John P. Heimlich

Vice President & Chief Economist

A4A Media Briefing

November 2, 2016

U.S. Airline Industry Thanksgiving Period Air Travel

Forecast and YTD (January-September) 2016 Review

A4A Projects U.S. Airlines to Carry 27.3M Thanksgiving-Period Passengers in 2016

Up ~55,000 Passengers per Day, or 2.5 Percent, from Estimated 2015 Volumes

airlines.org 2

25

.5

25

.9

23

.2

23

.2

24

.3

24

.4

24

.8

24.6

25

.2 26

.6

27

.3

200

6E

200

7E

200

8E

200

9E

201

0E

201

1E

201

2E

201

3E

201

4E

201

5E

201

6F

Source: TSA and BTS T100 segment data; volumes from past years are estimates

U.S. Airline Onboard Passengers (Millions) – Scheduled Service, 12-Day Thanksgiving Period

In 2016, Thanksgiving air travel period

encompasses Fri., Nov. 18-Tues., Nov. 29

U.S. airlines will carry 2.27M passengers per

day, up approximately 55K (2.5%) from 2015

U.S. airlines will offer 2.58M seats per day, up

approximately 74K (2.9%) from 2015

Daily volumes to range from 1.51M to 2.81M

• Sunday return was 10th busiest day of 2015

• T-giving Day was 2nd lightest day of 2015

10 busiest U.S. airports by seats: ATL, LAX,

ORD, DFW, JFK, DEN, SFO, LAS, CLT, PHX

Note: E=estimate; F=forecast

A4A Projects Daily Thanksgiving Passenger Volumes to Range from 1.51M to 2.81M

Expected Busiest Days: Sunday Return, Monday Return and Wednesday Preceding

2.54

2.03 2.22

2.11

2.44 2.55

1.51

1.82

2.44

2.81 2.64

2.19

Fri., 1

1/1

8

Sa

t., 1

1/1

9

Su

n., 1

1/2

0

Mo

n., 1

1/2

1

Tu

e., 1

1/2

2

We

d., 1

1/2

3

Th

u., 1

1/2

4

Fri., 1

1/2

5

Sa

t., 1

1/2

6

Su

n., 1

1/2

7

Mo

n., 1

1/2

8

Tu

e., 1

1/2

9

Source: A4A, selected sample carriers and DOT T100 segment data

airlines.org 3

#6 #5 #2

* Friday, Nov. 18 through Tuesday, Nov. 29

#9 #10 #7 #4 #12 #3 #11 #8 #1

U.S. Airline Projected Onboard Passengers (Millions) – Scheduled Systemwide Service

U.S. Economy Showing Signs of Life; Job Growth Volatile

airlines.org

1.7

2.4 2.6

0.8

1.4

2.9

0

1

2

3

4

2013 2014 2015 1Q16 2Q16 3Q16

Real GDP Growth Rate (% CAGR)

4

Monthly Employment Growth (000)

168

233

186

144

24

271 252

167 156

0

100

200

300

J F M A M J J A S O N D

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

36.4

37.4

38.4 38.8 39.0 39.1

36

37

38

39

40

2013 2014 2015 1Q16 2Q16 3Q16

Th

ou

san

ds

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

78.9

83.9 87.2 88.0 89.1

60

70

80

90

2013 2014 2015 1Q16 2Q16

Mil

lio

ns

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

airlines.org 5

U.S. Airlines Seeing Continued Improvements in DOT Operational Metrics in 2016

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

97.35

98.15

98.65

2014

2015

2016

Flight Completion Factor (%) – Jan-Aug

99.64

99.68

99.72

2014

2015

2016

Properly Handled Bag Rate (%)

0.92

0.76

0.62

2014

2015

2016

Oversales per 10,000 Customers

On-Time Arrival Rate (%) – Jan-Aug

74.82

78.07

80.52

2014

2015

2016

Jan-Aug Jan-Aug

First Nine Months of 2016: Revenues Down 1.8% on 5.6% Lower Fares (3.2% More

Traffic); Expenses Down 0.8% on 22% Lower Fuel; Labor, Other Expenses Rising

airlines.org 6

% Change YOY in Operating Revenues

3.2

(5.6)

(13.0)

5.8

(1.8)

Yield = fare per mile (cents per RPM) Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United

% Change YOY in Operating Expenses

8.5

(22.0)

0.7 1.4

6.2 4.8

(0.8)

