A4A Industry Review and Outlook

June 15, 2013Toward Global Competitiveness, EconomicEmpowerment and Sustained Profitability

Airlines for AmericaAlaska, American, Delta, Hawaiian, JetBlue, Southwest, United, US Airways; Atlas, FedEx, UPSAir transport has become an essential economic and social conduit throughout the world. Beyond thebenefits of fast and inexpensive transcontinental travel, air transport also has become a vital form ofshipping for high value goods that need to come to market quickly… Their main infrastructure needsare at the beginning and end of their destinations, and can be built to create large economies of scale.— World Bank (www.worldbank.org/airtransport)airlines.org2―Every day, the airline industry propels the economic takeoff of our nation. It is the great enabler, knitting togetherall corners of the country, facilitating the movement of people and goods that is the backbone of economic growth.It also firmly embeds us in that awesome process of globalization that is defining the 21st century.‖Daniel Yergin, Author, Commanding Heights: The Battle for the World Economy“Aviation is the glue that keeps the global economy together.”Dr. Mark Zandi, Chief Economist & Co-Founder, Moody’s Economy.com (Aug. 2008)

Airlines MatterU.S. Airlines Are Key Contributors to the U.S. Economyairlines.org3Drives Economic ActivityCommercial aviation empowers > $1T in U.S. economic activity and10M U.S. jobs, approximately half attributable to visitor expendituresMoves People & Goods In 2012: 736.6M passengers (scheduled service), 17.7M tons of cargoPromotes USA Travel & Tourism Accommodated 49M air travelers entering USA from abroad in 2012Facilitates High-Value Trade Carried $928B of merchandise ($130/kg) between USA, other nationsConnects America to the Globe > 2K passenger flights/day to 245 locations in 97 foreign countriesEnables Business to Travel andShip to a Wide Array of MarketsApproximately 50% of Fortune 500 headquarters are locatedwithin 10 miles of a U.S. hub airport; 95% are located within 40 milesPays Good Wages $66.8K per airline worker vs. $44.6K for overall U.S. private sectorReduces the Federal Deficit $39.5B in exports of air-travel services in 2012; $5.1B trade surplusSources:• Bureau of Economic Analysis, U.S. International Transactions, Passenger Fares• Bureau of Labor Statistics: May 2012 National Occupational Employment and Wage Estimates by ownership: Cross-industry, private ownership only• Bureau of Transportation Statistics• Census Bureau (FT920 - U.S. Merchandise Trade), USA Trade® Online• DHS Advance Passenger Information System via U.S. Department of Commerce International Trade Administration• FAA The Economic Impact of Civil Aviation on the U.S. Economy, August 2011• Innovata LLC for published airline schedules via Diio LLC

airlines.org4Executive Summary» A4A projects an increase in summer air travel on U.S. airlines, narrowing the gap to the 2007 peak» Continued restructuring helped U.S. airlines report a narrower net loss in seasonally difficult 1Q» Improving financial results are leading many analysts to forecast that U.S. airlines will finallygenerate an economic profit (not merely accounting profit) in 2013, enabling airlines to attract newinvestors, lower their costs of borrowing and reinvest in the product and customer experienceo Restoring air service – adding back flights and seats domesticallyo CAPEX at highest level in 11 years (in part reflecting several hundred passenger aircraft on order)o Significant new investment in aircraft, operational spares, premium seating, airport terminals, customerlounges, ground equipment, mobile technology, customer kiosks, in-flight entertainment and wirelesso Also intense focus (and results) on improving baggage handling – equipment , software, staffing, training,internal reporting and communication, airport/agency partnerships, performance incentives, logistics, etc.» Despite challenging year-over-year deterioration of weather, affirmed by FAA data and analysis, U.S.airline operations remained strong in 1Q13, notably second best 1Q on-time arrival rate since 2003» Along with airline reinvestments in the product, advances in flight operations, expansion of expeditedscreening (Pre ™) and continued affordability of air travel make it a great time for customers to fly

U.S. Airlines Incurred More Than $50 Billion in Fuel Costs in 2012Average Spot Price of Jet Fuel Rose 260% in 2000-2012, including 42% in 2010-2012airlines.org5$16.8$33.2$38.8$50.5$50.420002005201020112012... Incurring Higher CostsBillion USD per YearSource: BTS for U.S. airlines$0.85$1.72$2.15$3.00$3.0620002005201020112012Due to Rising Prices ...USD per Gallon (U.S. Gulf Coast)Source: Energy Information Administration56.255.950.750.950.720002005201020112012Source: BTS (T2: 921) for U.S. airlinesUsing Less Fuel But ...Million Gallons per Day

