A4A Media BriefingJohn P. Heimlich, Vice President and Chief EconomistNancy N. Young, Vice President, Environmental AffairsAugust 22, 2013

Review of U.S. Passenger Airlines’ Year-to-Date 2013 Financial and Operational Results and Performance as a Green Engine of the Economy

Executive Summary

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» In first half of 2013, U.S. airline results began to make the transition from “razor thin” to “paper thin”o Biggest driver of YOY gains was temporary drop in the price of jet fuel, which has risen 26 cents per gallon since

the end of June – key because a 20-cent increase in 1H would have wiped out all profitso Otherwise, a modest increase in operating revenues was matched by an increase in non-fuel expenseso Despite progress, airline corporate credit ratings highlight significant room for balance-sheet improvement

» Delivering consistent (albeit slim) earnings has enabled airlines to attract new capital (investors), driving greater airline investments in people and technology to enhance the customer experienceo Restoring seats domestically and continuing to grow in increasingly competitive international marketso Capital expenditures 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, customer lounges,

ground equipment, mobile technology, customer kiosks, in-flight entertainment and wirelesso Intense focus (and results) on improving baggage handling – equipment, software, staffing, training, internal

reporting and communication, airport/agency partnerships, performance incentives, logistics, etc.o Improvements in on-time arrival rate, flight completion rate, customer satisfaction

» Air travel remains one of the best bargains in America

» Customers, employees, investors and the U.S. economy are vastly better off with a financially strong industry that can cover its costs over the course of an entire business cycle and compete globally

Modest Fuel-Price Relief Was Critical to Airline Earnings* Improvement in 1H 2013All Other Operating Expenses Rose Year Over Year, Keeping Margins Thin

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

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1H 2013 vs. 1H 2012 % Better/(Worse)

Operating Revenues ($72.8B) 1.7

Operating Expenses (% of ) (1.6)

Fuel (35%) @ average price of $3.17 w/taxes 5.0

Wages & Benefits (24%) (1.7)

Landing Fees & Terminal Rents (5%) (6.9)

Maintenance, Materials & Repairs (6%) (3.6)

Depreciation, Amortization & Rents (7%) (0.7)

Other** (25%) (9.2)

Non-Op Income / (Expenses) and Tax 8.9

Subtotal Expenses ($71.3B) 1.2

Net Profit ($1,551M) 33.6

1H12 1H13

1.6

2.1

Net Profit MarginEarnings as % of OpRev

** Professional services, food/beverage, insurance, commissions, GDS fees, communications, advertising and promotion, utilities and office supplies, personnel expense

Jet Fuel Price Down from 2012 All-Time High But Volatile and on the Rise in 2H 2013Increase of 20 Cents per Gallon in 1H, Now Observed, Would Have Wiped Out Earnings

28-J

un-1

32-

Jul-1

36-

Jul-1

310

-Jul

-13

14-J

ul-1

318

-Jul

-13

22-J

ul-1

326

-Jul

-13

30-J

ul-1

33-

Aug-

137-

Aug-

1311

-Aug

-13

15-A

ug-1

319

-Aug

-13

23-A

ug-1

327

-Aug

-13

2.70

2.75

2.80

2.85

2.90

2.95

3.00

3.05

Jet Fuel Up 26¢ Since End of 1H 2013

Source: A4A and Energy Information Administration

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1991

-199

5

1996

-200

0

2001

-200

5

2006

-201

0

2011

2012

$53.

96

$58.

42 $102

.09 $2

16.7

7 $299

.85

$305

.62

Jet Fuel Spot Price per GallonU.S. Gulf Coast Jet Fuel

In 1H13, U.S. Airlines1 Earned a Modest 2.1 Pennies per Dollar of Revenue Generated But Reinvested $5.9 Billion in Operational Improvements and Customer ExperienceThin Margin, Unlike Other Fortune 500s, Shows Revenues Barely Exceeding Costs

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U.S. Airlines1 1H13Net Income $1,551MNet Profit Margin 2.1%Capital Expenditures $5,871M

Apple2 1H13Net Income $22,625MNet Profit Margin 23.1%Capital Expenditures $4,325M

Ford Motor Co.2 1H13Net Income $2,844MNet Profit Margin 3.8%Capital Expenditures $3,077M

