John P. HeimlichVice President & Chief EconomistNov. 7, 2012

Financial Review & Thanksgiving Travel Forecast

Price of Jet Fuel Running Higher in 2012 Than in Record 2011

3-Ja

n

2-F

eb

3-M

ar

2-A

pr

2-M

ay

1-Ju

n

1-Ju

l

31-J

ul

30-A

ug

29-S

ep

29-O

ct

28-N

ov

28-D

ec

$75

$85

$95

$105

$115

$125

$135

$145

WTI Brent Jet

Price per Barrel (Five-Day Moving Average)

Source: A4A and EIA (for WTI and Brent crude oil and U.S. Gulf Coast jet fuel)

airlines.org2

1991

-199

5

1996

-200

0

2001

-200

5

2006

-201

0

2011

YTD

201

2

$53.

96

$58.

42 $102

.09

$216

.77 $2

99.8

5

$307

.62

Price per Gallon (Gulf Coast Jet Fuel)

So Far in 2012, U.S. Passenger Airline Industry* Results Inferior to 2011Despite 5.6% More Revenues, 6.2% Higher Costs Reduced Profit Margin to 0.2%

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

airlines.org3

YTD 3Q12 vs. YTD 3Q11 % Better/(Worse)

Operating Revenues 5.6

Operating Expenses (5.3)

Fuel (34%) (6.0)

Wages and Benefits (23%) (5.3)

Landing Fees & Rents (5%) (2.5)

Maintenance/Materials (6%) (9.4)

Depreciation & Amortization (4%) (3.0)

Other (28%) (4.5)

Other Income/(Expenses) (32.3)

Subtotal Expenses (6.2)

YTD 3Q11 YTD 3Q12

0.9

0.2

Net Profit Margin (%)

After Three Quarters, U.S. Airline* Earnings Equal 0.2 Pennies per Dollar of RevenueWeak Profit Margin in Stark Contrast to Other Fortune 500s

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

airlines.org4

U.S. Airlines* YTD 3Q12Net Income ($ Millions) 262Net Margin (Percent) 0.2

Apple Inc. YTD 3Q12Net Income ($ Millions) 28,689Net Margin (Percent) 26.0

U.S. Airlines* ex. AMR YTD 3Q12Net Income ($ Millions) 2,421Net Margin (Percent) 2.7

Ford Motor Co. YTD 3Q12Net Income ($ Millions) 4,067Net Margin (Percent) 4.2

Thus Far in 2012, U.S. Airlines Have Earned 50 Cents per Enplaned PassengerAlbeit Slim Margins Helping Carriers Recover from Massive 2001-2010 Deficit

2001-2010 2011 YTD 3Q12($10)

($8)

($6)

($4)

($2)

$0

$2

($9.22)

$0.77 $0.50

Sources: For 2001-2011, A4A analysis of DOT Form 41 data reported by U.S. airlines for which passenger revenue constitutes at least 25 percent of operating revenues; for 2012, A4A analysis of earnings reports of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways

airlines.org5

Net Income (Billions)

2001-2010 2011 YTD 3Q12($100,000,000)

($80,000,000)

($60,000,000)

($40,000,000)

($20,000,000)

$0

$20,000,000

($62,877,775.9)

$554,078.9 $262,206.0

Net Income per Enplanement

A4A Projects U.S. Airlines to Carry Nearly 24M Thanksgiving* Passengers in 2012Up Slightly from 2011 But Still 10 Percent Below 2006-2007 Peak

2005 2006 2007 2008 2009 2010 2011 2012F0

5,000

10,000

15,000

20,000

25,000

30,000

23,925.026,243.0 26,184.0

22,535.0 23,213.0 23,641.0 23,558.0 23,703.0

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

airlines.org6

Onboard Passengers (Millions) Estimated to Fly on U.S. Airlines over 12-Day Holiday*

* In 2012: Friday, Nov. 16 through Tuesday, Nov. 27

A4A Projects Daily Thanksgiving Passenger Volumes to Range from 1.3M to 2.4MSunday Return, Wednesday Before, Monday Return Expected to Be Top Three

Fri.

, 11/

16

Sat

., 11

/17

Sun

., 11

/18

Mon

., 11

/19

Tue

., 11

/20

Wed

., 11

/21

Thu

., 11

/22

Fri.

, 11/

23

Sat

., 11

/24

Sun

., 11

/25

Mon

., 11

/26

Tue

., 11

/27

2.2

1.82.0 1.9

2.22.3

1.31.6

2.0

2.42.3

1.9

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

airlines.org7

* In 2012: Friday, Nov. 16 through Tuesday, Nov. 27

#1#2 #3#4 #10 #5#7 #8 #12 #11 #6 #9

Projected Passengers (Millions)

Financial Pressures Mean Further Cuts in Scheduled Domestic Air Service in 2013As Rising Costs Outpace Revenues, the USA Continues to See a Smaller Airline Industry

Source: Innovata (via Diio Mi) published schedules as of Nov. 2, 2012; an available seat mile (ASM) is one seat flown one mile

airlines.org8

Sched. Domestic Flights

Sched. Domestic Seats

Sched. Domestic ASMs

(17.2)

(13.1)

(9.9)

(2.4)

(1.3)

(0.1)

1Q13 vs. 1Q121Q13 vs. 1Q07

“We’ve lost a lot of markets that were served only with the 50-seat (aircraft). We’d like more flights. But you’re not going to have any flights if the airlines don’t make money, so we understand their predicament.” (Larry Cox, president and CEO of the Memphis-Shelby County Airport Authority)

─ “Regional airlines face closings, bankruptcy,” USA Today (Aug. 20, 2012)

U.S. Airlines Also Cutting Capacity in Many Markets Outside North America

Carib. & LatAm Europe ME & Africa North Pacific South Pacific

3.8

(8.3) (9.1)

(1.0)

8.8

Source: Innovata (via Diio Mi) published schedules as of Nov. 2, 2012* Scheduled U.S. airline flights departing U.S. airports for other continents; an ASM is one seat flown one mile

airlines.org9

Change (%) in Scheduled ASMs* from USA to non-North America: 1Q 2013 vs. 1Q 2012

Improved Airline Finances Have Translated to 21 Consecutive Months of Job GrowthAfter Years of Losses, U.S. Airlines Have Also Been Able to Reinvest in Equipment

2007 Jun

Nov Apr

Sep Feb

Jul

Dec

May Oct

Mar

Aug

2012 Jun

Nov

(8)

(6)

(4)

(2)

0

2

4

airlines.org10

00-0

1 02 03 04 05

06-0

9 10 11 12F

13F

$16,

920.

0

$9,7

40.0

$6,6

00.0

$5,8

40.0

$4,8

20.0

$5,7

70.0

$4,2

40.0

$3,4

00.0

$5,7

00.0 $9

,240

.0

Aircraft Capital Spending on the RiseAverage Annual Estimated Aircraft/Engine CapEx (Billions)

Airline Jobs Added in 21 Months in a RowYOY Change (%) in Full-Time Equivalent Employees

Source: BTS for U.S. scheduled passenger airlines Source: Bank of America Merrill Lynch airline equity research (Jan. 5, 2012)

www.airlines.org