Jet Fuel Crack Spread* Especially High Relative to U.S. Benchmark Crude Oil2011-2013 WTI-Brent Spread and Jet Margin Limited the Efficacy of Fuel Hedging$0$5$10$15$20$25$30$35$40$45$50Jan-00Jan-01Jan-02Jan-03Jan-04Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Source: A4A and Energy Information Administration * Refining margin (difference between jet-fuel and crude-oil price)1991-2000 $3.29 16% $4.77 25%2001-2010 $10.83 19% $12.19 22%2011 $31.07 33% $14.67 13%2012 $34.31 36% $16.72 15%YTD 2013 $30.01 32% $15.88 15%BrentWTIBrentWest Texasairlines.org6

Product (Unit) 2000 2012 Change (%)College Tuition: Public (Annual) $3,508 $8,655 146.7Gasoline (Gallon, Unleaded) $1.51 $3.64 141.3Costs Faced by U.S. Airlines (A4A Index) 100.0 204.9 104.9Eggs (Dozen, Grade A, Large) $0.91 $1.84 102.0MLB Baseball Game (Nonpremium Ticket) $16.22 $26.98 66.3Prescription Drugs (BLS Index) 285.4 440.2 54.2Movie Ticket $5.39 $7.96 47.7Disposable Personal Income per Capita (Annual) $25,946 $38,026 46.6Single-Family Home $169,000 245,000 45.0Postage Stamp (First-Class) $0.33 $0.45 36.4Whole Milk (BLS Index) 156.9 211.3 34.7U.S. Consumer Price Index (CPI-U)1 172.2 229.6 33.3Apartment (Monthly Rental Payment per Unit) $842 $1,048 24.5Air Travel (R/T Domestic Fare + Ancillary)2 $316.96 $378.62 19.5Air Travel (R/T Domestic Fare Only)2 $314.46 $355.75 13.1Apparel: Clothing/Shoes/Jewelry (BLS Index) 129.6 126.3 (2.6)Television (BLS Index) 49.9 5.4 (89.1)Relative to Most Goods/Services (and Airlines’ Costs), Air Travel Remains a BargainU.S. Inflation, U.S. Incomes and Airline Costs Have Sharply Outpaced the Price of Air Travel1. Bureau of Labor Statistics ―measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.‖2. A4A analysis of data collected by BTS – excludes taxes; ―ancillary‖ includes revenue from reservation changes and baggageairlines.org7RealIncreaseRealDecrease

From 2000 to 2012, in Addition to the Average Price of U.S. Consumer Goods andServices Outpacing the Price of Air Travel, Disposable Personal Incomes Rose 47%Accordingly, Americans’ Ability to Purchase Air Travel Increased Over This PeriodSource: A4A, Bureau of Economic Analysis (DPI), Bureau of Labor Statistics (CPI), Bureau of Transportation Statisticsairlines.org846.633.319.513.1Disposable Personal Income per CapitaU.S. Consumer Price Index (CPI)Domestic Air Travel (Fare + Ancillary)Domestic Air Travel (Fare Only)Percent Change: 2012 vs. 20002000 2012 ChangeDisposable Personal Income per Capita $25,946 $38,026 46.6%Domestic Air Travel (Fare Only) $314.46 $355.75 13.1%Domestic Air Travel (Fare + Anc.) $316.96 $378.62 19.5%Potential Domestic Air Trips (Fare Only) 81.9 100.4 22.7%Potential Domestic Air Trips (Fare + Anc.) 82.5 106.9 29.5%

Price of Jet Fuel Reached All-Time High in 2012; Averaging a Dime Less Than 2013$80$90$100$110$120$130$1402-Jan-1322-Jan-1311-Feb-133-Mar-1323-Mar-1312-Apr-132-May-1322-May-1311-Jun-131-Jul-1321-Jul-13WTI Brent JetPrice per Barrel (Five-Day Moving Average)Source: A4A and EIA (for WTI and Brent crude oil and U.S. Gulf Coast jet fuel)airlines.org9$0.54$0.58$1.02$2.17$3.00$3.06$2.941991-19951996-20002001-20052006-201020112012YTD2013Price per Gallon (Gulf Coast Jet Fuel)

From 2000 to 2012, Real (Inflation-Adjusted) Domestic Fares Fell 15 PercentWith Ancillary Revenue Included, Domestic Journey Price Fell 10 Percentairlines.org10Sources: DOT O&D Survey (Data Bank 1B) and Bureau of Labor Statistics for the Consumer Price Index (CPI)$220$240$260$280$300$3202000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Fares Fares + AncillaryAverage Round-Trip Domestic Airfare in Constant CY2000 Dollars