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

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

airlines.org 7

Faster-Falling Revenues Drove Modest Reduction in U.S. Airline Profitability

Pre-Tax Profit Margin of 15.5 Percent Remains in Line with Average for U.S. Companies

$119.6

$117.4

2015

2016

Operating Revenues (Billions) – Jan-Sep

$18.7

$18.3

2015

2016

Pre-Tax Income (Billions) – Jan-Sep

15.6

15.5

2015

2016

Pre-Tax Profit Margin (%) – Jan-Sep

Operating Expenses (Billions) – Jan-Sep

$98.3

$97.5

2015

2016

Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United

In YTD 3Q, U.S. Airlines* Posted Respectable Margins, Averaging 15.5% Before Taxes

U.S. Passenger Airline* Profitability Was Substantially Below Starbucks/McDonald’s/Apple

airlines.org

31.5

28.2 27.6 26.3

24.8

19.1 18.4

15.5

7.0

0.3

Altria

Dis

ne

y

McD

on

ald

´s

Ap

ple

CS

X

Sta

rbucks

Com

ca

st

Air

lines*

Fo

rd

Chip

otle

8

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

YTD 3Q16 Pre-Tax Profit Margin (% of Operating Revenues)

$1

8.3

B

$3

6.8

B

airlines.org 9

Following Enormous Losses of 2001-2009, U.S. Airlines Have Retired $59.9B 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 YTD16

Th

ou

san

ds

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

Average = $9B per year 45.3

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

YTD 3Q 2016 Capital Outlays Averaged $1.44B per Month, Exceeding 2015 Rate

airlines.org 10

1.29

1.15

0.64

0.47 0.43

0.55

0.82

1.04

1.16

1.41 1.44

2000 2001 2002 2003-09 2010 2011 2012 2013 2014 2015 YTD16

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

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

Improving Finances Enabling Significant Reinvestment in Customer Experience

airlines.org 11

» New or refurbished aircraft, larger overhead bins for luggage

» Availability of lie-flat seating with AC power and USB, proliferation of Wi-Fi and inflight entertainment

» Expanded route networks (scope and frequency) and schedules (seat growth)

» Improved airport check-in areas, lounges, gate amenities, baggage systems, ground equipment

» Continued development and roll-out of mobile technology and website/kiosk functionality

» Increasing operational reliability (controlled for weather conditions)

» Enhanced tools (computers, tablets, software) and training for customer-contact employees

2,5

46

2,4

51

2,2

92

2,2

85

2,2

94

2,2

59

2,2

74

2,2

89

2,3

66

2,4

54

2,5

02

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

1H

17

As Airlines See Higher Returns on Capital, Customers Are Seeing More Seats

Domestic Supply Approaching Pre-Recession Levels; International Supply at All-Time High

airlines.org

Domestic USA (Thousand Daily Seats)

12

Source: Innovata (via Diio Mi) published schedules as of Oct. 28, 2016, for all airlines providing scheduled passenger service from U.S. airports to all destinations

28

8

29

2

27

5

28

2 29

2

29

9 3

10

33

0

35

1

36

8

38

8

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

1H

17

International (Thousand Daily Seats)

U.S. Airline Jobs Are Exceeding 400,000 for First Time Since 2008

August 2016 Was 34th Consecutive Month of YOY Gains

airlines.org 13

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

520.6

407.6 385.9 378.3

395.5 408.8

2000 2008 2009 2010 2015 2016

Employment at U.S. Passenger Airlines (Thousand FTEs)

YTD Aug

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

Airlines* Spending $3.6 Billion per Month on the Workforce – Up 42 Percent from 2010

airlines.org 14

2.55 2.61

2.73 2.76

2.99

3.35

3.62

2010 2011 2012 2013 2014 2015 YTD16

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

Total Employee Wages and Benefits*

($ Billions per Month)

airlines.org 15

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

Returning $11.4B to Shareholders Via Stock Buybacks ($10.5B) and Dividends ($912M)

Stock Repurchases (Billions) Dividends (Millions)

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2010 2011 2012 2013 2014 2015YTD16

$0

$2

$4

$6

$8

$10

$12

2010 2011 2012 2013 2014 2015 YTD16

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

Flyer Satisfaction Rises Markedly With Enrollment in Expedited Screening Programs