Starbucks2 1H13Net Income $823MNet Profit Margin 11.2%Capital Expenditures $485M

1. A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways2. SEC filings for the indicated fiscal period, which for AAPL and SBUX does not coincide with the calendar year

International Air Travel to/from USA Rose 3.8 Percent in the First Half of 2013Including 5.1 Percent Growth in June, Consistent with A4A Summer Travel Forecast

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Source: Department of Commerce and DHS Advance Passenger Information System (APIS)

Eur

ope

Asi

a

Can

ada

Mex

ico

Car

ibbe

an

S. A

mer

ica

C. A

mer

ica

Mid

dle

Eas

t

Oce

ania

Afri

ca

0.8

4.4 4.1

6.9

1.2

8.9

4.9

10.0

7.9

(0.7)

YOY Change (%) by Gateway to/from USA

U.S. Citizens 2.4%

Non-U.S. Citizens 5.0%

YOY Change by Traveler Citizenship

U.S. Carriers 2.6%

Non-U.S. Carriers 5.3%

YOY Change by Airline Citizenship

U.S. Airlines Helping to Grow U.S. Exports, Reduce U.S. Trade Deficit, Boost GDPVisitor Spending on U.S. Airlines Helps Drive Additional $67B on U.S. Goods & Services*

Source: Bureau of Economic Analysis, U.S. International Transactions, Passenger Fares

7 airlines.org

“The economic contributions of international travel and tourism continue to be a bright spot, with the sector leading services exports both on a monthly basis and year-to-date. The increase in U.S. travel and tourism-related exports, which is supporting the president’s National Travel and Tourism Strategy, is crucial to supporting and creating jobs and boosting our nation’s economy.”

(Under Secretary of Commerce for International Trade Francisco Sánchez, August 8, 2013)

1H11 1H12 1H13

56,304.0

61,612.0

67,041.0

U.S. Travel and Tourism-RelatedGoods and Services*

* Food, lodging, recreation, gifts, entertainment, local transportation in the United States, and other items incidental to foreign travel

-------------- International Visitor Spending ($Billions) --------------

1H11 1H12 1H13

17,301.0

19,718.0

20,094.0

U.S. Airlines

3.3x

Given Growing Demand for International Air Travel to/from USA and the Associated Economic Benefits, U.S. Resources Should Be Dedicated to Optimizing U.S. Airports

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Source: Department of Commerce, DHS Advance Passenger Information System (APIS) and Customs and Border Protection (http://apps.cbp.gov/awt/index.asp)

Each of Top 10 U.S. Gateways Shows YOY Growth in Average Daily International Arrivals

JFK

MIA

LAX

EWR

ORD

ATL

SFO

IAH

IAD

DFW

1,853

1,299

599

277

514

592

431

401

429

994

JFK

MIA

LAX

EWR

ORD

ATL

SFO

IAH

IAD

DFW

177

186

118

107

126

88

132

116

101

162

YTD 2013 Maximum Wait Times (in Minutes) Exceed Two Hours at 5 of Top 10 U.S. Gateways

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During the First Six Months of 2013, U.S. Airlines Faced Significant Weather Events and the Operational Consequences of Sequestration . . .

Month Analysis of Operating Environment (www.masFlight.com)

Jan “Ground delay programs related to snow, low visibility and low ceilings were prevalent in the New York area (LGA, JFK and EWR on 5 separate days, notably January 28) and PHL on 8 days.”

Feb “Weather was primary driver of decreased performance…with an abnormally snowy February in Chicago…and in New York (with measurable snow on 5 days including Nemo, a prolonged northeaster that hit the east coast from Philadelphia to Boston on Feb. 8-9.”

Mar Snow events continued in BOS and NYC on 5 days; a few thunderstorms in ATL and DFW compared to “abnormally favorable weather in March 2012.”

Apr “Sequestration was the primary impact on performance… Ground delay programs and volume management related to sequestration hit most major U.S. hubs…The highest impact was felt for flights into LAX… The eastern seaboard was hit with strong storms on April 10, 18 and 19.”

May “There were delays related to thunderstorms at most major U.S. hubs during the month. Secondary impact from runway/taxiway construction at SFO and PHX.”

