1. Airline Market Data Jim Stevens 1

2. Executive Summary Major carriers have lost $15 billion since the airline industry began in 1938 (page 3) In 2010, Alaska Air had the highest profit margin while American Airlines was the only major carrier to lose money (page 4) U.S. Air and UAL showed impressive profit improvement 2010 vs. 2009 (page 4) Profit story in 2010: economy rebounded, businessman began to return and fuel prices behaved. All carriers experienced impressive revenue growth in 2010 with UAL/CA leading and American lagging. (page 5) Year round load factors have now reached over 80% for most carriers, not much room to improve particularly with stagnant capacity growth in 2010 and 2011. As a result, yield and “other revenue” will be the to 2011 revenue growth (page 5) Other revenue growth in 2010 was disappointing as it did not even grow at the same level as passenger/ cargo revenue. With airlines now charging for baggage and food, results are disappointing. 2

3. Fuel is now the largest major airline expense and will become even a larger factor in 2011. Like the federal government budget, there are not many places for airlines to save money or generate significant other revenues (page 8) Much of American’s problems stem from a salary/benefit cost per Available Seat mile that is significantly higher than most other major carriers (page 10) At present fuel costs, airlines will need to cover $13 billion in additional fuel expenses, 2011 vs. 2010, given constant capacity (page 11, 12) Airlines always have had huge cash reserves which generally average 20% of total annual revenue for the major carriers (page 13) When compared to rises in the CPI and other commodities over the past 42 years, airline prices are a bargain (page 14) Most travelers do not realize the impact of taxes and fees on airline ticket prices. Taxes/fees on international tickets can comprise one-fourth of the total ticket cost (page 15) It will be interesting to observe how Southwest merges its employees with Airtran, given that Southwest unit labor costs are 70% higher than Airtran (page 16) 3

4. “Someone would have done investors a favor by shooting down Orville Wright’s first flight!! ” -Warren Buffett “ The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a good business. ” -Warren Buffett February, 2011 4

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6. Major Airline Profitability And Profit Margins ($ Millions) 20102009 AirlineAdjusted Profit 1)Margin %Adjusted Profit 1)Margin % Change in Margin (Pts.) Alaska41710.9892.68.3 Southwest8887.32132.15.2 United 2)16144.7-1100-6.711 Delta 3)14154.5-14065.0-0.5 Jetblue1614.31041.92.4 US Air4473.8-537-5.18.9 Airtran602.31355.5-3.2 American-389-1.8-1368-6.95.1 Major Airlines46133.8(3870)(3.6)7.4 1.Pretax income excluding nonrecurring items 2.Includes Continental 3.Includes Northwest 6

7. Total Revenue Percent Change 2010 VS. 2009 SouthwestDeltaAmericanAlaskaUS airJetBlueCAL/UA Traffic4.8%2.2%2.8%1.7% 8.0%3.5% Yield10.8%12.0%8.9%10.4%11.2%7.6%15.1% Pax revenue16.1%14.5%12.0%12.3%13.1%16.3%19.1% Freight5.9%7.9%16.2%10.7%48.8%-28.6% Other Revenue 1)44.1%15.9%5.3%19.4%17.2%2.6%13.1% Total Revenue16.9%13.2%11.3%12.7%13.9%14.8%18.9% Asm Change0.4%1.0%1.3%(1.7)%0.9%6.7%1.1% PRASM15.6%13.3%10.5%14.2%12.1%9.0%17.9% Load Factor79.3%83.0%81.2%75.7%81.1%81.4%83.2% change3.3 pts1.0 pts1.2 pts2.6 pts0.6 pts1.7 pts1.9 pts 1) Sale of program mile, On-board Sales, baggage service charges, other products and services 7

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9. "Other" Operating Revenues 1) ($ Millions) 20102009 Amt. % of Total RevenueAmt. % of Total RevenueVariancePoint Change Amt.% in Total Revenue American$2,41110.90%$2,29011.50%$1215.30%(0.6) pts United/Continental$2,9528.70%$2,6099.10%$34313.10%(0.4) pts Delta$3,64711.50%$3,14711.20%$50015.90%0.3 pts Southwest$4904%$3403.30%$15044.10%0.7 pts US Air$1,29310.90%$1,10310.50%$19017.20%0.4 pts Alaska$2536.60%$2126.20%$4119.40%0.4 pts JetBlue$3679.70%$35810.90%$92.60%(1.2) pts AirTran$26410.10%$25210.80%$124.70%(0.7) pts Majors$11,6779.60%$10,3119.70%$1,36613.20%(0.01) pts 1) Primarily excess baggage, food, sale of FF miles, and reservation charges 9

10. Major Airline Expenses By Category Fuel30% Salary29% Commissions, Booking Fees, Food Credit Cards6% Maintenance, Depreciation, Rentals, Landing Fees, A/C Rentals20% Other Expenses12% Non Operating Expenses (Interest)3% Total 100% 10

11. Cost/ASM of Major Expenses (% increase/decrease) 2010 VS. 2009 Expense CategorySouthwestDeltaAmericanAlaskaUS AirJetblueUA/CAL Salaries and Benefits0.72.1(0.6) 2.47.66.6 Fuel and Oil21.66.113.826.210.110.731.3 Other Operating7.10.7(0.4)(1.2)0.24.82.0 Total Operating11.02.93.37.73.47.410.7 Non Operating(14.7)5.66.53.6(2.5)(11.0)26.8 Total Expenses Before Taxes 10.23.03.47.73.36.311.1 ASM Change0.41.01.3(1.7)0.96.71.1 Fuel As Reported18.98.413.839.330.110.732.7 11

