners, we provide our guests with a network of more than 900 destinations worldwide\. During 2018, we carried an all\-time high 46 million guests and earned consolidated net income under Generally Accepted Accounting Principles (GAAP) of $437 million compared to net income of $960 million in 2017\. Our adjusted net income was $554 million, which excludes merger\-related costs, special items and mark\-to\-market fuel hedge adjustments\. Refer to "Results of Operations" in Management's Discussion and Analysis for our reconciliation of Non\-GAAP measures to the most directly comparable GAAP measure\.

We organize the business and review financial operating performance by aggregating our business in three operating segments, which are as follows:

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | **Mainline**  \- includes scheduled air transportation on Alaska's Boeing or Airbus jet aircraft for passengers and cargo throughout the U\.S\., and in parts of Canada, Mexico, and Costa Rica\.  |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | **Regional**  \- includes Horizon's and other third\-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U\.S\. under capacity purchase agreements (CPA)\. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations\.  |

|   |                                                                                |
| - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| • | **Horizon**  \- includes the capacity sold to Alaska under CPA\. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs\.  |

Our purpose is "creating an airline people love\." The "ing" is to recognize that we are never done; we are continually working to improve\. We believe our success depends on our ability to provide safe air transportation, develop relationships with guests by providing exceptional customer service and low fares, and maintain a low cost structure to compete effectively\. It is important to us that we achieve our objective as a socially responsible company that values not just performance, but also our people, the communities we serve, and the environment\.

In 2018, we focused much of our energy on the integration of Virgin America, completing over 95% of our integration milestones\. In January 2018, Alaska and Virgin America received a Single Operating Certificate (SOC) from the Federal Aviation Administration (FAA), which recognizes Alaska and Virgin America as one airline\. In April 2018, we transitioned to a single Passenger Service System (PSS), which allows us to provide one reservation system, one website and one inventory of flights to our guests\. This transition to a single PSS enables us to unlock many of the revenue synergies expected from the acquisition, and to provide consistent branding to our guests at all airport gates, ticketing, and check\-in areas\.

The two most important milestones we have yet to complete include combining the maintenance operations of Boeing and Airbus, and reconfiguring our Airbus fleet\. In 2018, we painted 33 Airbus aircraft with the Alaska livery and we are in process of reconfiguring all Airbus aircraft to achieve a cabin experience for our guests that is consistent with our Boeing fleet\. In early 2019, we will also complete the integration of our crew management systems and aim to reach a collective bargaining agreement with our aircraft technicians, the last remaining labor group that has not yet reached a joint collective bargaining agreement\.

With the integration largely behind us, we remain committed to our vision to become the favorite airline for people on the West Coast\. The acquisition of Virgin America positioned us as the fifth largest airline in the U\.S\., with an unparalleled ability to serve West Coast travelers\. To do so, we believe we need to meet our guests' evolving needs by offering a relevant network and schedule, upgrading our onboard offerings, and retaining our unique West Coast vibe\. Some of the more notable product enhancements underway include adding high\-speed satellite connectivity to our entire Boeing and Airbus fleets, updating and expanding our airport lounges, and working with the Port of Seattle to open a state\-of\-the\-art 20\-gate North Satellite Concourse

 4


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

10\.6  [Airbus A321neo Aircraft Purchase Agreement dated as of December 15, 2017 between Airbus S\.A\.S\. and Delta Air Lines, Inc\.](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1010.htm)[ (Filed as Exhibit 10\.10 to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2017)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1010.htm)

10\.7  [Framework Agreement, dated as of September 26, 2019, by and between LATAM Airlines Group S\.A\. and Delta Air Lines, Inc\. (Filed as Exhibit 10\.1 to Delta Quarterly Report on Form 10\-Q for the quarter ended September 30, 2019)\.\*/\*\*](http://www.sec.gov/Archives/edgar/data/27904/000002790419000012/dal9302019ex101.htm)

10\.8  [Delta Air Lines, Inc\. Performance Compensation Plan (Filed as Exhibit 10\.2 to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000026/dal6302016ex102.htm)

