John P. Heimlich, Vice President & Chief Economist

A4A Media Briefing

May 18, 2016

A4A Summer 2016 Air Travel Forecast and

Operational and Financial Review of 1Q16

A4A Projects U.S. Airlines to Carry Record 231M Passengers in Summer* 2016: +4%

Growth in Available Seats Will Exceed Growth in Passenger Volume

airlines.org2

170.8

171.2

156.4

166.4

178.8

185.7

182.9

19

2.4

184.5

176

.2

177.3

179.8

179.9

179.1

184.0

19

2.5

20

0.6

19.3 19.317.7

17.920.6 22.4 23.8

25.1 25.7 24.1 25.8 26.3 26.7 28.0 28.8 29.7 30.5

2000 2002 2004 2006 2008 2010 2012 2014 2016F

Domestic International

Source: A4A, Innovata (via Diio Mi) and BTS T100 segment data, scheduled service on U.S. carriers only

U.S. Airline Onboard Summer* Passengers (Millions)

Average of 2.51M passengers/day (up 95.5K or 4%)

• 2.18M/day traveling domestically (up 87.4K or 4.2%)

• 331K/day traveling internationally (up 8.2K or 2.5%)

Airlines offering 2.78M seats/day (up 109.4K or 4%)

In 2015, summer* contained 19 of 25

busiest travel days for U.S. airports

• Top 5 were July 31 (Fri), July 2 (Thurs), June

26 (Fri), May 22 (Fri) and July 24 (Fri)

* For this purpose, defined as June 1 through August 31

Key U.S. Air-Travel Demand Drivers Still Showing Overall Growth

airlines.org

1.6

2.2

1.5

2.4 2.4

0.5

1.7 2.2

3.1

0

1

2

3

4

2011 2012 2013 2014 2015 1Q 2Q 3Q 4Q

Real GDP Growth Rate (% CAGR)

3

Monthly Employment Growth (000)

174 179 193

251 229

168

233208

160

0

100

200

300

2011 2012 2013 2014 2015 Jan Feb Mar Apr

Sources: BEA, BLS, Federal Reserve and IHS Economics; U.S. GDP real annual average growth rate (%), U.S. nonfarm payroll employment growth (month-over-month, in

000s, seasonally adjusted), U.S. disposable personal income per capita (chained 2009 dollars, SAAR); U.S. household net worth in current dollars, not seasonally adjusted

36

37

38

39

2011 2012 2013 2014 2015 1Q16

Th

ou

sa

nd

s

Real ($2009) Personal Incomes ($000) Household Net Worth ($ Trillion, NSA)

60

70

80

90

2011 2012 2013 2014 2015

Mil

lio

ns

IHS Forecast

Amid Competitive Pressures, U.S. Carrier Air Fares* Continue to Fall in 2016

Systemwide, Fares* Down 5.2% in 2015 and 5.4% Thus Far in 2016

airlines.org4

Source: A4A analysis of data from Alaska, American, Hawaiian, JetBlue, Southwest, United, Virgin America and regional affiliates

% Change YOY in Domestic Yield*

1.0

(1.1

)

0.3

(2.5

)

(3.7

)

(5.6

)

(3.8

)

(7.1

)

(5.4

)

(6.3

) (4.1

)

(8.9

) (6.4

)

(4.4

)

(4.0

) (1.5

)

Jan-1

5

Feb

Ma

r

Apr

May

Jun

Jul

Aug

Sep

Oct

No

v

Dec

Jan-1

6

Feb

Mar

Apr

(4.3

)

(2.4

)

(4.3

)

(6.0

)

(9.1

)

(10.4

)

(8.6

)

(11.3

)

(11.7

)

(10.4

)

(12.1

) (9.9

)

(11.8

)

(10.4

)

(11.2

) (8.0

)