Thoughts on Airline Consolidation and Fares from a Leading Scholar of DeregulationCliff Winston, Senior Fellow in the Brookings Institution’s Economic Studies Programairlines.org11―[R]etrospective empirical assessments of airline mergers have generally found that thepresence of a merged air carrier in a market does not lead to higher fares. At the sametime, travelers benefit from the merged carrier’s more extensive network and from moreopportunities to use frequent flier miles… [R]eal yields have been consistently below theStandard Industry Fare Level (SIFL) that was used by the Civil Aeronautics Board todetermine regulated fares…‖ (Testimony, Subcommittee on Regulatory Reform, Commercialand Antitrust Law, Committee on the Judiciary, House of Representatives, Feb. 26, 2013)―There’s really very little evidence, historically, that mergers have done anything to raise fares[overall because competition remains] very intense.‖ (Wall Street Journal, Feb. 10, 2013)―An inevitable outcome of deregulation (is) the reallocation of capital to its most efficient uses.Those people who owned capital — planes and routes — and managed employees, and weren’tgood at it, had to be driven out of the industry. The only question is the mechanism by which thatis done… It could have been through liquidation…‖ (Chicago Tribune, Feb. 13, 2013)Brookings.edu: Clifford Winston, a senior fellow in the Brookings Institution’s Economic Studies program… is anapplied microeconomist who specializes in the analysis of industrial organization, regulation, and transportation.―What we’re seeing in airlines is what we’ve seen in railroads, telecom, and trucking... You’ll have fewercrises, fewer bankruptcies, more predictability, more stability.‖ (Christian Science Monitor, Feb. 14, 2013)

Unbundling Has Been Critical to Realigning Revenues Generated with Costs Incurred―À la carte shopping remains our best solution to keep travel affordable and accessible – for all.‖airlines.org12Source: IdeaWorks Company (April 30, 2012) – www.ideaworkscompany.com/wp-content/uploads/2012/05/A-la-Carte-Pricing-is-Good-for-Consumers.pdf―Regulators sometimes forget how the process of sellingtravel has changed since the arrival of the internet . . . Toburden the industry with requirements for the airfare toinclude all ancillary services, would be similar to requiringa resort to specify that room rates includedining, drinks, and golf . . . a clear absurdity.‖―Travel remains one of the great consumer bargains, asthe price of air travel hasn’t kept pace with otherconsumer goods and services. Even after adding fees forchecked bags and food, the amount collected oftendoesn’t exceed the cost of operating an airline . . .IdeaWorks offers a troika of reasons why à la carteshopping is good for consumers.‖

Per Enplaned Passenger, 2012 Revenues Exceeded Costs by Just 37 Cents (0.2%)Excluding $8.49 in Ancillaries, Revenues Would Have Lagged Costs by $8.12 (-3.7%)airlines.org13Cargo & Other$46.68$217.89$0.37Airfare$163.08Bag+Res., $8.49Revenues Costs Net Income2012 U.S. Airline Financial Results per Enplaned PassengerSource: A4A analysis of DOT Form 41 data reported by U.S. airlines for which passenger revenue constitutes at least 25 percent of total operating revenues$218.26

Most U.S. Airline Stocks Have Been Outpacing the S&P 500 in 2013Percent Change (%) in Closing Price from 31-Dec-2012 to 15-Jun-201315.932.138.657.6(3.8)11.736.582.239.726.0S&P500AlaskaAllegiantDeltaHawaiianJetBlueSouthwestSpiritUnitedUSAirwaysSource: Yahoo Financeairlines.org14

Value of Starbucks Comparable to That of All U.S. Passenger Airlines* CombinedEquity Market Capitalization (Billions)$403.7$402.8$287.3$245.3$224.2$66.6$57.1$52.8$49.1$19.7$12.5$11.4$9.8Apple (AAPL)ExxonMobil (XOM)Microsoft (MSFT)Wal-Mart (WMT)IBM (IBM)eBay (EBAY)Facebook (FB)U.S. airline industry*Starbucks (SBUX)Aetna (AET)Marriott (MAR)Chipotle (CMG)Hertz (HTZ)* Publicly traded carriers are ALGT, ALK, AAMRQ, DAL, HA, JBLU, LCC, LUV, RJET, SAVE, SKYW and UALairlines.org15Source: Yahoo Finance as of June 15