Jun “Poor weather impacted the industry with intense thunderstorm activity. Chicago impacted by a prolonged period of thunderstorms from June 21-29, including a derecho event that caused significant cancellations.”

2007 2008 2009 2010 2011 2012 1H13

On-Time Arrival Rate(% of domestic flights within 00:15)

73.4 76.0 79.5 79.8 79.6 81.9 78.1

Involuntary Denied Boardings(per 10,000 passengers)

1.12 1.10 1.19 1.09 0.82 0.99 1.03

Mishandled Bags(per 1,000 domestic passengers)

7.05 5.26 3.91 3.57 3.39 3.09 3.23

Flight Cancellations(% of scheduled domestic departures)

2.16 1.96 1.39 1.76 1.91 1.29 1.68

Customer Complaints(per 100,000 systemwide passengers)

1.37 1.13 0.97 1.20 1.18 1.42 1.13

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

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. . . But Despite These Operational Challenges Delivered Solid Results for CustomersImprovements Enabled Principally by Reinvesting Modest Profits Back into the Business

Product (Unit) 2000 2012 Change (%)College Tuition: Public (Annual) $3,508 $8,655 146.7Gasoline (Gallon, Unleaded) $1.51 $3.64 141.3Walt Disney World® (One Day Pass, Adult) $46 $89 93.5MLB Baseball Game (Nonpremium Ticket) $16.22 $26.98 66.3Prescription Drugs (BLS Index) 285.4 440.2 54.2Disposable Personal Income per Capita (Annual) $26,206 $38,965 48.7Movie Ticket $5.39 $7.96 47.7Single-Family Home $169,000 245,200 45.1Postage (First-Class Stamp) $0.33 $0.45 36.4Whole Milk (BLS Index) 156.9 211.3 34.7U.S. Consumer Price Index (CPI-U)1 172.2 229.594 33.3Apartment (Monthly Rental Payment per Unit) $842 $1,048 24.5Vehicle (New) $24,923 $30,910 24.0Air 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 Travel

1. 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 baggage

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Rea

lIn

crea

seR

eal

Dec

reas

e

From 2000 to 2012, in Addition to the Average Price of U.S. Consumer Goods and Services Outpacing the Price of Air Travel, Disposable Personal Incomes Rose 49%Accordingly, Americans’ Ability to Purchase Air Travel Increased Over This Period

Source: A4A, Bureau of Economic Analysis (DPI) – NIPA Table 2.1, Line 38, Bureau of Labor Statistics (CPI), Bureau of Transportation Statistics

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Disposable Personal Income per Capita

U.S. Consumer Price Index (CPI)

Domestic Air Travel (Fare + Ancillary)

Domestic Air Travel (Fare Only)

48.733.3

19.513.1

Percent Change: 2012 vs. 2000

2000 2012 ChangeDisposable Personal Income per Capita $26,206 $38,965 48.7%

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) 83.3 109.5 31.4%Potential Domestic Air Trips (Fare + Anc.) 82.7 102.9 24.5%

During an Extraordinarily Challenging Time Period, Amid Volatile Economic Conditions, Surging Input Costs and Increasing Regulation and Taxation . . .

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Sources: A4A analysis of data from the Bureau of Transportation Statistics and from carrier SEC filings

Financial Inputs and Results 2000 2007 2012

Special Federal Taxes Collected from Commercial Aviation $11.9B $18.0B $18.9B

U.S. Gulf Coast Jet Fuel Price per Gallon $0.85 $2.13 $3.06

Passenger Revenue per Passenger-Mile Flown 13.53¢ 13.12¢ 14.24¢

Operating Revenue per Passenger-Mile Flown 15.11¢ 16.76¢ 19.06¢

Fuel Expense per Passenger-Mile Flown 2.02¢ 4.11¢ 5.35¢

Portion of Airfare Needed to Cover Fuel Expense 15.0% 31.3% 37.6%

Average Breakeven Load Factor 69.4% 77.8% 80.9%

U.S. Airline Net Profit Margin 2.1% 4.6% 0.2%

. . . U.S. Airlines Have Built a Foundation for the Future, Delivering a Better Experience for Customers, Employees, Investors and the U.S. Economy

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Sources: A4A analysis of data from the Bureau of Transportation Statistics and from carrier SEC filings