Jan-1

5

Feb

Mar

Apr

Ma

y

Ju

n

Jul

Aug

Sep

Oct

Nov

Dec

Ja

n-1

6

Feb

Mar

Apr

% Change YOY in International Yield*

2015 vs. 2014: (4.1%); YTD16 vs. YTD15: (4.0%)

* Fare per mile (cents per RPM)

2015 vs. 2014: (8.6%); YTD16 vs. YTD15: (10.4%)

With Personal Incomes Outpacing the Price of Air Travel, Americans Can Purchase

~2.5 Times the Amount of Air Travel They Could at the Outset of Deregulation

Adjusted for Inflation, Domestic Air Travel Remains 40+ Percent Below 1980 Levels

airlines.org

0.0

0.5

1.0

1.5

2.0

2.5

3.0

19

79

19

83

19

87

19

91

19

95

19

99

20

03

20

07

20

11

20

15

20

19

Fare Fare + Ancillary

Domestic R/T Airfare as Share (%) of

Per-Capita Disposable Personal Income

5

Source: A4A analysis of data from BEA, BLS and BTS Data Bank 1B (10% sample of tickets for all cabins and fare basis codes); 2015 awaiting final ancillary fee data

$300

$350

$400

$450

$500

$550

$600

$650

19

79

19

83

19

87

19

91

19

95

19

99

20

03

20

07

20

11

20

15

20

19

Fare Fare + Ancillary

Domestic R/T Airfare Adjusted for

Inflation (in CY2015 Dollars)

Sources: BTS and DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)

airlines.org6

U.S. Airlines Saw Improvements in DOT Core-Four Operational Metrics in 1Q 2016

Gains Driven by More Benign Weather and Investments in Systems, Procedures, Staffing

96.9

99.0

2015

2016

Flight Completion Factor (%)

99.64

99.72

2015

2016

Properly Handled Bag Rate (%)

0.82

0.60

2015

2016

Oversales per 10,000 Customers

On-Time Arrival Rate (%)

76.3

82.1

2015

2016

1Q16 Airline Operating Revenues* Were Flat As Lower Fares Offset Traffic Gains

Passenger Revenue Fell 0.9% on 6.2% Higher Traffic and 6.7% Lower Fares (Yield)

$36.39

$1.95

$2.23 $0.14

$0.49

$36.47

Operating Revenues* ($ Billions)

airlines.org7

* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America

Revenue Gain

Revenue Loss

** Sale of frequent flyer award miles to airline business partners, pet transportation, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc.

+6.2% (6.7%) (18.9%) +11.5% +0.2%

1Q16 Airline Operating Expenses* Fell 1.5% As Lower Fuel Offset Higher Labor

Airlines Also Saw Increases in All Other Cost Categories (Maintenance/Airport/Aircraft)

$31.48

$2.19

$1.17 $0.02 $0.05 $0.18 $0.31

$31.02

Operating Expenses* ($ Billions)

airlines.org8

* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America

** Professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, nonfuel payments to regionals

Cost Reduction

Cost Increase

(28.9%) +12.6% +2.8% +3.6%+7.4%+0.9% (1.5%)

In 1Q16, U.S. Airlines* Posted Respectable Margins, Averaging 13% Before Taxes

Airline* Profitability Was Just Under Half That of McDonald’s, Apple, Altria and Monsanto

airlines.org

31.0 31.0

28.0 26.7

21.7 21.0 19.1

17.2

13.2

10.1 8.6

Monsanto

Altria

Apple

McD

onald

´s

Co

mca

st

Verizon

CS

X

Sta

rbucks

Airlin

es*

Ford

Marr

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9

* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America

1Q 2016 Pre-Tax Profit Margin (% of Operating Revenues)

$4.8

B

$14.1

B

U.S. Airlines Are Putting More Than Half of Cash Flow* Right Back Into the Product

Primary Uses of Operating Cash from 2010-1Q16 Included $69B of Capital Reinvestment

airlines.org10

* SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America; denominator is net cash provided by operating activities

