John P. Heimlich

Vice President & Chief Economist

A4A Media Briefing

November 1, 2017

Thanksgiving Air Travel Forecast and Year-to-Date

2017 Review

U.S. Airline Traffic Flown and Capacity Operated Continue to Grow in 2017

Systemwide Passengers Enplaned Up 2.8% Year Over Year, 13.9% Over Five Years

airlines.org 2

363.8 365.8 373.3 386.3 403.1 414.4

404.3 410.8 421.0 435.3

454.9 468.9

494.1 496.8 505.7 525.4

550.2 565.8

0

100

200

300

400

500

600

1H12 1H13 1H14 1H15 1H16 1H17

Passengers (Mils) RPMs (Bils) ASMs (Bils)

Source: U.S. Bureau of Transportation Statistics T1, systemwide scheduled service on U.S. airlines – revenue passenger miles (RPMs) and available seat miles (ASMs)

U.S. Economy and Employment Growing; Household Net Worth at All-Time High

airlines.org

0.6

2.2

2.8

1.8

1.2

3.1 3.0

0

1

2

3

4

1Q16 2Q 3Q 4Q 1Q17 2Q 3Q

Real GDP Growth Rate (% CAGR)

3

Monthly Employment Growth (000)

192

250 226

187 148

0

100

200

300

2013 2014 2015 2016 2017

Sources: BEA, BLS, Federal Reserve and IHS; 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 (BEA) and median household income (Census); U.S. household net worth in current dollars, not seasonally adjusted

39

.2

40

.9

42

.4

43

.2

53

.6

53

.7

56

.5

59

.0

0

20

40

60

80

2013 2014 2015 2016

Th

ou

san

ds

Personal (per Capita) Household (Median)

Income ($000) Household Net Worth ($ Trillion, NSA)

78.5 83.6 86.7 92.2 94.5 96.2

0

25

50

75

100

2013 2014 2015 2016 1Q17 2Q17

A4A Projects U.S. Airlines to Carry 28.5M Thanksgiving-Period Passengers in 2017

Period = Friday (Nov. 17) Preceding Holiday Through Tuesday (Nov. 28) Following Holiday

airlines.org 4

25

.5

25

.8

23

.2

23

.2

24

.2

24

.4

24

.8

24

.6

25

.2

26

.5

27

.7

28

.5

20

06

E

20

07

E

20

08

E

20

09

E

20

10

E

20

11

E

20

12

E

20

13

E

20

14

E

20

15

E

20

16

E

2017F

Source: A4A analysis of TSA and BTS T100 segment data; volumes from past years are estimates from comparable 12-day period

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

U.S. airlines will carry 2.38M passengers per

day, up ~69K (3%) from 2016

U.S. airlines will offer 2.79M seats per day, up

~86K (3.2%) from 2016

T-giving Day was 2nd lightest day of CY2016

Sunday return was busiest day of CY2016

Note: E=estimate; F=forecast

A4A Projects Daily Thanksgiving Passenger Volumes to Range from 1.61M to 2.88M

Expected Busiest Days: Sunday Return, Monday Return and Wednesday Preceding

2.69

2.19 2.40 2.30

2.55 2.71

1.61 1.90

2.49

2.88 2.61

2.19

Fri., 1

1/1

7

Sa

t., 1

1/1

8

Su

n., 1

1/1

9

Mo

n., 1

1/2

0

Tu

e., 1

1/2

1

We

d., 1

1/2

2

Th

u., 1

1/2

3

Fri., 1

1/2

4

Sa

t., 1

1/2

5

Su

n., 1

1/2

6

Mo

n., 1

1/2

7

Tu

e., 1

1/2

8

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

airlines.org 5

#6 #5 #4

* Friday, Nov. 17 through Tuesday, Nov. 28

#8 #9 #7 #3 #12 #2 #11 #10 #1

U.S. Airline Projected Onboard Passengers (Millions) – Scheduled Systemwide Service

How’s the Weather Affecting U.S. Airport Operations?

http://airlines.org/dataset/current-operation-status-for-us-airports

Severe Hurricanes Disrupted August-September 2017 Airline Flight Operations

Nationwide U.S. Domestic Flight Cancellations

airlines.org 7

979

159

137

295

501

195

111

174

1,0

13

1,6

83

1,6

22

1,4

88

1,5

50

1,4

21

1,2

13

617

439

609

915

367

391

1,0

33

1,9

91

2,8

72

4,5

67

1,9

49

930

663

434

297

318

293

441

410

293

305

236

194

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000F

ri 8

/18

Sa

t 8

/19

Sun 8

/20

Mo

n 8

/21

Tue

8/2

2

We

d 8

/23

Thu

8/2

4

Fri 8

/25

Sa

t 8

/26

Su

n 8

/27

Mo

n 8

/28

Tue

8/2

9

We

d 8

/30

Thu

8/3

1

Fri 9

/1

Sa

t 9

/2

Sun 9

/3

Mo

n 9

/4

Tue

9/5

We

d 9

/6

Thu

9/7

Fri 9

/8

Sa

t 9

/9

Su

n 9

/10

Mo

n 9

/11

Tue

9/1

2

We

d 9

/13

Thu

9/1

4

Fri 9

/15

Sa

t 9

/16

Sun 9

/17

Mo

n 9

/18

Tue

9/1

9

We

d 9

/20

Thu

9/2

1

Fri 9

/22

Sa

t 9

/23

Su

n 9

/24

Source: masFlight

8/25: Harvey landfall in Texas (PM)