Competitiveness and Service Delivery 2000 2007 2012

Low Cost Carrier Share of Domestic Passengers 24.1% 31.3% 37.0%

Average Domestic R/T Airfare (in Constant CY2000 $) $314.46 $247.56 $266.82

Average Domestic R/T Airfare + Fees (in Constant CY2000 $) $316.96 $251.60 $283.97

U.S. Passenger Airlines’ Capital Expenditures (Reinvestment) $16.3B $7.8B $9.8B

Average U.S. Passenger Airline Employee Wage ($ per Year) $50,291 $56,228 $66,787

Flight Completion Factor (Percent of Flights Scheduled) 96.7% 97.8% 98.7%

On-Time Arrival Rate (Percent of Domestic Arrivals) 72.6% 73.4% 81.9%

Mishandled Bag Rate (per Thousand Domestic Passengers) 5.29 7.05 3.09

For Every Mile Flown by Paying Passengers, from 2000 to 2007 and Again from 2007 to 2012, Increases in Industry Fuel Expense Dwarfed Increases in Operating Revenue

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Sources: A4A analysis of data from the Bureau of Transportation Statistics; fuel expense reflects both price and consumption

2000-2007

2007-2012

2000-2012

-3.1%

8.6%

5.2%

10.9%

13.7%

26.1%

103.0%

30.3%

164.5%

Fuel Expense per MileOperating Revenue per MilePassenger Revenue per Mile

In a Fragmented Airline Industry, Many U.S. Brands Could Not Cope with Volatile Economic Conditions, Namely Surging Fuel Costs and the Great Recession

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Investment Grade1 (>= BBB-)

Source: Standard and Poor’s as of August 5, 2013; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?”

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ExxonMobil, 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+Alaska, British Airways, Latam BBAllegiant BB-Avis, Delta, Hertz B+Gol, Hawaiian, United BAir Canada, JetBlue, SAS, US Airways B-American D

Speculative2 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 risk

Passenger Airline

The Airlines’ Financial Condition Has Improved But Remains Far from StellarPer S&P, Only One U.S. Passenger Airline Has Investment-Grade Credit

Financial Pressures Have Generally Translated to Cuts in Domestic Air ServiceRelative to Pre-Recession Levels, the USA Continues to See a Smaller Airline Industry

Source: Innovata (via Diio Mi) published schedules as of August 16, 2013; an available seat mile (ASM) is one seat flown one mile

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Domestic Flights

Domestic Seats

Domestic ASMs

(15.6)

(11.5)

(7.6)

0.3

1.3

2.0

% Change: 4Q13 vs. 4Q12

% Change: 4Q13 vs. 4Q07

“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 their predicament.” (Larry Cox, president and CEO of the Memphis-Shelby County Airport Authority)

─ “Regional airlines face closings, bankruptcy,” USA Today (Aug. 20, 2012)

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

(10.0)

(8.0)

(6.0)

(4.0)

(2.0)

0.0

2.0

4.0

1.3

As the Economic Climate Improves and Airlines Begin to Generate Modest Returns on Capital, Seats Are Returning to the Marketplace — Including Throughout 2013

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% C

hang

e Y

OY

in D

aily

Dom

estic

Sea

ts

19

Source: Innovata (via Diio Mi) published schedules as of August 16, 2013

Improving Balance Sheets Enabling Reinvestment in Product, Customer Experience2012 Airline Capital Expenditures Highest Since 2001, on Track to Surpass in 2013

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H13 2H13

$16

.27

$13

.92

$7.

75

$6.

61

$6.

12

$5.

39

$6.

07

$7.

83

$8.

27

$5.

88

$5.

16

$6.

61 $9.

77

$5.

87

Source: 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» Airport facilities, aircraft hangars» Premium seats, new aircraft interiors

» Maintenance facilities and machinery» Bag carousels, carts, scanners» In-flight entertainment systems, wireless» Computers, kiosks, mobile technology

$ Billions invested

?