Accordingly, Airlines and USG Have Collaborated to Double Enrollment Over Past Year

airlines.org

36%

49%

67%

All Pax

TSA Pre✓®

Global Entry

% of 2015 Flyers Indicating “Very Satisfied” With Overall Air Travel Experience

Sources: http://ipsos-na.com/news-polls/pressrelease.aspx?id=7208, Transportation Security Administration, Customs and Border Protection

16

0.8

1.2

3.8

1.7

2.4

3.4

2014

2015

2016

TSA Pre✓ Global Entry

Enrollment (Millions of Persons) in Expedited Air Traveler Screening Programs

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

airlines.org 17

» YTD 3Q16 saw continuation of consummate airline safety performance, as well as

significant year-over-year improvements in operational reliability

» Declining fares exceeded traffic gains to drive operating revenues lower, but reduced

fuel costs more than offset increases in labor, airport, aircraft and other expenses to

drive modestly improved profitability, with airlines realizing a pre-tax margin of 15.5%

Airline profitability continued to lag that of Starbucks, McDonald’s and Apple

» 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

» Sharp airfare declines and U.S. job growth are fueling record passenger volumes,

including 2.5 percent projected growth for the 12-day Thanksgiving air travel period

» Market research affirms that participation in expedited screening programs markedly

improves the air travel experience

How’s the Weather Affecting U.S. Airport Operations?

http://airlines.org/data/current-operation-status-for-us-airports/

www.airlines.org

Aviation Has a Strong Fuel Efficiency/GHG Record But We Are Committed to Further Action

20

» Aviation Is a Relatively Small Contributor . . .

• Domestic U.S. commercial aviation = 2% GHGs (source: EPA)

• Worldwide aviation = 2% man-made CO2 (source: IPCC)

» We Have a Strong Record . . .e.g., U.S. Airlines:

• Improved fuel efficiency ~120% between 1978 and 2015; 31%

between 2000 and 2015

• 6% less CO2 in 2015 v. 2000, but 24% more passengers & cargo

» And We Are Committed to Further Action as Part of a

Global Aviation Industry Coalition

Global Aviation Climate Action Supported by International Governmental Agreement

21

1. Aviation-Specific Emissions Targets

2. Key Focus on Technology (Including Sustainable

Fuels), Operations & Infrastructure Measures

3. Historic 2016 Agreement of International Framework

at the International Civil Aviation Organization

(ICAO) – 191 ICAO Member States

• February 2016: ICAO CO2 certification standard for future aircraft

• October 2016: ICAO global market-based measure (GMBM) to serve

as a “gap-filler”

The Industry’s Goals Are Aggressive And Address the Key Concern: Potential Growth in Emissions

22

Aviation & Climate Change: Technology, Operations, Infrastructure,

Sustainable Alternative Fuels & ICAO GMBM to Fill the “Gap”

ICAO Aircraft CO2 Certification

Standard Plays a Role Here

ICAO Global Carbon Offset System Plays a Role Here

New ICAO Aircraft CO2 Certification Standard

ICAO Work: 2010-2016

» Approved in Feb. 2016 by ICAO’s Committee on Aviation

Environmental Protection (CAEP)

» Applicability (applies to manufacturers)

• New Type aircraft & newly manufactured (i.e., “In-Production”) aircraft

• New Types beginning in 2020

• In-Production aircraft beginning in 2023; but all in-production

types must comply by 2028 (production cutoff)

» ICAO Council Is Codifying the Standard Now

24

U.S. Adoption of the ICAO CO2 Standard EPA/FAA

» Section 231 of the Clean Air Act

• EPA/FAA may adopt aircraft engine emissions standards for

“pollutants” that cause or contribute to “endangerment” (e.g.,

climate change) – EPA recently made this finding for aircraft

GHG emissions

• EPA & FAA were deeply involved in developing the ICAO

standard & the White House and FAA Administrator endorsed

it, so it is expected that the U.S. will adopt the ICAO standard

• Expect Proposed Rule in early 2017

25

ICAO “Carbon Offsetting & Reduction Scheme for

International Aviation” (CORSIA)

» Global Carbon Offsetting Scheme, 2021-2035

» Application to Aircraft Operators, International

» Supports Achieving CNG2020 Goal

» Emissions Monitoring, Reporting & Verification

and Carbon Offset Quality Requirements

» First Six Years of Coverage: Country Opt-In

Basis (66 Countries Have Signed Up so Far)

» Mutual Exemption on Exempt Routes

» Preempts Proliferation of Unilateral Measures

26