12. Airlines2010 CasmPassenger stage length AMR’s cost Above Others ($ billions) Airtran2.20 cents970 miles3.2 JetBlue2.5614332.6 U.S air *3.17NA1.6 UA/Cal*3.2118561.5 DL*3.41NA1.2 WN3.768850.6 AMR4.14NA- Alaska*4.241232- 2010 Salary and Benefits cost/ASM *Estimates made to include contract service wages. *Note: One billion dollar reduction in AA wages equates to a 15% reduction 12

13. Crack Spread Crack spread is the difference in the cost of a barrel of crude oil and a barrel of jet fuel oil. For decades the premium for jet fuel per barrel was about $5. Then it rose to $15. During the past half dozen years, the crack spread has been very erratic rising above $30 at times. The year 2010 was one of the better years, generally between $9 and $13. On March 5 th, 2011 crude oil sold for $108.34 and jet fuel for $135.60, a $27.26 crack spread. 13

14. Fuel Costs- Most Variable Issue Major carriers burn 14.73 billion gallons of jet fuel in 2010 Every penny in a gallon of fuel costs equates to $147 million in cost Every dollar in the cost of a barrel of jet fuel equates to 2.42 cents in a gallon of fuel costs or $355 million (total domestic = $400 million) How does this relate to industry profits? With no other changes, the 2010 industry profits of $4.6 billion would be wiped out by a $13 increase in a barrel of jet fuel or 31 cents per gallon The difference in the present crack spread and 2010 crack spread is more than enough to eliminate 2010’s profit (assuming no change in fuel hedging or other variances) At the present level of $135 for a barrel of jet fuel (3/5/11), this equates to $3.27 per gallon or $0.94 higher than paid in 2010. That is an additional $13 billion in fuel costs for the industry 14

15. Year End Cash = 2010 VS. 2009 ($ in millions) Unrestricted Cash and S.T. InvestmentsCash as a % of Total Revenue Carrier2010200920102009 Alaska$1,208$1,19232%35% Southwest$3,538$2,59329%25% UA/CAL$8,700$5,85629%23% American$4,450$4,44020%22% Airtran$454$54317%23% US Air$1,859$1,29916%12% Jetblue$465$89612%27% Delta$3,610$4,67811%17% Major Carriers$24,284$21,49720.6%20.4% 15

16. August 1968December 2010Increase Consumer Price Index (CPI) 35.1219.26.3 times Jet Fuel13 cents$3.2725.2 times Four Year College 1)$10,400$109,00010.5 times Automobiles$2,450$22,2009.1 times Bread25 cents$2.008.0 times Movies$1.25$9.507.6 times Postage Stamps6 cents44 cents7.3 times Milk1.21cents$3.502.9 times Airline Yields5.5 cents14.11 cents2.6 times Airline Prices VS. Other Consumer Prices 1) Up 68% since 2002, or 6.7% annually 16

17. Impact of Taxes and Fees Fees and taxes generally comprise between 11 and 12 percent of a total ticket’s cost. These fees are higher for international tickets as shown in the example below: Round Trip Coach Fare NYC-LHR$764 Base Fare$270 Fuel Surcharge$292 Airline Share$562 (73.6%) Fees/Taxes US Federal Transportation Tax$16.30 US Security Service Fee$2.50 US Pax Facility Charges$4.50 US APHIS User Fee$5.00 US Immigration User Fee$7.00 US cutoms User Fee$5.50 UK air Passenger Duty$96.20 UK Passenger Service Charge$49.10 US Federal transportation Tax$16.30 Fees/Taxes$202 (26.4%) (Why not just call it a “Sin Tax” along with cigarettes and alcohol?) 17

18. Airline Consolidation Southwest/Airtran – How does WN combine a 20 minute domestic turn system with their first international experience? – WN unit labor costs in 2010 were 70% higher than Airtran with similar stage lengths. Delta/Northwest – Thus far, has progressed smoother than one might have projected – Decision on unions/no unions or which union still undecided. United/Continental – Will take at least a year to determine some of the cost impact and cost savings that will result. – Unions seem to support the merger – Continental management receives pay raises to move to Chicago. – Unit labor costs for the two airlines were not far apart, somewhat due to the UA bankruptcy. – Pension issues? 18

19. DomesticEuropeLatinPacific 200312%41%21%58% 200734%58%42%67% Industry (major carriers) Long Term Debt to Capital = 90% “Paid” front cabin loads have always lagged total load factors. A major carrier’s front cabin paid load factors: As of March 7, there have been six broad-based airfare increases since the first of the year ranging from $10 to $20 per round-trip ticket. That compares to three in 2010 and four in 2009. The most recent one (March 3) was quickly matched by all carriers except the low cost carriers. GDS fees have been negotiated down since the invention of the internet. At one time, fees were $3.50 PER SEGMENT. The reduction of tickets sold through travel agents has declined from 80% in the early 1990’s to less than 50% today. Business travel at one time accounted for more than 50 % of the an airline’s passenger revenue. With the recent recession, that high yield revenue fell dramatically. Given that business yields are more than three times leisure yields, a return of the business passenger can be very key in improving profits. Miscellaneous Issues 19

20. Future Unknowns To Be Considered Efficiencies of New Aircraft Ability to Raise Airfare Prices – Five broad-based airfare increases resulting in $10 per round-trip ticket thus far in 2011 (VS. three in 2010 and four in 2009) Terrorists Labor Agreements Start Ups Fuel Hedging – Impact of fuel hedging was far less in 2010 than 2008-2009 Industry Capacity Increases in 2011 – AA/DL announced capacity cuts to offset rising fuel costs with higher fares 20