Recap

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» Delivering consistent (albeit slim) earnings has enabled airlines to attract new capital (investors), allowing them to make greater investments in people and technology to enhance the customer experienceo The industry remains highly susceptible to the volatile nature of jet fuel prices, on the rise again

» Airline workers, too – and the millions of additional American workers whose jobs depend on a financially secure airline industry – are major beneficiaries

» Air travel remains one of the best bargains in America

» Consumers, employees, investors and the U.S. economy all are vastly better off with a financially strong industry that can cover its costs over the course of an entire business cycle and compete effectively on the global stage

APPENDIXPerspectives on Airline Industry Restructuring and Right-Sizing

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“We see no significant change to our broader industry investment thesis, i.e. management teams focused on: 1) achieving sustainable profitability; 2) improving product/service; 3) deleveraging; and 4) enhancing shareholder returns.”

-- Michael Linenberg, Managing Director, Deutsche Bank,“Takeaways from read-through of DOJ complaint blocking AA-US,” Aug.

14, 2013

U.S. Antitrust Authorities: Recent Airline Mergers Found to Benefit ConsumersDemocratic and Republican Administrations Have Reached Similar Conclusions

23

Transaction Excerpt from U.S. Department of Justice Antitrust Division Statement

Amer. WestUS Airways(6/23/2005)

The…proposed merger…would not reduce competition… [I]ntegration of airlines with complementary, end-to-end networks…can achieve efficiencies that benefit consumers. The consolidation 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 benefit U.S. consumers and is not likely to substantially lessen competition. The two airlines currently compete with a number of other legacy and low cost airlines in the provision of scheduled air passenger service on the vast majority of nonstop and connecting routes… In addition, the merger likely will result in efficiencies such as cost savings in airport operations, information technology, supply chain economics, and fleet optimization that will benefit consumers. Consumers are also likely to benefit from improved service made possible by combining under single ownership the complementary aspects of the airlines’ networks.

UnitedContinental(8/27/2010)

The proposed merger would combine the airlines’ largely complementary networks… The transfer of slots and other assets…resolves the…principal competition concerns and will likely significantly 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, including new connecting service through Atlanta…from cities currently served by Southwest to cities currently served by AirTran. Although there are overlaps on certain nonstop routes, the division did not challenge the acquisition after considering the consumer benefits from the new service...

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Thoughts on Airline Restructuring from a Leading Scholar of DeregulationCliff Winston, Senior Fellow in the Brookings Institution’s Economic Studies Program

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“[R]etrospective empirical assessments of airline mergers have generally found that the presence of a merged air carrier in a market does not lead to higher fares. At the same time, travelers benefit from the merged carrier’s more extensive network and from more opportunities to use frequent flier miles… [R]eal yields have been consistently below the Standard Industry Fare Level (SIFL) that was used by the Civil Aeronautics Board to determine regulated fares…” (Testimony, Subcommittee on Regulatory Reform, Commercial and 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’t good at it, had to be driven out of the industry. The only question is the mechanism by which that is done… It could have been through liquidation…” (Chicago Tribune, Feb. 13, 2013)

Brookings.edu: Clifford Winston… is an applied 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 fewer crises, fewer bankruptcies, more predictability, more stability.” (Christian Science Monitor, Feb. 14, 2013)

Perspectives on Restructuring (Cont’d)

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“We view the merger as a very positive development… Regarding the DOJ process, the anticipated level of concentration of the US airline industry post-merger would still be less than what it is for other major transportation/travel sectors such as air cargo, car rentals, and railroads… We think the news will be a catalyst to bring new investors to the space.”

-- Michael Linenberg, Deutsche Bank, “Airlines Alert - Introducing the new American Airlines,” Feb. 14, 2013

“The recent wave of consolidation has meant higher profits and more stability for the industry, which has led airlines to invest in technology, new airplanes and better customer service… ‘A healthy airline industry means a better flying experience overall.’” (Rick Seaney, chief executive, FareCompare.com)

-- Jack Nicas, “AMR Stands to Gain Vast Route Network,” Wall Street Journal, Feb. 7, 2013

Perspectives on Restructuring (Cont’d)

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“From our read-through of the [DOJ] complaint, it appeared that the authors took a ‘guilty until proven innocent approach,’ ignored the macroeconomic backdrop of the past several years, and told only one side of the story in order to make their case.

