Second Meeting of the Advisory Committee on Aviation Consumer ProtectionAug. 7, 2012U.S. Airlines: Their Nascent Recovery and theBenefits to the NationOverview• The industry is climbing out of a huge financial hole,to modest profitabilityoDiversification of revenues and improved alignmentof revenues generated with costs incurred havebeen critical elements of the nascent recovery• A heavy dose of new/proposed regulations in 2012 threaten the recovery• A financially healthy airline industry means job growth and service reinvestment• Operational performance is strong and improving, and reflected in a remarkablylow complaint rate – especially compared to other industries with smaller volumesairlines.org2The Value Proposition for U.S. Air Travelers Is Alive and WellIt’s Safer, It’s Greener, It’s ~80 Percent On-Time andIt’s Still a Bargainairlines.org3020406080100120140160180 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Index (1990 = 100)* 5-year-moving-average fatal accident rate for U.S. air carriers operating under 14 CFR 121 scheduled service (http://www3.ntsb.gov/aviation/Table6.htm)On-TimeFares ($2011)Fatal Accidents*

Noise ExposureFuel EfficiencyModest Profits in 2010 and 2011 Came on the Heels of Massive LossesCumulative 2001-2011 Net Loss for U.S. Passenger Airlines = $62.3 Billion($8.0)($11.8)($2.1)($10.0)($28.6)$16.5$6.3($24.5)($2.9)$2.2$0.6($1.1)($40)($30)($20)($10)$0$10$202001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H12Source: A4A analysis of DOT Form 41 data reported by U.S. airlines for which passenger revenue constitutes at least 25 percent of total operating revenuesairlines.org4Profit (Billions)Even With Ancillary Revenues, 2011 Revenues Exceeded Costs by Just 81 Cents (0.4%)Excluding $8.06 in Ancillaries, Revenues Would HaveLaggedCosts by $7.26 (-3.4%)airlines.org5Cargo & Other$45.14$211.93$0.81Airfare$159.53Ancillary, $8.06Revenues Costs Net Income2011 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$212.73Historically, Airlines Have Been the Least Profitable Segment of the Value ChainFor Airlines, the Cost of Capital Tends to Exceed ReturnsSource: McKinsey & Company as cited in IATA “ValueChain Profitability” Economics Briefing (June 2006)* Return on invested capital minus weighted averagecost of capitalairlines.org64.43.7(1.6)15.80.50.3(1.2)(5.5)10.5(0.4)(10)(5)05101520Manufacturers Lessors Airlines CRS/GDS Travel Agents1996-20002001-2004

Investor Returns on Capital*IATA worked closely with McKinsey & Company to examine the investors’ returns...over a full industrycycle (1996 to 2004)... Computer reservation systems (CRS), a sector dominated by just four majorfirms, delivered the highest returns, with an annual surplus of $660 million over their cost of capital.The Airline Industry’s Financial Condition Is Improving, But Far From StellarPer S&P, Only One U.S. Passenger Airline Has Investment-Grade CreditInvestment Grade1(>= BBB-)Source: Standard and Poor’s as of Jul. 21, 2012; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?”airlines.org7ExxonMobil, Microsoft AAAGEAA+Wal-Mart AAToyota, UPS AABP, eBay AAmtrak, Starbucks AFedEx, Marriott,QANTAS, Starwood BBBLufthansa,SouthwestBBBFord Motor Co. BB+British Airways,TAMBBAlaska,AllegiantBB-Avis,GOL, Hertz B+Delta,UnitedBAir Canada,JetBlue,SAS,US AirwaysBAmericanDSpeculative2Grade (< BBB-)1Describes issuers with relatively high levels of creditworthiness and credit quality2Describes issuers with ability to repay but facingsignificant uncertainties, such as adverse businessor financial circumstances that could affect credit riskPassenger AirlineSampleof New Regulations on U.S. Airlines Will Add $3.3 Billion in Annual CostsWith More Rules Looming, That Sum Equates to Approximately 39,000 Airline Industry Jobsairlines.org8ExistingProposed38,793 ($3.3B)12,407 ($1.04B)9,580 ($804M)9,379 ($787M)1,703 ($143M)3,935 ($330M)1,789 ($150M)TOTAL BURDENFull-Fare AdvertisingFlight and Duty TimeOther Consumer MandatesFuel-Tank InertingTrainingAirport Hydrant Fueling SystemsLithium Batteries (TBD)Source: A4A and Federal Aviation AdministrationImproved Airline Finances Have Translated to 18 Consecutive Months of Job GrowthAfter Years of Losses, U.S. Passenger Airlines Have Also Been to Reinvest in Equipment(8)(6)(4)(2)024 2007 2008 2009 2010 2011 2012airlines.org9 $16.9 $9.7 $6.6 $5.8 $4.8 $5.8 $4.2 $3.4 $5.7 $9.2

