John P. Heimlich, Vice President & Chief Economist

A4A Media Briefing

March 9, 2016

A4A Spring 2016 Air Travel Forecast and

Operational and Financial Review of 2015

A4A Projects Spring* 2016 Air Travel to Rise 3% to All-Time High of 140M Passengers

Airlines Adding Commensurate Number of Seats to Accommodate Record-High Demand

airlines.org2

118.8

119.6

107.8

110.6

123.5 1

31.4

131.8

135.1

133.7

123.0

124.2

126.8

128.4

128

.2

132.2

136.2

140.0

2000

20

01

2002

2003

20

04

2005

2006

2007

2008

2009

2010

20

11

2012

2013

20

14

2015

2016

Source: A4A and BTS T100 segment data – U.S. carriers only; scheduled and nonscheduled services

U.S. Airline Onboard Passengers (Millions) – All Services, March 1 through April 30

140 million passengers or about 2.3 million/day

• Up ~63K/day from 2015; up ~81K/day from 2007

• Includes 17M+ (285K/day) traveling internationally

• Projected average load factor: 83%-85%

+ 3%

* For this purpose, defined as March 1 through April 30

FO

RE

CA

ST

Key drivers of growth include:

• Rising employment, personal incomes

• Air travel affordability

• Improved airline operations

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

airlines.org

1.6

2.2

1.5

2.4 2.4 2.4

3.0

0

1

2

3

4

2011 2012 2013 2014 2015 1Q16 2Q16

Real GDP Growth Rate (% CAGR)

3

Monthly Employment Growth (000)

174 179 193

251 229

172

242

0

100

200

300

2011 2012 2013 2014 2015 Jan Feb

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

Th

ou

sa

nd

s

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

60

70

80

90

2011 2012 2013 2014 1Q15 2Q15 3Q15

Mil

lio

ns

IHS Forecast

In 2015, Amid Competitive Pressures, U.S. Carrier Air Fares Fell Almost Every Month

Down 5.1% Systemwide on 4.1% Lower Domestic Yield* and 8% Lower International Yield*

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

)

(6.3

)

Ja

n-1

5

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

De

c

Jan-1

6

(4.3

)

0.8

(2.7

)

(10.0

)

(10.8

) (9.3

)

(6.1

)

(9.7

)

(12.0

)

(8.7

)

(9.4

)

(11.5

)

(11.2

)

Jan-1

5

Fe

b

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan-1

6

% Change YOY in International Yield*

2015 vs. 2014: (4.1%) 2015 vs. 2014: (8.0%)

* Fare per mile (cents per RPM)

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 + Anc

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 based on first three quarters

$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 + Anc

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 2015

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

97.82

98.46

2014

2015

Flight Completion Factor (%)

99.64

99.68

2014

2015

Properly Handled Bag Rate (%)

0.92

0.76

2014

2015

Oversales per 10,000 Customers

On-Time Arrival Rate (%)

76.25

79.92

2014

2015

2015 Airline Operating Revenues* Were Flat As Lower Fares Offset Traffic Gains

Passenger Revenue Fell $1.3B (1.0%) on 4.4% Higher Traffic and 5.1% Lower Yield

$158.6

$6.0

$7.4 $0.2

$1.6

$158.6

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.

+4.4%

(5.1%)(7.9%)

+9.6%

+0.04%

2015 Airline Operating Expenses* Fell $14B (9.5%) As Lower Fuel Offset Higher Labor

Airlines Also Saw Increases in Landing Fees, Terminal Rents and Aircraft Costs

$145.2

$18.6

$4.4

$0.1

$0.1 $0.3 $0.1

$131.4

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

(38.3%)

+12.2%+1.8% +0.3%+2.9%

(1.8%)

(9.5%)

In 2015, U.S. Airlines* Posted Respectable Margins, Approaching 15% Before Taxes

U.S. Passenger Airline* Profitability Was Just Under Half That of Apple and Altria

airlines.org

31.8 30.9

26.6 25.8

18.5 17.9 17.1 14.6 14.1 14.1

11.6

8.7

Altria

App

le

CS

X

McD

onald

´s

Sta

rbucks

Com

cast

Chip

otle

Airlin

es*

S&

P 5

00

MIlle

rCoors

Sta

rwood

Marr

iott

9

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

2015 Pre-Tax Profit Margin (% of Operating Revenues)

$23.2

B

$72.7

B

Note: S&P 500 excludes unusual items

Airlines Continue to Strive for Solid Profitability Across the Business Cycle

In Current U.S. Business Cycle, Airline Margins Are Less Than Half the S&P 500 Average

airlines.org

31.3

28.2

17.9

13.8

5.0

0

5

10

15

20

25

30

35

AAPL MCD SBUX SPX* U.S. Airlines

10

Sources: Standard & Poor’s (S&P) and A4A Passenger Airline Cost Index plus company SEC filings

Ap

ple

McD

on

ald

’s

Sta

rbu

cks

S&

P 5

00

* Excludes unusual items

Pre-Tax Profit Margin (%) for 2011-2015

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

Primary Uses of Operating Cash from 2010-2015 Included $65B of Capital Reinvestment

airlines.org11

$17.0B

Enhance

Product

$10.5B

Reward

Shareholders

$8.0B

Retire

Debt

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

2015 2010-2015

$64.9B

Enhance

Product

$17.4B

Reward

Shareholders

$54.3B

Retire

Debt

airlines.org12

Following Enormous Losses of 2001-2009, U.S. Airlines Have Retired $54.3B 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