9/10: Irma landfall in Florida Keys (AM)

9/20: Maria landfall in Puerto Rico (AM)

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

airlines.org 8

U.S. Airline Flight Operations Impacted by 2017 Extreme Weather Events

But Baggage Handling Continues to Improve and Denied Boardings Continue to Fall

97.82

98.46

98.83

98.50

2014

2015

2016

2017

Flight Completion Factor (%)

99.64

99.68

99.73

99.74

2014

2015

2016

2017

Properly Handled Bag Rate (%)

0.92

0.76

0.62

0.52

2014

2015

2016

1H17

Involuntary Denied Boardings*

On-Time Arrival Rate (%)

76.25

79.92

81.42

78.22

2014

2015

2016

2017

Best since 1992

Best ever recorded

Best since 2012

Best ever recorded

* Per 10,000 enplaned passengers

Jan-Aug Jan-Aug

Jan-Aug

YTD 3Q17 Revenues Rose 3.8%, But All Major Expenses Rose Further – Up 8.1%

Profitability (Average Pre-Tax Profit Margin) Fell to 12%

airlines.org 9

Year-over-Year Change (%) in Operating Revenues and Expenses

2.8

0.6

11.3

6.8

3.8

8.1

17.0

6.3

3.4

6.6

4.0

8.1

15.5

12.0

Pax T

raff

ic

Pax Y

ield

(1)

Carg

o R

ev

Oth

er

Rev (

2)

Tota

l O

pR

ev

Lab

or

Fu

el

Ma

inte

nan

ce

Airp

ort

s

Aircra

ft

Oth

er

(3)

To

tal O

pE

xp

YT

D 3

Q1

6

YT

D 3

Q1

7

Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United

1. Yield = fare per mile (cents per RPM)

2. Sale of frequent flyer award miles to airline business partners, pet transportation, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc.

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

Pre-Tax Profits

and Margin (%)

$1

4.7

B

$1

8.4

B

In 2017, U.S. Passenger Airline* Profitability Respectable But Below Average

airlines.org

38.3

28.4 26.2 25.3

19.0 19.0

12.0 9.5

6.4

McD

on

ald

´s

Ap

ple

Dis

ne

y

CS

X

Com

ca

st

Sta

rbucks

Air

lines*

Ma

rrio

tt

Chip

otle

10

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

YTD 3Q17 Pre-Tax Profit Margin

(% of Operating Revenues)

Source: Company SEC filings

U.S. Passenger Airline Jobs Averaging Highest Level Since 2004

August 2017 Represented the 46th Consecutive Month of YOY Gains

airlines.org 11

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

52

0.0

37

8.6

411

.1

42

4.2

375

400

425

450

475

500

525

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

U.S. Scheduled Passenger Airline Full-Time Equivalent Employees (000s)

Jan-Aug

2000-2010

-141,367 (27%)

2010-YTD17

+45,612 (12%)

2,574 2,494 2,546 2,451

2,292 2,285 2,294 2,259 2,274 2,289 2,366 2,454 2,542 2,577

272 278 288 292

275 282 292 299 310 330 351 368

390 398

2,846 2,772 2,834 2,743

2,567 2,567 2,586 2,558 2,584 2,620 2,717

2,823 2,932 2,975

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,0002005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Domestic International

As Airlines Achieve Economic Profits, Customers Are Seeing More Seats

Supply of Seats Departing U.S. Airports at All-Time High Entering 2018

airlines.org

Daily Seats (000) Departing U.S. Airports in Scheduled Service

12

Source: Innovata (via Diio Mi) published schedules as of Oct. 27, 2017, for all airlines providing scheduled passenger service from U.S. airports to all destinations

2017: DOM +3.6%, INT +5.8%, SYSTEM +3.9%

12

ME

Se

pt.