For example, why does the DOJ complaint fail to highlight the fact that the U.S. airline industry has produced one of the worst financial track records of any industry and has resorted to ‘self help’ via alliances, code shares, and mergers, among other initiatives, as a means to address its financial predicament? Why does the DOJ complaint fail to mention that the past round of airline consolidation from 2005-2010 coincided with an almost 400% rise in the price of jet fuel prices? With fuel representing close to one-third of total costs, airlines had no choice but to engage in capacity discipline and raise fares/fees in order to offset the significantly higher cost of doing business. Not responding would have resulted in massive losses and potential bankruptcies (and, indeed, AMR did file for Chapter 11 bankruptcy). Why does the complaint fail to consider U.S. airline consolidation within the context of a global airline industry? Foreign competitors have become much stronger, and in some cases, are supported by their states. Other DOJ/FTC merger approvals for other industries have not only recognized the evolution of predominantly domestic sectors into global ones, but they have been willing to accept higher HHI levels in some markets given the overall consumer benefits achieved by having a stronger, more global competitor. In that regard, how will US Airways fare as a global competitor? Furthermore, does the DOJ complaint overstate the impact of an AA-US merger? For example, the majority of the 1,000 city-pairs where the ‘merger is presumptively illegal’ are miniscule (some generate less than one passenger per day).

It appears to us that the DOJ is making a much broader philosophical call on industry consolidation. And investors/consumers are already feeling the pain with $4 billion in equity value destruction on yesterday’s news. We see no significant change to our broader industry investment thesis, i.e. management teams focused on: 1) achieving sustainable profitability; 2) improving product/service; 3) deleveraging; and 4) enhancing shareholder returns.”

-- Michael Linenberg, Deutsche Bank, “Take-aways from read-through of DOJ complaint blocking AA-US,” Aug. 14, 2013

Perspectives on Restructuring (Cont’d)

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“Personally, this lawsuit bothers me a lot. Why is that? Because when I see the government delve into something that I actually know about, and I see how absolutely amateurish and inaccurate the arguments are, it makes me lose faith in our government’s ability to do anything…

It really does appear that DOJ has gone off the rails. The best way to sum up the argument is that airlines should all be punished for trying to be successful enterprises. The complaint is filled with talk about how capacity has shrunk and fares have risen. They think this merger will result in more of the same. But what they’ve failed to recognize is that the airline industry of the past was a sickly mess. You had too many cooks in the kitchen and some of them had the cooking skills of a 12-year-old. So airlines pushed in too much capacity just to gain market share, then they had to discount fares and nobody made money. It was a mess.

Apparently the DOJ likes that plan. It’s sad to think this is how the government looks at private industry. If you want to decide that the airline industry is a public utility, then go all-in and fully regulate it. (Fares will rise, but I would respect the argument.) Otherwise, this nanny-state-style semi-regulation will keep the industry from ever becoming truly healthy…

Regardless of the motivation, what the DOJ has done is shameful. It has put together some half-assed arguments that are not supported by fact… [W]hen the government decides to cut and paste screenshots from a specific flight search on a single day as evidence that fares are lower on one airline, it’s not even trying. (And it’s way worse than that, since the truth is the complete opposite when you look at DOT fare data.)”

-- The Cranky Flier, “US Department of Justice Gets a Cranky Jackass Awardfor Its Lawsuit to Stop the US Airways/American Merger,” Aug. 14, 2013

Perspectives on Restructuring (Cont’d)

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“This has not been skyway robbery. Airlines are still making pitiful profits compared with other industries.”

-- George Hobica, president of AirfareWatchdog,“Analysis: Merged American Airlines-US Airways would offer more, could charge more,” Reuters, Aug. 16, 2013

“Our work shows that legacy mergers don’t generate large fare effects. The benefits of mergers - larger networks, greater ease in going places - probably dominate in determining the outcome. I was looking forward to my airline being the world’s biggest and getting me to more places that I need to go, especially overseas.”

-- Jan Brueckner, professor of economics at the University of California-Irvine,“Analysis: Merged American Airlines-US Airways would offer more, could charge more,” Reuters, Aug. 16, 2013

U.S. Airlines: Key Contributors to SustainabilityThree Synergistic Elements

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Economic Good

Social GoodEnvironmental Good

Significant Social Contributions throughPassenger & Cargo Mobility

Critical Enabler of CommerceSee The Case for a National Airline Policy

Focus for Today’s Briefing

Environmental Objectives: Critical to SustainabilityInterwoven with the Business & within the National Airline Policy

31

» Strong Environmental Record . . .• 2% of man-made CO2, while 5% of the GDP

• 95% reduction in significant noise exposures 1975 to 2012, while enplanements rose 259%

• Newly initiated voluntary program for aircraft deicing

• Carbon monoxide and smoke virtually eliminated, and oxides of nitrogen from aircraft continually reduced

• Extensive recycling initiatives

» And We Are Focused on Continuing and Improving on that Record . . .