10\.9  [Delta Air Lines, Inc\. Officer and Director Severance Plan, as amended and restated as of June 1, 2016 (Filed as Exhibit 10\.3 to Delta's Quarterly Report on Form 10\-Q for the quarter ended June 30, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790416000026/dal6302016ex103.htm)

10\.10  [Description of Certain Benefits of Members of the Board of Directors and Executive Officers (Filed as Exhibit 10\.11 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000004/dal12312016ex1011.htm)

10\.11(a)  [Delta Air Lines, Inc\. 2017 Long\-Term Incentive Program (Filed as Exhibit 10\.15 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2016)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000004/dal12312016ex1015.htm)

10\.11(b)  [First Amendment to the Delta Air Lines, Inc\. 2017 Long\-Term Incentive Program (Filed as Exhibit 10\.3 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000013/dal6302017ex103.htm)

10\.11(c)  [Second Amendment to the Delta Air Lines, Inc\. 2017 Long\-Term Incentive Program (Filed as Exhibit 10\.16(c) to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1016c.htm)

10\.11(d)  [Model Award Agreement for the Delta Air Lines, Inc\. 2017 Long\-Term Incentive Program (Filed as Exhibit 10\.3 to Delta's Quarterly Report on Form 10\-Q for the quarter ended March 31, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790417000008/dal3312017ex103.htm)

10\.12(a)  [Delta Air Lines, Inc\. 2018 Long\-Term Incentive Program (Filed as Exhibit 10\.17 to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2017)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000006/dal12312017ex1017.htm)

10\.12(b)  [Model Award Agreement for the Delta Air Lines, Inc\. 2018 Long\-Term Incentive Program (Filed as Exhibit 10\.1 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2018)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790418000013/dal3312018ex101.htm)

10\.13(a) [Delta Air Lines, Inc\. 2019 Long\-Term Incentive Program (Filed as Exhibit 10\.16 to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2018)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790419000003/dal12312018ex1016.htm)

10\.13(b) [Model Award Agreement for the Delta Air Lines, Inc\. 2019 Long\-Term Incentive Program (Filed as Exhibit 10\.1 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2019)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790419000005/dal3312019ex101.htm)

10\.14  [Delta](http://ir.delta.com/dal12312019ex1014.htm)[ Air Lines, Inc\. ](http://ir.delta.com/dal12312019ex1014.htm)[2020 Long\-Term Incentive Program\.](http://ir.delta.com/dal12312019ex1014.htm)

10\.15  [Delta Air Lines, Inc\. 2019 Management Incentive Plan (Filed as Exhibit 10\.18 to Delta’s Annual Report on Form 10\-K for the year ended December 31, 2018)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790419000003/dal12312018ex1018.htm)

10\.16  [Delta](http://ir.delta.com/dal12312019ex1016.htm)[ Air Lines, Inc\. 2020](http://ir.delta.com/dal12312019ex1016.htm)[ Management Incentive Plan\.](http://ir.delta.com/dal12312019ex1016.htm)

10\.17  [Delta Air Lines, Inc\. Restoration Long Term Disability Plan (Filed as Exhibit 10\.24 to Delta's Annual Report on Form 10\-K for the year ended December 31, 2011)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000144530512000272/dal12312011ex1024.htm)

10\.18  [Terms of 2019 Restricted Stock Award for Non\-Employee Directors (filed as Ex](http://www.sec.gov/Archives/edgar/data/27904/000002790419000008/dal6302019ex101.htm)[h](http://www.sec.gov/Archives/edgar/data/27904/000002790419000008/dal6302019ex101.htm)[i](http://www.sec.gov/Archives/edgar/data/27904/000002790419000008/dal6302019ex101.htm)[bit 10\.1 to Delta’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2019)\.\*](http://www.sec.gov/Archives/edgar/data/27904/000002790419000008/dal6302019ex101.htm)

21\.1  [Subsidiaries of the Registrant\.](http://ir.delta.com/dal12312019ex211.htm)

23\.1  [Consent of Ernst & Young LLP\.](http://ir.delta.com/dal12312019ex231.htm)

101