2007 2008 2009 2010 2011 2012 1Q13On-Time Arrival Rate(% of domestic flights within 00:15)73.4 76.0 79.5 79.8 79.6 81.9 80.1Involuntary Denied Boardings(per 10,000 passengers)1.12 1.10 1.19 1.09 0.82 0.99 1.06Mishandled Bags(per 1,000 domestic passengers)7.05 5.26 3.91 3.57 3.39 3.09 3.15Flight Cancellations(% of scheduled domestic departures)2.16 1.96 1.39 1.76 1.91 1.29 1.82Customer Complaints(per 100,000 systemwide passengers)1.37 1.13 0.97 1.20 1.18 1.42 1.13Sources: NTSB, BTS and DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)airlines.org16U.S. Airline Operations Remain Strong and Substantially ImprovedImprovements Enabled by Profitability (Reinvestment), Fewer Flights, Better Weather

The Rate of Customer Complaints DOT Receives About Airlines is Remarkably LowTaxi, Train, Bus and Cable Customers Express Far Greater Levels of DissatisfactionSources: DOT, FCC, National Cable & Telecommunications Association, Washington Metropolitan Area Transit Authority, Capital Metro (Austin), Los Angeles CountyMetropolitan Transportation Authority, King County DOT, American Public Transportation Association, AMTRAK, NYC Taxi and Limousine Commission3,125.46627.5416.2815.2312.506.562.922.501.18NYC TaxicabsAMTRAKMetro North RR (NYC)King County Metro (WA)WMATA (Wash., DC)U.S. Cable CompaniesLos Angeles MetrobusCapital Metro (Austin, TX)U.S. Airlines (per DOT)Complaints per 100,000 customers, CY201117Sample Route RateCapitol Corridor (Cal.) 15.5Keystone 78.9Acela 204.3NE Regional 248.6Chicago-Carbondale 419.7Chicago-St. Louis 487.2California Zephyr 6,138.2631.70.466362.430.383.2367.497.5MillionsofCustomers120.6airlines.org0.846

Conditions for Travel Demand: U.S. Economic Growth Still Tepid in 2013U.S. Corporate ProfitsBillions of Current Dollars, SAAR(100)(50)0501001501Q113Q111Q123Q121Q133Q131Q14Source: BEA National Income and Product Accounts, Table 1.12airlines.org0.00.51.01.52.02.53.03.54.04.51Q113Q111Q123Q121Q133Q131Q14U.S. Gross Domestic ProductAnnual Average Real Growth Rate (%)Source: BEA (http://www.bea.gov/national/index.htm#gdp)18

Conditions for Travel Demand: Personal Income Pausing, Household Worth SurgingU.S. Disposable Personal Income per CapitaThousands of Chained 2005 Dollars, SAAR$31.5$32.0$32.5$33.0$33.5$34.01Q081Q091Q101Q111Q121Q131Q14Source: BEA National Income and Product Accounts, Table 2.1airlines.orgU.S. Household Net WorthTrillions of Current Dollars, NSA$50$55$60$65$70$751Q081Q091Q101Q111Q121Q131Q14Source: Federal Reserve Flow of Funds Account Z.1, B.10019

Recent U.S. Airline Profitability Has Been Especially NarrowBut Even Slim Margins Reflect Progress in Overcoming Massive 2001-2010 DeficitSource: A4A analysis of DOT Form 41 data reported by U.S. airlines for which passenger revenue constitutes at least 25 percent of operating revenuesairlines.org20Net Income (Millions)($62,878)$541$264($80,000) ($60,000) ($40,000) ($20,000) $0 $20,0002001-201020112012Margin: (5.4%); Per Passenger: ($9.22)Margin: +0.4%; Per Passenger: $0.76Margin: +0.2%; Per Passenger: $0.37

In Tough Quarter, 1Q 2013 Bottom Line for 10 U.S. Airlines* Improved from 1Q 20122.5% Increase in Revenues and 1.0% Reduction in Costs Drive Smaller Net Loss* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airwaysairlines.org211Q 2013 vs. 1Q 2012 % Better/(Worse)Operating Revenues ($34.3B) 2.5Operating Expenses (% of ) (2.3)Fuel (35%) (0.1)Wages & Benefits (24%) (3.0)Landing Fees & Terminal Rents (5%) (5.0)Maintenance, Materials & Repairs (6%) (3.8)Depreciation, Amortization & Rents (7%) (3.2)Other (23%) (4.0)Non-Op Income / (Expenses) and Tax 54.1Subtotal Expenses ($34.9B) 1.0Net Loss (-$552M, or -$3.30 per psgr.) 67.8(5.1)(1.6)1Q12 1Q13Net Profit MarginEarnings as % of Revenues

In 1Q 2013, U.S. Airlines* Lost 1.6 Pennies per Dollar of Revenue GeneratedWeak Margin – Albeit in Seasonally Weak 1Q – in Stark Contrast to Other Fortune 500sairlines.org22U.S. Airlines* 1Q13Net Income ($ Millions) (552)Net Margin (Percent) (1.6)Apple 1Q13Net Income ($ Millions) 9,547Net Margin (Percent) 21.9Ford Motor Co. 1Q13Net Income ($ Millions) 1,578Net Margin (Percent) 4.9Starbucks 1Q13Net Income ($ Millions) 390Net Margin (Percent) 11.0* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways

