John P. Heimlich Vice President & Chief Economist A4A Media Briefing November 5, 2015

U.S. Airline Industry Thanksgiving Period Air Travel Forecast and YTD (January-September) 2015 Review

A4A Projects U.S. Airlines to Carry 25.3M Thanksgiving-Period Passengers in 2015 Up ~65,000 Passengers per Day, or 3 Percent, from Estimated 2014 Volumes

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23.6

23.9

26.2

26.2

22.5

23.2

23.6

23.5

24.7

24.2

24.5

25.3

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

F

Source: A4A and BTS T100 segment data; volumes from historical years are estimates

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

12-Day Period = Fri., 11/20 through Tues., 12/1

25.3M passengers (2.1M per day) • Up 3% (~65K per day) from 2014 • Remains ~3.6% below 2006-2007 peak • Typically 10% of passengers fly internationally

Daily volumes to range from 1.4M to 2.7M • Sunday return was busiest day of all of 2014 • Thanksgiving was second lightest day of 2014

Ten busiest U.S. airports: ATL, LAX, ORD, DFW, JFK, DEN, SFO, CLT, IAH, MIA

Schedules show that airlines have added seats commensurate with expected demand growth

Forecast Highlights

A4A Projects Daily Thanksgiving Passenger Volumes to Range from 1.4M to 2.7M Expected Busiest Days: Sunday Return, Monday Return and Wednesday Preceding

2.35

1.88 2.04 1.93

2.29 2.35

1.40 1.67

2.24

2.68 2.46

2.01

Fri.,

11/

20

Sat

., 11

/21

Sun

., 11

/22

Mon

., 11

/23

Tue.

, 11/

24

Wed

., 11

/25

Thu.

, 11/

26

Fri.,

11/

27

Sat

., 11

/28

Sun

., 11

/29

Mon

., 11

/30

Tue.

, 12/

01

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

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#1 #3 #2

Projected Onboard Passengers (Millions)

* Friday, Nov. 20 through Tuesday, Dec. 1

#12 #11 #5 #7 #4 #10 #8 #9 #6

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

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U.S. Airlines Seeing Improvements in DOT Core Operational Metrics in YTD* 2015 Gains Driven by More Benign Weather and Investments in Systems, Procedures, Staffing

97.35

98.15

2014

2015

Flight Completion Factor (%)

99.62

99.66

2014

2015

Properly Handled Bag Rate (%)

1.20

0.82

1H14

1H15

Oversales** per 10,000 Customers

On-Time Arrival Rate (%)

74.82

78.07

2014

2015

* January through August ** 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

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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 September

0.6

(0.8)

0.6

(1.9)

(3.6)

(5.5)

(3.5)

(6.8)

(5.6)

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

YTD* Chg. by Region Domestic (3.1) Atlantic (4.2) Latin (8.6) Pacific (11.2) System (4.3)

Lower Fuel More Than Offsets Flat Revenues to Drive YTD 3Q15 Airline Profitability* Higher Traffic Matched by Higher Capacity; Lower Fares; Higher Labor Cost, Lower Fuel

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

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Operating Revenues ($120.7B) 0.3

Operating Expenses ($99.3B) (8.8)

Wages & Benefits (29% of Op. Expenses) 11.2

Fuel (24%) (35.8)

Landing Fees & Terminal Rents (6%) 2.1

Maintenance, Materials & Repairs (6%) (0.5)

Depreciation & Amortization (5%) 7.0

Aircraft Rent (2%) (4.5)

Other Operating Expenses** (28%) 0.9

Interest & Other Non-Operating Expenses 17.0

Pre-Tax Profit: $18.8B (15.6% of Revenues) +7.9 pts.

Net Profit: $17.9B (14.8% of Revenues) +9.1 pts.

