John P. Heimlich

Vice President & Chief Economist

A4A Media Briefing

August 18, 2015

U.S. Airline Industry First Half 2015 Review

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

airlines.org2

Year Over Year, Airlines Saw Improvements in DOT’s Core Operational Metrics

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

96.9

97.8

1H14

1H15

Flight Completion Factor (%)

99.62

99.65

1H14

1H15

Properly Handled Bag Rate (%)

1.20

0.82

1H14

1H15

Oversales* per 10,000 Customers

On-Time Arrival Rate (%)

74.2

77.7

1H14

1H15

* Involuntary denied boardings

In 2015, Amid Competitive Pressures, Domestic Air Fares Are Falling

Latin and Pacific Markets Seeing Even Larger Declines, in Part Due to Stronger Dollar

airlines.org3

Source: A4A revenue report, containing data from Alaska, American, Delta, JetBlue, Southwest and United and regional affiliates

% Change YOY in Domestic Passenger Yield (Fare per Mile)

* January through June

0.6

(0.8)

0.6

(1.9)

(3.6)

(5.5)Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

YTD* Chg. by Region

Domestic (1.9)

Atlantic (1.7)

Latin (7.6)

Pacific (10.0)

System (3.0)

Lower Fuel More Than Offsets Flat Revenues to Drive 1H 2015 Airline Profitability*

Higher Traffic But Lower Fares; Higher Labor But Lower Fuel Expense

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

airlines.org4

Operating Revenues ($78.2B) 0.4

Operating Expenses ($65.3B) (8.1)

Wages & Benefits (29% of Op. Expenses) 10.2

Fuel (24%) (34.0)

Landing Fees & Terminal Rents (6%) 2.2

Maintenance, Materials & Repairs (6%) (1.1)

Depreciation & Amortization (5%) 6.9

Aircraft Rent (3%) (4.3)

Other Operating Expenses** (27%) 2.2

Interest & Other Non-Operating Expenses 25.3

Pre-Tax Profit: $11.3B (14.5% of Revenues) +7.3 pts.

Net Profit: $8.7B (11.2% of Revenues) +6.2 pts.

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

% Change YOY 1H14 1H15 Change

Enplanements 364.2M 376.6M +3.4

Passenger Traffic1 414.6B 427.6B +3.1

Seating Capacity2 498.1B 516.2B +3.6

Load Factor3 83.2 82.8 (0.4)

Passenger Yield4 16.39¢ 15.87¢ (3.2)

U.S. Inflation5 236.384 236.265 (0.1)

Personal Income6 $40,112 $41,244 +2.8

Fuel Consumption7 7,731M 7,876M +1.9

Fuel Price8 $3.07 $1.99 (35.2)

1. Revenue passenger miles (RPMs) flown

2. Available seat miles (ASMs) operated

3. Utilization of capacity: RPMs divided by ASMs

4. Average airfare paid per mile flown, excluding taxes

5. U.S. Consumer Price Index (CPI): 1982-84 = 100

6. U.S. disposable personal income per capita, in current dollars

7. Gallons consumed

8. Average price paid per gallon

For Now, U.S. Airline Profitability is Finally in Line With the Average U.S. Company

For Every Dollar of Revenue Collected, U.S. Airlines Keeping ~11 Cents as Profit

airlines.org

23.2

20.4

17.4 16.3 16.2

14.8 14.0

11.5 11.2

8.9

6.4 6.2 5.2

4.2 4.0 3.9 3.4

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Sources: Standard & Poor’s and company SEC filings

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

1H 2015 Net Profit Margin

(After-Tax Income as % of Operating Revenues)

Six Years into the Business Cycle, Airlines Finally Achieving Average U.S. Profitability

After-Tax Income as % of Operating Revenues, U.S. Airlines vs. Standard & Poor’s 500

airlines.org

1.6

0.3 0.1

7.5

4.4

11.2

8.8 8.9 8.5

9.6 9.2 8.9

0

2

4

6

8

10

12

2010 2011 2012 2013 2014 1H15

Airlines S&P 500

6

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

U S Passenger Airline

BOS HOU* LAS LAX MSP NYC* OMA PDX PHX SEA SNA WAS* + U.S.A.