Financial Pressures Have Generally Translated to Cuts in Domestic Air ServiceRelative to Pre-Recession Levels, the USA Continues to See a Smaller Airline IndustrySource: Innovata (via Diio Mi) published schedules as of June 14, 2013; an available seat mile (ASM) is one seat flown one mileairlines.org23(13.5)(9.2)(5.5)(0.5)0.91.6Domestic FlightsDomestic SeatsDomestic ASMs% Change: 3Q13 vs. 3Q07% Change: 3Q13 vs. 3Q12―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 theirpredicament.‖ (Larry Cox, president and CEO of the Memphis-Shelby County Airport Authority)─ ―Regional airlines face closings, bankruptcy,‖ USA Today (Aug. 20, 2012)

Post-Recession, as Economic Conditions Improve and Airlines Begin to GenerateHealthy Returns on Capital, Levels of Domestic Air Service Are Growing Yet Againairlines.org(10.0)(8.0)(6.0)(4.0)(2.0)0.02.04.06.01Q083Q081Q093Q091Q103Q101Q113Q111Q123Q121Q133Q13Scheduled Flights Scheduled Seats%ChangeYOY24Source: Innovata (via Diio Mi) published schedules as of May 11, 2013

For Six U.S. Carriers, International Flying* Exceeds 40 Percent of Network CapacityCarriers of All Shapes and Sizes Continue to Tap Global Demand to Ship and Travel by AirSource: A4A analysis of Innovata (via Diio Mi) for 3Q 2013; for cargo carriers, the analysis is based on CY2012* Non-domestic ASMs as a share (%) of systemwide ASMs, including regional affiliates; for cargo carriers, RTMs are used instead of ASMsairlines.org25InternationalShareofNetwork> 50%25% to 40%10% to 20%40% to 50%

Investment Grade1 (>= BBB-)Source: Standard and Poor’s as of June 10, 2013; ―Guide to Credit Rating Essentials: What are credit ratings and how do they work?‖airlines.org26ExxonMobil, Microsoft AAAGE AA+Wal-Mart AAToyota AA-UPS A+BP, eBay AAmtrak, Starbucks A-FedEx, Marriott, Starwood BBBLufthansa, Qantas, Southwest BBB-Ford Motor Co. BB+British Airways, Latam BBAlaska, Allegiant BB-Avis, Delta, Hertz B+Gol, Hawaiian, United BAir Canada, JetBlue, US Airways B-SAS CCC+American DSpeculative2 Grade (< BBB-)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 riskPassenger AirlineThe Airline Industry’s Financial Condition Is Improving, But Far From StellarPer S&P, Only One U.S. Passenger Airline Has Investment-Grade Credit

U.S. Airports Remain Financially SoundAll 73 S&P-Rated U.S. Airports Enjoy Investment-Grade Credit211181119741AA AA- A+ A A- BBB+ BBB BBB-61 12Source: ―FAA Funding Reductions Could Ground Some U.S. Airport Projects,‖ Standard and Poor’s (October 8, 2012)airlines.orgLAXOKCBOSDCA/IADEWR/JFK/LGAHOU/IAHLASMSPOMAPDXPHXSEASNAABQATLBURCLTCMHDENDFWELPFLLGEGMCIMCOPHLSANSATSDFSFOTPAAUSBNACHSDTWHNLINDJAXMDWOAKPBISMFBDLCLECOSCVGDAYDSMGSOLITMEMMIAMSYMYRONTORDPITRSWSJCSTLTYSALBGRRMHTPVDPWMTULVPSFATGUMMOBPNS CRP27

U.S. Federal / Federally Approved Tax Bite on $300 One-Stop Domestic Round Trip*Growing Governmental Take Leaves Less Revenue for Carriers to Maintain Air ServiceLevels, Reinvest in Product, Purchase New Equipment, Hire/Reward Employees2013 Taxes20% ($61)*1972 Taxes7% ($22)*1992 Taxes13% ($38)*TAXAIRFARESource: A4A analysis of federal tax code; for CY2013, see IRS Internal Revenue Bulletin 2012-45 (http://www.irs.gov/irb/2012-45_IRB/ar12.html#d0e827)* Sample itinerary assumes one-stop domestic round trip with maximum passenger facility charge (PFC) per airport; total ticket price includes taxesairlines.org28