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

% Change YOY YTD14 YTD15 Chg. Passenger Traffic1 644.2B 669.3B +3.9

Seating Capacity2 767.6B 797.9B +3.9

Load Factor3 83.9 83.9 0.0

Passenger Yield4 16.37¢ 15.65¢ (4.4)

Fuel Consumption5 11,907M 12,169M +2.2

Fuel Price6 $3.07 $1.93 (37.1)

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. Gallons consumed 6. Average price paid per gallon

U.S. Inflation7 236.938 236.945 0.0

Personal Income8 $40,287 $41,427 +2.8

7. U.S. Consumer Price Index (CPI): 1982-84 = 100 8. U.S. disposable personal income per capita, in current dollars

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 ~15 Cents as Pre-Tax Profit

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31.0

26.5 25.4 23.5

20.4 20.2 19.0 15.6

9.8 9.2 9.0 8.4 6.4 5.5

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

YTD 3Q 2015 Pre-Tax Profit Margin (Pre-Tax Income as % of Operating Revenues)

Improving Finances Enabling Significant Reinvestment in Customer Experience U.S. Airline* Capital Expenditures ($ Millions per Month)

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1,288 1,148

644 540 430 551

816 1,036

1,162 1,340

2000 2001 2002 2003-2009 2010 2011 2012 2013 2014 YTD15

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

» YTD 3Q 2015 outlays highest in at least 15 years: Averaged $1.3B per month or ~$20 per passenger Constituted half of operating cash flow

» Outlays in part reflect 367 aircraft deliveries in 2015

» At 12/31/2014, firm orders for 1,800+ aircraft worth $94B

2.55

2.45

2.29

2.28

2.29

2.26

2.27

2.29

2.37

2.41

2.20

2.25

2.30

2.35

2.40

2.45

2.50

2.5520

07

2008

2009

2010

2011

2012

2013

2014

2015

1H16

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)

9

Source: Innovata (via Diio Mi) published schedules as of Oct. 30, 2015, for all airlines providing scheduled passenger service from U.S. airports to all destinations 28

8 292

275 28

2 292 29

9 310

330

351

366

260

280

300

320

340

360

380

2007

2008

2009

2010

2011

2012

2013

2014

2015

1H16

International (Thousand Daily Seats)

Highest Since Recession

Highest Ever

After a Decade of Sharp Workforce Reductions, U.S. Airline Jobs on the Rise Again August 2015 Was 21st Consecutive Month of YOY Employment Gains at U.S. Airlines

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

520.6

378.3 384.2 393.2

2000 2010 YTD Aug-2014 YTD Aug-2015

Employment at U.S. Passenger Airlines Thousand Full-Time Equivalents

Dow

n 14

2,30

0 (2

7%)

Up

9,08

9 (+

2.4%

)

U.S. Airlines* Are Pumping More Wages and Benefits into the Economy Airlines* Spending ~$3.2 Billion per Month on the Workforce

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2,546 2,608

2,733 2,762

2,987

3,202

2010 2011 2012 2013 2014 YTD15

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

Employee Wages and Benefits* per Month (in $ Millions)

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Following Enormous Losses of 2001-2009, U.S. Airlines* Have Retired $52.5B in Debt and Returned $24.5B in 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

$10

$20

$30

$40

$50

$60

2010 2011 2012 2013 2014 YTD15

Annual Cumulative

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

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

2010 2011 2012 2013 2014 YTD15

Dividends Stock Repurchases

~$9B/year

Recap

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» With operations improving, airfares falling and new aircraft entering the fleet at a steady pace, 2015 has translated to an improving experience for airline customers

» Despite flattish operating revenues, employees and investors, too, are benefiting as falling operating expenses steadily improve the industry’s financial wherewithal

» Six years post-recession, deep into the business cycle, U.S. airlines are finally achieving profitability in line with the overall U.S. corporate 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

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The American air traffic control system needs complete transformation in order to modernize to meet the demands of the future; the time for that transformation is now. Safety First Under any and all scenarios, first and foremost, FAA must remain and retain the role as a world-class safety regulator.

What is the problem we are trying to solve? The problem is not the leadership or the workforce: it’s the funding and governance structure that we must fix. Too often, politics and budget uncertainty end up being the major influencers of how the system operates, which means all the users of the system are beholden to decisions not necessarily in the best interest of the system.

Why is ATC reform important to passengers and other stakeholders? Passenger, users and the environment will be the biggest beneficiaries of ATC reform through reduced delays, time saved and reduced fuel burn. In addition, a new funding model will free the system from sequester, ensuring that controllers are not furloughed.

What is the solution? Stakeholder governance Reliable funding Modern technology

A4A supports adopting a federally chartered, non-profit organization, similar to those utilized by other countries.

www.airlines.org