ABQ ATL AUS BDL BNA BUR BWI CHS CLE CLT CMH CVG DAY DEN DFW DSM DTW ELP FLL GEG GSO HNL IND JAX LIT MCI

MCO MDW MEM MIA MSY MYR OAK OKC ONT ORD PBI PHL PIT RSW SAN SAT SDF SFO SJC SMF STL TPA TYS

ALB COS CRP FAT FNT GRR GUM MHT MOB PNS PVD PWM TUL VPS

Southwest, Alaska, WestJet

Delta, Allegiant, American, United

Air Canada, Hawaiian, JetBlue

AA ±

A ±

BBB ±

BB ±

B ±

Strong Credit Ratings Allow Airports to Access Capital Markets at Preferred Rates

airlines org7

Source: Standard and Poor’s

Investment Grade1

Speculative Grade2

* HOU = HOU/IAH; NYC = EWR/JFK/LGA; WAS=DCA/IAD

1 Describes issuers with relatively high levels of creditworthiness and credit quality2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk

Like Other Responsible Businesses, Airlines Are Focused on Balanced Allocation of

Capital to Benefit All Stakeholders: Customers, Employees and Investors

airlines.org8

Renewing fleets, improving the product at all stages of travel

Boosting operational reliability, advancing environmental objectives

Restoring/increasing air service levels (capacity)

Adding staff

De-risking (reducing debt)

Returning cash to shareholders

Buying back stock

Issuing dividends

Increasing job security

Restoring/increasing employee wages and benefits

Shoring up pensions (or comparable retirement accounts)

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

Uses of Cash in First Six Months of 2015: 48 Percent Dedicated to Capital Expenditures

airlines.org9

$8.5B

Enhance the

Product $4.7B

Reward

Shareholders

$3.5B

Retire

Debt

$900M

Other

* SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America for 1H 2015; denominator is net cash from operating activities

Improving Finances Enabling Significant Reinvestment in Customer Experience

Airline Capital Spending Exceeding $1.4 Billion per Month

airlines.org10

5.26.6

9.8

12.413.9

8.5

2010 2011 2012 2013 2014 1H15

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

U.S. Airline* Capital Expenditures

($ Billions)

» 2014 outlays exceeded $1.1B per month

Included delivery of 317 aircraft

At 12/31, firm orders for 1,800+ aircraft worth $94B

» 2015 outlays thus far @ $1.4B per month

~$23 per passenger or half of operating cash flow

10 carriers taking delivery of 367 aircraft

Since 2008, More Than $70B in Capital Improvement Projects Have Been Completed,

Are Underway or Have Been Approved by U.S. Airlines and Their Airport Partners at

the Country’s Largest 30 Airports (Selected Examples Below)

airlines.org11

» JFK & LGA (airlines have invested billions of their own money)

» LAX new international terminal and multiple other terminal renovations

» SAN new terminal

» Chicago O’Hare (ORD) modernization

» HNL terminal modernization

» SEA terminal modernization

» HOU (Hobby) terminal expansion

» DAL Love Field modernization

» GSP terminal modernization

» FLL runway extension (Sept. 2014)

» MIA – North & South Terminal projects

» MCO & TPA – automated people mover, terminal, rental car facility

» Panama City (ECP) – brand new airport (May 2010) serving Northwest Florida

» Wichita (ICT) new terminal (June 2015)

2.37

2.25

2.30

2.35

2.40

2.45

2.50

2.55

2007

2008

2009

2010

2011

2012

2013

2014

2015

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

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

airlines.org

Domestic USA (Million Daily Seats)

12

Source: Innovata (via Diio Mi) published schedules as of Aug. 14, 2015, for all airlines providing scheduled passenger service from U.S. airports to all destinations

351

260

270

280

290

300

310

320

330

340

350

360

2007

2008

2009

2010

2011

2012

2013

2014

2015

International (Thousand Daily Seats)