Focus for today’s briefing

Fuel Efficiency = Emissions EfficiencyAirlines’ Excellent Fuel Efficiency Record

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» US Airlines Improved Fuel Efficiency ~120% Between 1978 and 2012*

• 3.4 billion metric tons of CO2 savings = taking ~22 million cars off the road each of those years*

• From 2000 to 2012

• Reduced absolute fuel burn and emissions ~ 10%*

• Increased passengers and cargo 16%*

» Committed to Even More• Must be able to invest *Fuel/savings/traffic source: U.S. DOT Form 41; automobile equivalent calculations from

www.epa.gov/cleanenergy/energy-resources/calculator.html

Means of Enhancing Fuel/Emissions Efficiency

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» Technology• Invest in newer aircraft/fleet enhancements (e.g., winglets)• R&D for breakthroughs in engines and airframes• Sustainable alternative aviation fuels

» Operations• Weight reduction; maintenance (e.g., engine wash)• Operational procedures within existing ATM

» Infrastructure• ATM modernization/NextGen

Economic & Environmental Interests in Pursuing These Measures AlignFuel is airlines’ #1 cost center

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Positive Incentives Can Help . . .

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» By Stimulating Research, Development and Technology Deployment

» But Harmful, Punitive Economic Measures Have Been Proliferating . . .

• Proliferation of taxes and charges

• European Union Emissions Trading Scheme (EU ETS)

Aviation Has a Better Way ForwardGlobal Sector-Specific Approach Framework

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» Collective Aviation-Specific Emissions Targets• Premised on government investment and airline ability to invest so

technology, operations & infrastructure improvements flourish

» Rules on a Market-Based Measure (MBMs) to Serve as a “Gap-Filler” if Needed

» Agreement at the International Civil Aviation Organization (ICAO)

See http://www.airlines.org/Pages/A4A-Climate-Change-Commitment---A-Global,-Sectoral-Approach.aspx

Our Targets Are AggressiveAnd Address the Key Concern: Potential Growth in Emissions

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2010 2020 20501.5% annual fuel efficiency improvement (average)

Working towards CNG

Carbon Neutral Growth (CNG) from 2020

50% reduction in net CO2 emissions over 2005 levels

How Do We Meet Our Targets?Technology & Alternative Fuels, Operations & Infrastructure

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Ongoing Fleet Renewal / Technology Development

ATC/NextGen/Operational Improvements

Low Carbon Fuels (lifecycle basis)

Forecasted Emissions Growth Absent Reduction Measures

Baseline

CO

2 Em

issi

ons

2050Carbon Neutral Growth and Reduction Timeline

Notional Example

Potential Role for Carbon Credits to Bridge

Potential role for carbon credits

The 2013 ICAO Assembly: What We Aim to AchieveAgreement Building on the 2010 ICAO Assembly Resolution

» Reconfirm Emissions Goals: Fuel Efficiency through 2020; CNG2020+

» Confirm and Advance Pieces of ICAO Work on Technology, Operations & Infrastructure

• Developing CO2 Standard for New Aircraft (to be finalized in 2016)• Air Traffic Management – Aviation System Block Upgrades (ASBUs)• Sustainable Alternative Aviation Fuels – ICAO “SUSTAF” Group

» Expand Country-Specific Action Plans» Commitment to Reach Full Agreement on MBMs

• Commitment to develop a single, global measure• Confirm and apply principles on MBMs in the meantime (in 2010 Resolution)

38 airlines.org

Industry Support for Development of a Global MBMProperly Designed, to Serve as a Gap Filler

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» The 38th ICAO Assembly Should Agree . . .• A roadmap for developing an offsetting mechanism to be agreed at

the next Assembly in 2016, for implementation from 2020;

• To the principles on which the mechanism will be based;

• A work program for monitoring, reporting & verification and offset quality;

• Means for ensuring the MBM is in a package with technology, operations and infrastructure improvements and government and industry partnership

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We Have the Ingredients for Global Agreement38th ICAO Assembly: September 24-October 4, 2013

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Unity across the aviation industry

We’re building on pieces in place

Governments have stated their commitment to working this through ICAO

See www.atag.org

Shuttle diplomacy on potential agreement terms underway

www.airlines.org

If You Want to Feel Good About the Future, Look Up!