20

18

airlines.org 13

Smaller U.S. Carriers Have Been Growing Far Faster Than the Four Largest Carriers

Growth in Systemwide Scheduled ASMs Since 2010

(50)

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Pe

rce

nt

Spirit

Sun Country

Hawaiian

Alaska

JetBlue

Southwest

American/Delta/United

Source: Innovata (via Diio Mi) published schedules as of Oct. 13, 2017, for selected marketing airlines including predecessors

Allegiant

Frontier

Airlines Strongly Support Infrastructure Investment Across the Country

Airline-Airport Collaboration Has Paved the Way for Widespread Capital Improvements

airlines.org 14

» Over $100 billion of capital projects have been completed, are underway or

approved at the nation’s 30 largest airports alone since 2008, including, for example:

o New runways at Fort Lauderdale, Washington Dulles, Seattle, and Charlotte

o Multiple new runways at Chicago O’Hare

o New international facilities at Atlanta and Los Angeles

o New, expanded or modernized terminals at Miami, Las Vegas, Orlando, Hawaii,

Houston, Denver, Seattle, Salt Lake City and San Francisco

» Development is also robust at smaller airports, including, for example:

o Runway projects at Erie, Columbus, Dayton, Des Moines, Nashville and Sioux Falls

o Terminal projects at New Orleans, Eugene, Grand Rapids, Greenville-Spartanburg,

Norfolk, Portland (Maine), Reno-Tahoe and Wichita

J.D. Power: North American Airport Satisfaction Climbs to Record High

airlines.org

68

9

67

5 6

90

725

73

1 7

49

650

675

700

725

750

2007 2008 2010 2015 2016 2017

Source: J.D. Power 2017 North America Airport Satisfaction Study (http://www.jdpower.com/press-releases/jd-power-2017-north-america-airport-satisfaction-study)

“Overall passenger satisfaction with North American airports has reached an all-time

high, as airports of every size have found creative ways to address the challenges of

constant construction projects and increased passenger capacity demand… [M]ajor city

airports that are in the thick of massive construction efforts—notably Newark Liberty,

LaGuardia, Los Angeles International and Chicago O’Hare—are still fighting the

headwinds of traveler disruption and access challenges that are handicapping their overall

satisfaction scores.” (Sept. 21, 2017)

Notes: Scale = 0-1000; study not conducted in 2009/2011-2014

15

Six factors (in order of importance):

Terminal Facilities* (24%)

Airport Accessibility (19%)

Security Check (16%)

Baggage Claim (15%)

Check-In/ Baggage Check (14%)

Food / Beverage / Retail (13%)

Notes: The study, fielded Jan-Aug 2017, is based on responses from 34,695 North American travelers who traveled through at least one domestic airport with both departure

and arrival experiences (including connecting airports) during the past three months. Travelers evaluated either a departing or arriving airport from their round-trip experience.

* Concourses, lounges, signage, restrooms, gate areas

ATL BOS HOU* LAS LAX MCO MSP NYC* OMA PDX PHX SEA SNA TPA WAS*

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

MCI MDW MEM MFR MIA MSY MYR OAK OKC ONT ORD PBI PHL PIT PSC RSW SAN SAT SDF SFO SJC SLC SMF STL TYS

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

Southwest, WestJet

AC ALK ALGT AAL DAL HA JBLU UAL

None

AA ±

A ±

BBB ±

BB ±

B ±

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

airlines org 16

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 quality 2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk

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

airlines.org 17

9.2

4

9.0

9

8.7

3

9.2

3

10.4

2

10.5

4

11.5

4

12.0

5

10.6

8

10.6

3

11.5

5

12.5

6

12.8

7

13.5

3

14.2

9

14.4

2

15.0

7

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Airport & Airway Trust Fund Revenues ($ Billions) Airport & Airway Trust Fund Unobligated Balance ($ Billions)

7.3

5

4.8

2

3.9

0

2.4

5

1.9

4

1.7

7

1.5

3

1.4

4

0.3

0

0.7

0

1.4

1 2.7

8

4.8

7

5.7

9

5.6

2

5.8

5

5.5

1

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Source: A4A, FAA, U.S. Treasury; PFC collections exclude any compensation received for collecting/handling/remitting

U.S. Airport Revenues ($ Billions)

15.9 15.6 14.9 14.5 16.5 17.3 19.1 20.4 17.4 17.2 17.8 18.1 19.4 20.4 20.4 22.2

3.48 3.38 3.65 3.68 3.07 3.67

3.52 3.52

3.52 3.52 3.52 3.35 3.35 3.35 3.35

3.35

1.59 1.86 2.06 2.05 2.16

2.54 2.85

2.64

2.52 2.73 2.71 2.80 2.81 2.89 3.04

3.16

21.0

0

20.8

6

20.6

3

20.2

2

21.7

7

23.5

0

25.4

6

26.5

2

23.4

4

23.4

2

24.0

6

24.2

2

25.5

4

26

.64

26.7

6

28

.75

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Airlines/Concessions/Rents AIP* PFC

U.S. Airport Unrestricted Cash & Investments ($ Billions)

8.52 9.82

10.64 11.39 12.37 12.74

14.20

2010 2011 2012 2013 2014 2015 2016

not availa

ble

* Airport Improvement Program

www.airlines.org