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

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

airlines.org13

1,2881,148

644470 430

551

816

1,0381,162

1,414

2000 2001 2002 2003-2009 2010 2011 2012 2013 2014 2015

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

» 2015 outlays of $17B were highest in at least 16 years:

Averaged $1.4B per month or ~$22 per passenger

Constituted 60% of operating cash flow

Included receipt of 388 new aircraft

» At YE15, $86B in firm orders to be delivered in 2016 and beyond, including an average of a plane a day in 2016

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)

14

Source: Innovata (via Diio Mi) published schedules as of Mar. 4, 2016, for all airlines providing scheduled passenger service from U.S. airports to all destinations288

292

275 282

292 299

310

330

351

370

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.org15

110.9

150.0

96.3

93.7 112.6

146.9

132.9

133.2 1

53.0

83.3

138.1

102.0118.3

168.6

101.8

112.2

173.6

148.2

133.3

147.3

173.6

96.0

142.2

116.1

Ala

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 Mar. 4, 2016

After a Decade of Sharp Workforce Reductions, U.S. Airline Jobs on the Rise Again

December 2015 Was 25th Consecutive Month of YOY Employment Gains at U.S. Airlines

airlines.org16

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

520.6

378.3 384.6 395.2

2000 2010 2014 2015

Employment at U.S. Passenger Airlines

Thousand Full-Time Equivalents

U.S. Airlines* Are Pumping More Wages and Benefits into the Economy

Airlines* Spending $3.35 Billion per Month on the Workforce – Up ~$800M from 2010

airlines.org17

2.55 2.61

2.73 2.76

2.99

3.35

2010 2011 2012 2013 2014 2015

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

Total Employee Wages and Benefits* per Month

(in $ Billions)

airlines.org18

In 2015 U.S. Airlines Redoubled Their Efforts to Retain and Lure New Equity Investors,

Returning $10.5B to Shareholders Via Stock Buybacks ($9.5B) and Dividends ($981M)

Source: SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America

Stock Repurchases (Billions) Dividends (Millions)

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2010 2011 2012 2013 2014 2015

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

2010 2011 2012 2013 2014 2015

2015 Operational and Financial Recap: U.S. Passenger Airlines

airlines.org19

» 2015 constituted the 6th consecutive year of consummate airline safety performance

» Like all responsible businesses, U.S. airlines serve multiple stakeholders; accordingly,

they are reinvesting cash flows to benefit customers, employees and investors

More reliable operations, lower airfares, more seats in the marketplace, a steady stream of

new and larger aircraft, expansion of inflight Wi-Fi and entertainment options – all translated in

to an improving experience for airline customers, who traveled in record numbers (>790M)

Despite flattish operating revenues, employees and investors, too, are benefiting as falling

operating expenses steadily improve the industry’s financial wherewithal

» Nearly seven years post-recession, U.S. airlines are finally achieving profitability in line

with the overall U.S. corporate (i.e., S&P 500) average and, in turn:

retiring expensive debt, reducing leverage and increasing creditworthiness

acquiring new aircraft and ground equipment and enhancing IT systems

boosting employee staffing as well as wages and benefits

launching new routes and enhancing airport and inflight amenities

offering domestic flyers the highest number of seats since the Great Recession

returning cash to shareholders through stock buybacks and dividends

The Administration Is Pushing to Increase the Government’s Share of Each Ticket

Growing Take of $300* Itinerary Leaves Less Revenue for Carriers to Reinvest

2014-2015

9/11 Fee Hike

21% ($63)*

1971-1972

AATF Begins

7% ($22)*

1992-1993

PFC Begins

13% ($38)*

Taxes Airfare

** Based on proposed increases in President’s FY2017 budget

* Sample itinerary is a $300 domestic round trip with one stop each way and maximum passenger facility charge (PFC) per airport; total ticket price includes taxes

airlines.org20

Proposed**

POTUS FY2017

26.5% ($80)*

AATF = Airport and Airway Trust Fund

2002

9/11 Fee Begins

19% ($58)*

U.S. Airports Have Ample/Multiple Resources from Which to Fund Improvements

airlines.org21

9.2

9.1

8.7 9

.2

10

.4

10

.5 11

.5 12

.0

10

.7

10

.6 11

.6 12

.6

12

.9 13

.5 14

.3

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

AATF* Revenues ($ Billions) – All-Time High AATF* Unobligated Balance ($ Billions) – Nearly $6B

7.3

4.8

3.9

2.4

1.9

1.8

1.5

1.4

0.3 0.7 1

.4

2.8

4.9

5.8

5.8

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Source: A4A, FAA, Standard & Poor’s; PFC collections exclude any compensation received for collecting/handling/remitting

U.S. Airport Revenues ($ Billions) – All-Time High U.S. Airport Credit Ratings (per S&P) – Investment Grade

* Airport and Airway Trust Fund

1.6 1.9 2.1 2.0 2.2 2.5 2.8 2.6 2.5 2.7 2.7 2.8 2.8 2.9 3.0

19

.4

19

.0

18

.6

18

.2

19

.6

21

.0

22

.6

23

.9

20

.9

20

.7

21

.3

21

.4

22

.7

23

.9

21

.0

20

.9

20

.6

20

.2

21

.8

23

.5

25

.5

26

.5

23

.4

23

.4

24

.1

24

.2

25

.5

26

.8

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

PFC (net) Non-PFC

TB

D

16

49

14

0

AA ±

A ±

BBB ±

Lower

www.airlines.org