“Special” Commercial Aviation Tax Burden* Reached $19 Billion in 2012Atop Typical Federal/State/Local Taxes (e.g., Income, Property)Sources: Department of Homeland Security, FAA, Office of Management Budget, Transportation Security Administration, A4A* Federally levied/approved commercial aviation taxes/fees only; some taxes/fees shown include collections from non-U.S. carriers$2,763$1,878 $380$648 $360$496$8,711$2,729$492 $390 $18,847FY2012 Collections ($Millions) from Airlines/CustomersDHS = $3.76BFAA = $12.32Bairlines.org29

In the United States, Airline Marketing and Customer Service Are Subject to a GreaterDegree and Scope of Government Regulation than Other Key Service IndustriesAirlinesHotelsRentalCarsCruisesAmtrakBusesCableTelecomService Delivery Reporting  No No No No No No NoFull-Fare Advertising (incl. taxes)  No No No No No No NoAncillary Revenue Reporting  No No No No No No No24-Hour Purchase Refundability  No No No No No No NoDetailed Reporting of Demand  No No  No No No NoDetailed Reporting of Costs  No No No No   Reporting of Average Prices Paid  No No No No No  Operational Contingency Plans   No     airlines.org30

U.S. Carriers: Competing in a Global MarketplaceSelected M&A and/or Cross-Border Investment: 2005-PresentSource: A4A and Deutsche Bank Global ResearchInside USA Outside USARepublic/Shuttle America Air France/KLMUS Airways/America West Copa/AeroRepúblicaSkyWest/Atlantic Southeast Lufthansa/SwissPinnacle/Colgan Air China/Cathay Pacific*Lufthansa/JetBlue* Cathay Pacific/DragonairDelta/Northwest Lufthansa/Brussels*/BMI/AustrianSouthwest/ATA Avianca/TACARepublic/Midwest/Frontier British Airways/IberiaUnited/Continental LAN/TAMPinnacle/Mesaba LAN/Aires*SkyWest-ASA/ExpressJet Azul/TRIP (pending)Southwest/AirTran AirAsia/BataviaDelta/Virgin Atlantic* Virgin Australia/Tiger* (pending)US Airways/American (proposed) Ryanair/Aer Lingus* (full merger pending)* Strategic investment but not full ownership or controlairlines.org31

U.S. Antitrust Authorities: Recent Airline Mergers Found to Benefit ConsumersDemocratic and Republican Administrations Have Reached Similar Conclusions32Transaction Excerpt from U.S. Department of Justice Antitrust Division StatementAmer. WestUS Airways(6/23/2005)The…proposed merger…would not reduce competition… [I]ntegration of airlines withcomplementary, end-to-end networks…can achieve efficiencies that benefit consumers. Theconsolidation of America West and US Airways…will enable the merged airline to offer U.S.consumers more and better service to more destinations throughout the country.DeltaNorthwest(10/29/2008)[T]he proposed merger…is likely to produce substantial and credible efficiencies that will benefitU.S. consumers and is not likely to substantially lessen competition. The two airlines currentlycompete with a number of other legacy and low cost airlines in the provision of scheduled airpassenger service on the vast majority of nonstop and connecting routes… In addition, themerger likely will result in efficiencies such as cost savings in airport operations, informationtechnology, supply chain economics, and fleet optimization that will benefit consumers.Consumers are also likely to benefit from improved service made possible by combining undersingle ownership the complementary aspects of the airlines’ networks.UnitedContinental(8/27/2010)The proposed merger would combine the airlines’ largely complementary networks… Thetransfer of slots and other assets…resolves the…principal competition concerns and will likelysignificantly benefit consumers on overlap routes as well as on many other routes.SouthwestAirTran(4/26/2011)The merged firm will be able to offer new service on routes that neither serves today, includingnew connecting service through Atlanta…from cities currently served by Southwest to citiescurrently served by AirTran. Although there are overlaps on certain nonstop routes, the divisiondid not challenge the acquisition after considering the consumer benefits from the new service...airlines.org

Some of the Domestic Capacity Cuts Resulted from Brands Ceasing to OperateSoaring Costs and Volatile Economic Conditions Took Their Toll on Many During the 2000sairlines.org33

airlines.org34Financial Pressures, Liquidations, M&A and Globalization Have Reshaped the IndustryAfter 2005, Low-Cost Carrier (LCC) Domestic U.S. Market Penetration* Actually Accelerated* A4A analysis of BTS Data Bank 1B for marketing airlines’ (incl. regional partners flying under code-share agreements) share of domestic O&D passengers24.129.535.137.020002005201020122000: AirTran, America West, ATA, Frontier, JetBlue, Midway, National, Southwest, Spirit, Sun Country, Vanguard2005: AirTran, Allegiant, America West, Frontier, JetBlue, Southwest, Spirit, Sun Country, USA 30002010: AirTran, Allegiant, Frontier, JetBlue, Southwest, Spirit, Sun Country, USA 3000, Virgin America2012: Allegiant, Frontier, JetBlue, Southwest, Spirit, Sun Country, Virgin AmericaLCC Share of Domestic Origin-Destination Passengers*

airlines.org35Restructuring Has Paved the Way for Four Major Competing National NetworksUnited (including Continental)American (including US Airways): ProposedDelta (including Northwest)Southwest (including AirTran)