Up

~8

1K

YO

Y

Up

~20

K Y

OYHighest Since

Recession

Highest Ever

1H 2015 International Air Traffic Rose ~5 Percent to All-Time High of 100.7M Pax

United States Seeing Air Travel Gains Among U.S. and Non-U.S. Citizens

airlines.org13

Source: U.S. Department of Commerce National Travel and Tourism Office (July 31, 2015)

Nonstop Air Passengers* (Millions) to/from USA by Region and Citizenship

* Numbers may not add due to rounding

70.4

73.3

13.6

14.2

12.1

13.3

1H14

1H15

Overseas Canada Mexico

96.1M

100.7M

43.0

45.8

53.0

55.0

1H14

1H15

USA Non-USA

96.1M

100.7M

0

5

10

15

20

25

30

35

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Competitive Pressure Is Alive and Well Amid Rising Supply and Improving Finances

On Average, U.S. Airlines Increasing Domestic Capacity by 5.5% YOY in Third Quarter

airlines.org

YOY Growth (%) in Domestic Available Seat Miles: 3Q 2015 vs. 3Q 2014

14

Source: Innovata (via Diio Mi) published schedules as of Aug. 14, 2015; ASMs include regional affiliates

Avg. = 5.5%

June 16 – United Airlines Strengthens New York/New Jersey

Hub with Move of p.s. Transcontinental Service to Newark

June 18 – “JetBlue Adds Additional Mint Coast-

to-Coast Service From JFK”

Profile in Competition: Recent Developments in Transcontinental (NY-CA) Service

June 29 – Expanding coast-to-coast

service, Delta to offer the most seats of any

airline between JFK and LAX, SFO

Schedules Show Healthy Increases in Air Service Continuing in 4Q 2015

Carriers Boosting Domestic and International Flights / Seats / Average Aircraft Size

airlines.org16

DOMESTIC 4Q 2014 4Q 2015 % Change

Flights/Day 21,731 22,164 2.0

Seats/Day 2.27M 2.37M 4.6

Seats/Flight 104.3 107.0 2.6

INTERNATIONAL 4Q 2014 4Q 2015 % Change

Flights/Day 1,936 2,012 4.0

Seats/Day 317K 338K 6.7

Seats/Flight 163.7 168.0 2.6

Source: Innovata (via Diio Mi) published schedules as of Aug. 14, 2015, for all airlines providing scheduled passenger service from U.S. airports to all destinations

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

May 2015 Was 18th Consecutive Month of YOY Employment Gains at U.S. Airlines

airlines.org17

Source: Bureau of Transportation Statistics

520.6

378.3

384.6

391.1

2000

2010

2014

2015

Employment at U.S. Passenger Airlines – Thousand Full-Time Equivalents (FTEs)

Down ~142,300 (-27.3%) from 2000

Up ~6,300 (+1.7%) from 2010

YTD* through May (up ~7,600 from YTD May 2014)

* Year to date average

airlines.org18

After Several Years of Huge Losses in 2001-2009, U.S. Airlines* Are Paying Down

Debt and Returning Cash to Shareholders, Helping Lure New Equity Investors

* SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America; payments on long-term debt and capital lease obligations

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2010 2011 2012 2013 2014 1H15

Th

ou

san

ds

Annual Cumulative

Payments on Debt* (Billions) Returns to Shareholders* (Billions)

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

2010 2011 2012 2013 2014 1H15

Dividends

Stock Repurchases~$9B/year

Recap

airlines.org19

» An expanding U.S. economy, employment growth, rising personal incomes and the

highest U.S. consumer sentiment in a decade driving healthy demand for air travel

» Six years post-recession, deep into the business cycle, U.S. airlines are finally

achieving profitability in line with the Standard & Poor’s 500 average and, in turn:

boosting staffing and wages

acquiring new aircraft and ground equipment

launching new routes and enhancing airport and inflight amenities

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

reducing debt and returning cash to shareholders

working their way toward investment-grade creditworthiness

» The airlines’ use of cash continues to reflect a commitment to allocate capital to

benefit customers, employees and investors

www.airlines.org