$4.4B

Enhance

Product

$4.7B

Reward

Shareholders

$1.3B

Retire

Debt

1Q 20162010-2015

$64.9B

Enhance

Product

$17.4B

Reward

Shareholders

$54.3B

Retire

Debt

airlines.org11

Following Enormous Losses of 2001-2009, U.S. Airlines Have Retired $56B in Debt

Adjusted Net Debt Now Just 32% of Operating Revenues, Down from 45% in 2010

Source: SEC filings of AAL/ALGT/AAL/DAL/HA/JBLU/LUV/SAVE/UAL/VA

$0

$2

$4

$6

$8

$10

$12

2010 2011 2012 2013 2014 2015 1Q16

Th

ou

sa

nd

s

Payments on Debt* (Billions) Debt** as % of Operating Revenues

Average = $9B per year45.3

31.6

25

30

35

40

45

50

2010 2011 2012 2013 2014 2015

** Includes 7x annual aircraft rents (capitalized operating leases)

* Payments on long-term debt and capital lease obligations

Improving Finances Enabling Significant Reinvestment in Customer Experience

1Q 2016 Capital Outlays Approached $1.5B per Month, Keeping Pace With 2015 Rate

airlines.org12

1.29

1.15

0.64

0.47 0.43

0.55

0.82

1.04

1.16

1.41 1.46

2000 2001 2002 2003-09 2010 2011 2012 2013 2014 2015 1Q16

* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America

U.S. Airline* Capital Expenditures ($ Billions per Month)

2.5

5

2.4

5

2.2

9

2.2

8

2.2

9

2.2

6

2.2

7

2.2

9

2.3

7

2.4

6

2.20

2.25

2.30

2.35

2.40

2.45

2.50

2.55

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

As Airlines Generate Normal Returns on Capital, Customers Are Seeing More Seats

Domestic Supply at Highest Point in Eight Years; International Supply at All-Time High

airlines.org

Domestic USA (Million Daily Seats)

13

Source: Innovata (via Diio Mi) published schedules as of May 13, 2016, for all airlines providing scheduled passenger service from U.S. airports to all destinations288

292

275 282

292 299

310

330

351

369

260

280

300

320

340

360

380

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

International (Thousand Daily Seats)

Exceeding 2008 Highest Ever

In Addition to Expanding Schedules, Airlines Are Deploying Larger Aircraft

Replacement of 50-Seaters With Larger Regional Jets Is Biggest Driver of 14% Jump

airlines.org14

110.9

150.0

96.3

93.7 112.6

146.9

132.9

133.2 1

53.0

83.3

138.1

102.0119.7

168.5

102.0

112.1

174.0

147.6

133.4

147.3

173.5

96.6

142.2

116.5

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ska

Alle

gia

nt

Am

erica

n

De

lta

Fro

ntie

r

Ha

waiia

n

Je

tBlu

e

Sou

thw

est

Spir

it

Un

ited

Virg

in

Ave

rag

e

2010 2016

Average Domestic Aircraft Size (Seats per Scheduled Departure)

Source: Innovata (via Diio Mi) as of April 29, 2016

U.S. Airline Jobs on the Rise Again, Reaching Highest Level Since 2008

February 2016 Was 27th Consecutive Month of YOY Employment Gains at U.S. Airlines

airlines.org15

Source: Bureau of Transportation Statistics for scheduled U.S. passenger airlines

520.6

407.6 385.9 378.3 395.3 403.1

2000 2008 2009 2010 2015 2016

Employment at U.S. Passenger Airlines

Thousand Full-Time Equivalents

YTD Feb

U.S. Airlines* Continue to Pump More Wages and Benefits into the Economy

Airlines* Spending $3.5 Billion per Month on the Workforce – Up $942M from 2010

airlines.org16

2.55 2.61

2.73 2.76

2.99

3.35

3.49

2010 2011 2012 2013 2014 2015 1Q16

* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America

Total Employee Wages and Benefits*

($ Billions per Month)

airlines.org17

In 1Q 2016, U.S. Airlines Continued Efforts to Retain and Lure New Equity Investors,