1 Allegiant 81.82 Ryanair 78.83 Hainan 76.14 AirAsia 74.55 Air Arabia 72.66 WestJet 71.97 Easyjet 71.88 Vueling 71.29 Spirit 70.310 Aer Lingus 69.911 Singapore 69.412 Alaska 68.013 All Nippon 67.514 Qantas 66.515 Regional Express 65.516 Copa 64.917 IcelandAir 64.318 Garuda Indonesia 63.319 Turk Hava Yollari 61.120 Cebu 61.1Gap in Global Competitiveness Evidenced in by Aviation Week Ranking*No U.S. Global Network Carriers in Top 25Source: Aviation Week Top-Performing Airlines study (published in Aviation Daily on Dec. 17, 2012) of publicly traded airlines* Proprietary scoring (1=lowest; 99=highest) methodology is composite of liquidity, financial health, earnings performance, fuel cost management and asset utilizationairlines.org3621 EVA 59.722 Southwest 59.523 LATAM 59.324 Air New Zealand 57.625 Hawaiian 57.026 IAG 56.827 US Airways 56.728 Lufthansa 56.429 SkyWest 55.930 JetBlue 53.931 Royal Jordanian 53.332 Virgin Australia 52.833 Air Transat 52.334 Air France-KLM 52.135 Aeroflot 51.636 Air China 51.337 Cathay Pacific 51.238 Finnair 51.039 AviancaTaca 50.740 Chorus-Jazz 50.741 Aegean 50.542 Thai 50.043 Kenya 49.044 Republic 48.945 Shandong 48.846 United 48.547 China Eastern 47.448 Delta 47.449 SAS 47.150 Norwegian 45.351 Air Canada 45.252 China Southern 44.353 American 43.954 Transasia 43.455 El Al 41.456 Philippine 39.257 China 39.058 Korean 38.459 Pinnacle 37.360 Air Berlin 35.361 Asiana 34.462 GOL 33.263 Air Mauritius 31.964 Tiger 31.065 Meridiana Fly 37.566 Jet Airways 25.367 Cyprus 20.568 SpiceJet 15.669 Malaysian 8.070 Pakistan 1.2

Growth Opportunities for U.S. Airlines Abound in the BRIC NationsUnlike Developed Economies, Emerging Economies Drive Strong Travel GrowthSource: Airbus0.0010.010.11100 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000Originatingtripspercapitain20102010 GDP (in $2005) per capitaWorld averageChinaIndiaBrazilRussiaUSAFranceGermanyUKChina 2030India 2030India:4x 2030vs. 2010China:3x 2030vs. 2010Growth inPropensity toTravelairlines.org37

U.S. Airlines Helping to Grow U.S. Exports, Reduce U.S. Trade DeficitIn 2012, U.S. Exports of Air-Travel Services Reached an All-Time High ($39.5B), Fueling a$5.1B U.S. Air-Travel Trade Surplus – the Fourth Consecutive Annual Surplus$5.1$39.5(10)010203040502000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Surplus/(Deficit) Exports ImportsSource: Bureau of Economic Analysis, U.S. International Transactions, Passenger Fares38U.S. Balance of Payments ($ Billions) in Air-Travel Servicesairlines.org

U.S. Airlines Facilitate Growing Trade of Increasingly High-Value MerchandiseIn 2012, the USA Traded $928 Billion of Merchandise (Valuing ~$130/Kilogram) by Air284.4427.2308.6500.6$0$200$400$600$800$1,0002000 2012ImportsExportsSource: USA Trade® Online, Census Bureau (FT920 - U.S. Merchandise Trade) and research by Foreign Trade Division/Data Dissemination Branch39Value (Billions of Dollars)airlines.org101.53125.3484.67133.58$0$25$50$75$100$125$1502000 2012Exports ImportsValue (Dollars per Kilogram)

Airline Hiring Trends Are Highly Correlated With Airline Profitability Trends(30)(20)(10)01020302000200220042006200820102012FTE Change (%) Net Profit Margin (%)airlines.org40Source: BTS for U.S. scheduled passenger airlines – full-time equivalent employees12/2000 - 12/2004 (99,870)12/2004 - 12/2009 (55,077)12/2009 - 12/2012 618Cumulative Change (154,327)U.S. Passenger Airline FTEs