ADDITIONAL/BACKUP SLIDES ON INDUSTRY CLIMATE CHANGE & ENERGY INITIATIVES

U.S. Airline Greenhouse Gas EmissionsLess than Two Percent of the U.S. Inventory

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Non-Aviation Transportation

25.1%

Commercial Aircraft 1.7%

General Aviation0.3%

Military0.2%

Electric Power Industry 32.8%

Industry19.9%Agriculture

8.2%

Commercial5.6%

Residential5.3%

U.S. Territories 0.9%

Source: U.S. EPA Inventory (April 12, 2013)

Examples of U.S. Airline Fuel Efficiency/Emissions Savings Measures – All A4A Carriers

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» Technology• Working with manufacturers toward ever more fuel-

efficient aircraft

• Purchase of new aircraft

• Investing in winglets to reduce aircraft drag

• Adopting airplane paint schemes that minimize heat absorption (which requires additional cooling)

• Sustainable alternative aviation fuels (see later slides)

Public & Private R&D Investment Continues to Be Critical!

See http://www.airlines.org/Pages/21st-Century-Aviation---A-Commitment-to-Technology,-Energy-and-Climate-Solutions.aspx

Examples (continued)

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» Operations – On the Ground/Taxiing• Single-engine taxi procedures

• Selective engine shutdown during ground delays

• Employing self-imposed ground delays to reduce airborne holding

• Implementing weight-reduction programs (lighter-weight materials)

• Aircraft engine wash programs

• Optimizing fuel loads to reduce the cost of carrying extra fuel

• Minimizing the use of auxiliary power units (APUs) on the ground by using airport electrical power

Examples (continued)

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» Operations – In Flight• Optimizing flight planning for the most efficient routes and altitudes

• Minimizing inefficient low-altitude maneuvering

• Working with FAA to change enroute fuel-reserve requirements to reflect state-of-the-art navigation, communication, surveillance and wind forecast systems

• Pioneering fuel-saving departure & arrival procedures (e.g., continuous descent arrivals; performance-based navigation)

• Key participants in ASPIRE & AIRE with FAA & other countriesNOTE: Limits to What Can Be Achieved in Today’s Air Traffic System; Need

Business-Case Based Implementation of NextGen

Examples (continued)

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» Infrastructure• Working with FAA on business-case based NextGen implementation

• Redesigning hubs and schedules to minimize congestion

• Advocating expanded and improved airfield capacity

• Installation of airport gate power for aircraft

A4A & Sustainable Alternative Aviation FuelsWorking Within Coalitions to Achieve Success

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» Co-Founded and Co-Lead the Commercial Aviation Alternative Fuels Initiative® (CAAFI)

• Four Teams Aimed at Addressing Key Questions – Over 300 Participants• Certification/Qualification (e.g., jet fuel specs)• Research and Development (e.g., suitable fuels)• Environment (e.g., methodologies and case studies)• Business & Economics (e.g., finance/commercial

terms)

A4A Initiatives/Coalitions (continued)

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» Strategic Alliance with the U.S. Military (Defense Logistics Agency)

• Combining experience and potential demand (market signals)

» Farm to Fly with the U.S. Department of Agriculture and Boeing (and other partners)

• Primary focus on linking feedstock supply chain with fuel production and end users; leverage agricultural programs

• Regional initiatives (Pacific Northwest, Hawaii, Midwest)

Why Aviation Is the Ideal Candidate

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» We Are Organized & Committed & Have a Strong Track Record of Accomplishments in Developing & Deploying Sustainable Alternative Fuels

» Concentrated Demand» Drop-In Fuels Require No New Infrastructure» Unlike Other Modes of Transport, Aviation Does

Not Have Alternatives Beyond Liquid Fuels• e.g., automobiles can plug in