Returning $4.7B to Shareholders Via Stock Buybacks ($4.4B) and Dividends ($331M)

Stock Repurchases (Billions) Dividends (Millions)

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2010 2011 2012 2013 2014 2015 1Q16

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

2010 2011 2012 2013 2014 2015 1Q16

* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America

Survey Conducted by Ipsos Revealed That Flyer Satisfaction Rises With Travel

Frequency/Experience; Road Warriors Most Satisfied, Followed by Family Travelers

airlines.org18

77

29

79

32

85

44

90

60

Total Satisfied* Very Satisfied

1 2-5 6-10 11+

Satisfaction % Among 2015 Flyers by

Number of Airline Trips

Source: http://ipsos-na.com/news-polls/pressrelease.aspx?id=7208

88

45

78

34

89

60

89

56

Total Satisfied* Very Satisfied

Millennial Retiree Road Warrior Family Traveler

Satisfaction % Among 2015 Flyers by

Type of Flyer

* Somewhat or very satisfied

2016 Airline Customer Satisfaction Tied All-Time High

airlines.org19

72

75

80

50

55

60

65

70

75

80

85

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

ACSI ex-ULCCs ACSI All Ipsos

Up 10 points from 2008-2016

Note: ACSI and its logo are Registered Marks of the University of Michigan; see http://www.theacsi.org/the-american-customer-satisfaction-index

Note: Scale = 0 to 100; ACSI for airlines commenced in 1994

“‘New planes, more options for in-flight entertainment, and the return of free snacks

have resulted in higher passenger satisfaction.’ Ticket prices have fallen, and ACSI

data show passengers are perceiving a better value for their money.”

15 16

JetBlue 81 80

Southwest 78 80

Alaska 75 77

American 66 72

Delta 71 71

United 60 68

Frontier 58 66

Allegiant 65 65

Spirit 54 62

-- “ACSI: Better In-Flight Experience Increases Passenger Satisfaction” (April 26, 2016)

First Quarter 2016 Operational and Financial Recap: U.S. Passenger Airlines

airlines.org20

» 1Q 2016 saw continuation of consummate airline safety performance, as well as

significant year-over-year improvements in operational reliability

» Declining fares offset traffic gains to keep operating revenues flat, but lower fuel costs

more than offset increases in labor, airport, aircraft and other expenses to drive an

improvement in profitability, with airlines realizing a pre-tax margin of 13.2 percent

The combined profitability of these 10 airlines exceeded that of Marriott and Ford, but trailed

Starbucks, Verizon, McDonald’s, Apple, Monsanto and other large U.S. brands

» Among other uses beneficial to stakeholders, cash flow generated during this period

allowed U.S. airlines to retire expensive debt; acquire new, larger aircraft; deploy more

seats in the marketplace; boost staffing and wages; and reward investors

» Rising air traveler satisfaction – combined with a still-growing economy, improving

operations and the lowest fares in at least six years, are fueling record passenger

volumes, including 4 percent projected growth for summer 2016

» Market research affirms that participation in expedited screening programs markedly

improves the air travel experience, which will be critical as we enter the summer period

A Comprehensive Survey Conducted by Ipsos Affirms That Satisfaction Rises

Markedly With Traveler Experience and With Enrollment in Expedited Screening

airlines.org21

80

32

82

49

95

67

Total Satisfied* Very Satisfied

None TSA Pre✓® Global Entry

% of 2015 Flyers Enrolled in Expedited

Screening Program(s)

Satisfaction % Among 2015 Flyers by

Enrollment in Expedited Screening Program

Source: http://ipsos-na.com/news-polls/pressrelease.aspx?id=7208

19 13

TSA Pre✓® Global Entry

www.airlines.org