Improving Balance Sheets Enable Reinvestment in Product and Customer Experience2012 Annual Airline Cash Capital Expenditures (Billions) at Highest Level Since 2001airlines.org41$16.27$13.92$7.75$6.61$6.12$5.39$6.07$7.83$8.27$5.88$5.16$6.62$9.77$0$2$4$6$8$10$12$14$16$182000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: Cash flow statements of AirTran, Alaska, Allegiant, America West, American, Continental, Delta, Hawaiian, JetBlue, Northwest, Southwest, Spirit, United, US Airways» Aircraft, engines, winglets, spare parts» Ground equipment, loading bridges» Passenger terminals, aircraft hangars» Premium seats, new aircraft interiors» Maintenance facilities and machinery» Bag carousels, carts, scanners» In-flight entertainment systems, wireless» Computers, kiosks, mobile technologyBillions invested

Airlines Collaborating Actively with TSA to Expand Pre ™ Expedited ScreeningRecently, Partnership Yielding Significant Progress in Enhancing the Air Travel Experienceairlines.org42 TSA Pre ™ (an expedited screening initiative) nowavailable at 40 U.S. airports To date, almost 9 million U.S. airline travelers haveexperienced expedited screening By end of 2013, TSA expects that one out of four enrolledtravelers will have experienced Pre On April 25, TSA announced that passengers couldreceive notification of TSA Pre eligibility on boardingpasses (Delta, United and US Airways have commenced) As of May 7, Pre participants now eligible for expeditedscreening when traveling internationally onAlaska, AA, Delta, United or US Airways from TSA PreairportsSource: Transportation Security Administration

Policy Focus: Allocation of U.S. Customs and Border Protection (CBP) ResourcesAbu Dhabi International Airport (AUH) Ranks 80th Among Aviation Gateways to the USAAvg. Daily Air Psgr.Arrivals to USA, 2012Rank Foreign Gateway Airport> 10,000 1-3 London Heathrow (LHR), Toronto (YYZ), Tokyo Narita (NRT)5,000 to 9,999 4-10Frankfurt (FRA), Paris (CDG), Cancun (CUN), Mexico City (MEX),Seoul (SEL), Vancouver (YVR), Amsterdam (AMS)1,000 to 4,999 11-60YUL / YYC / GRU / HKG / NAS / GDL / MBJ / PTY / MAD / SDQMUC / DXB / FCO / SYD / SJD / PEK / BOG / SJO / TPE / ZRHPUJ / PVG / KIX / DUB / LIM / SAL / TLV / LGW / EZE / MANPVR / AUA / YEG / CCS / BRU / IST / GCY / PAP / GIG / STIKIN / POS / DUS / MNL / MTY / SCL / YOW / SXM / NGO / GCM574 to 999 61-79BCN / AKL / BDA / MGA / MXP / KEF / DOH / LIR / CPH / PLSSVO / UIO / SAP / DEL / BZE / YWG / BGI / ARB / GYE573 80 Abu Dhabi International Airport (AUH)1 to 572 81-479 Too many to list in this spaceairlines.org43Source: DHS Advance Passenger Information System via U.S. Department of CommerceU.S. CBP preclearance location

CBP Has a Huge Opportunity to Better Align Its Resources and Improve the TravelExperience for the 90M Airline Customers Who Arrived at U.S. Airports in 2012airlines.org44Source: CBP ―Airport Wait Times‖ (http://www.cbp.gov/xp/cgov/travel/wait_times/), Department of Commerce and DHS Advance Passenger Information System (APIS) Last year ~90M passengers (~246K/day)arrived at U.S. airports on international flights 15 airports saw more than 5K arrivals/day Average 2012 wait times as high as 1 hour Maximum 2012 wait times as high as 3 hours Some of longest CBP processing timesoccurred in July (and again in March 2013)010203040JFKMIALAXEWRORDATLSFOIAHIADDFWHNLBOSPHLMCOFLLTop 15: Daily International Pax Arrivals (000)~100K per day~99K per day

airlines.org45www.DrawTheLineHere.com

What’s the End Game?» Achieve sustained and meaningful level of profitability» Build a financial cushion for shocks, downturns, prolonged recession» Lure investment; create shareholder wealth by generating return on capital exceeding its cost» Secure investment-grade credit ratings» Reinvest in product, preserve and grow air service, maintain and increase employment» Compete vigorously, not just domestically but also globally» Maximize airline industry contribution to U.S. well-being» Enhance U.S. global competitivenessairlines.org46

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A4A Industry Review and Outlook

by Airlines for America (A4A)

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