00-01 02 03 04 05 06-09 10 11 12F 13FAircraft Capital Spending on the RiseAverage Annual Estimated Aircraft/Engine CapEx (Billions)Airline Jobs Added in 18 Months in a RowYOY Change (%) in Full-Time Equivalent EmployeesSource: BTS for U.S. scheduled passenger airlines Source: Bank of America Merrill Lynch airline equityresearch (Jan. 5, 2012)Rising Costs and Constraints on Revenue ProductionTranslate to Air Service CutsDomestically, the United States Has a 9 PercentSmallerIndustry Than Five Years AgoSource: Innovata (via Diio Mi) published schedules as of Aug. 3, 2012; an available seat mile (ASM) isone seat flown one mileairlines.org10186.2169.01601651701751801851904Q074Q12Scheduled Domestic Seating Capacity: Five-Year Comparison

Available Seat Miles (Billions)Product (Unit)2000 2011 Change (%)College Tuition: Public (Year) $3,508 $8,244 135.0Gasoline (Gallon, Unleaded) $1.51 $3.53 133.8Costs Faced by U.S. Passenger Airlines (Index) 100.0195.0 95.0Eggs (Dozen, Grade A, Large) $0.91 $1.77 94.5College Tuition: Private (Year) $16,072 $28,500 77.3Baseball Game (Nonpremium MLB Ticket) $16.22 $26.91 65.9Movie Ticket$5.39 $7.92 46.9Single-Family Home (New) $169,000 $227,200 34.4U.S. CPI (All Urban Consumers)1172.2 224.9 30.6Vehicle (New)$24,923 $30,659 23.0Air Travel (Round-Trip Domestic Fare + Ancillary)2$316.95 $365.23 15.2Air Travel (Round-Trip Domestic Fare Only)2$314.46 $343.46 9.2Apparel: Clothing/Footwear/Jewelry (Index) 129.6 122.1(5.8)Television (Index)49.9 6.6(86.8)Relative to Most Goods/Services (and Airlines’ Costs), Air Travel Remains a BargainThe U.S. Consumer Price Index (CPI) Has Risen at Twice the Rate of Domestic 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 the Bureau ofTransportation Statistics – excludes taxes; “ancillary” includes revenue from reservation changes and baggageairlines.org11Sources: A4A analysis of BTS Data Bank 1B (from theDepartment of Transportation)Even With Ancillaries Included, Price of Domestic Air Travel Lags U.S. InflationFrom 2000 to 2011, Price in Key States Either Decreasedor Rose Less Than U.S. CPIairlines.org1215.216.87.7(2.9)U.S. Domestic AverageCaliforniaIllinoisMassachusetts 

# U.S. CPI: +30.6%More Than U.S. CPI% Change (2011 vs. 2000) Less Than U.S. CPIU.S. Airline Operations Have Improved SubstantiallyOver Past Five YearsRecord Performance Enabled by Reinvestment in Product, Cooperative Weather, Etc.Sources: Bureau of Transportation Statistics and DOTAir Travel Consumer Report (http://airconsumer.dot.gov/reports/index.htm)airlines.org132007 YTD 2012 Better Success RateOn-Time Arrival Rate(% of domestic flights within 00:15)73.4 84.3 ~11 pts. 84.3%Involuntary Denied Boardings(per 10,000 passengers)1.12 0.91 ~19% 99.991%Mishandled Bags(per 1,000 domestic passengers)7.05 3.01 ~57% 99.699%Flight Cancellations(as % of sched. domestic departures)2.16 1.06 ~51% 98.940%Hence, the Rate of Customer Complaints Against Airlines is Remarkably LowRail Customers Express Far Greater Levels of DissatisfactionSources: DOT, Federal Communications Commission, National Cable & Telecommunications Association, WMATA, Capital Metro (Austin), Los Angeles CountyMetropolitan Transportation Authority, American Public Transportation Association, AMTRAK627.5416.2812.506.562.922.501.18AMTRAKMetro North RR (NYC)WMATA (Wash., DC)U.S. Cable CompaniesLos Angeles MetrobusCapital Metro (Austin, TX)U.S. Passenger AirlinesComplaints received per 100,000 customers, CY2011airlines.org14Sample Route RateCapitol Corridor (Cal.) 15.5Keystone 78.9Acela 204.3NE Regional 248.6Chicago-Carbondale 419.7Chicago-St. Louis 487.2California Zephyr 6,138.26320.466362308336797

Millions of CustomersConclusion• The industry is climbing out of a huge financial hole,to modest profitability• New/proposed/looming regulations in 2012 alone threaten the recovery, jobs• A financially healthy airline industry means job growth and service reinvestment• Operational performance is strong and improving, and reflected in a remarkablylow complaint rate – especially compared to other industries with smaller volumesairlines.org15www.airlines.org