Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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Overview

United Continental Holdings, Inc. (together with its consolidated subsidiaries, “UAL” or the “Company”) is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”). As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United’s operating revenues and operating expenses comprise nearly 100% of UAL’s revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL’s assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words “we,” “our,” “us,” and the “Company” in this report for disclosures that relate to all of UAL and United.

2017 Financial Highlights

	•		2017 net income was $2.1 billion, or $7.02 diluted earnings per share.

	•		United’s consolidated PRASM decreased 0.4% in 2017 compared to 2016.

	•		Aircraft fuel cost increased 18.9% year-over-year due mainly to higher fuel prices.

	•		In 2017, UAL repurchased approximately 28 million shares of UAL common stock for $1.8 billion, completing the $2.0 billion share repurchase program authorized by UAL’s Board of Directors in July 2016. In December 2017, UAL’s Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL’s common stock. As of December 31, 2017, the Company had approximately $3.0 billion remaining to purchase shares under its share repurchase program.

	•		UAL ended the year with $5.8 billion in unrestricted liquidity, which consisted of unrestricted cash, cash equivalents, short-term investments and available capacity under the revolving credit facility.

2017 Operational Highlights

	•		Consolidated RPMs for 2017 increased 2.8% as compared to 2016, and consolidated ASMs increased 3.5% from the prior year, resulting in a consolidated load factor of 82.4% in 2017 versus 82.9% in 2016.

	•		For 2017 and 2016, the Company recorded a DOT on-time arrival rate of 81.9% and 81.3%, respectively, and a system completion factor of 99.0% for each year.

	•		During 2017, the Company took delivery of three new Boeing 787-9s, four new Boeing 737-800s, 12 new Boeing 777-300ERs, 24 new Embraer E175s, two used Airbus A320s and six used Airbus A319s and retired 20 Boeing 747-400s.

Outlook

Set forth below is a discussion of the principal matters that we believe could impact our financial and operating performance and cause our results of operations in future periods to differ materially from our historical operating results and/or from our anticipated results of operations described in the forward-looking statements in this report. See Part I, Item 1A., Risk Factors, of this report and the factors described under “Forward-Looking Information” below for additional discussion of these and other factors that could affect us.

In 2017, the Company had its best operational performance in its post-merger history. Operational reliability, service and experience underpin the Company’s long-term strategy. Our priorities for 2018 are continued top-tier operational reliability while strengthening our domestic network through growth, driving efficiency and productivity and continued investment in our employees, product and technology.

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Economic Conditions. The aviation industry in 2018 is expected to show continued growth in the demand for air travel. Passenger numbers are expected to increase. Cargo volumes are also expected to grow, with some recovery in yields. Passenger revenue in all regions are expected to demonstrate improved performance in 2018.

Capacity. In 2018, the Company expects its consolidated ASMs to grow between 4% and 6% year-over-year. Most of this growth will be concentrated in our domestic network, especially in our mid-continent hubs. We believe greater scale and connectivity at our hubs reinforces our relevance and value proposition to our customers. Rebanking at our hubs is expected to drive significant additional connection opportunities. We will also expand flights in non-peak times of the year to more efficiently use our aircraft and facilities with the objective of driving an increase in profitability.

Fuel. The Company’s average aircraft fuel price per gallon including related taxes was $1.74 in 2017 as compared to $1.49 in 2016. The price of jet fuel has increased since January 2016 and remains volatile. Based on projected fuel consumption in 2018, a one dollar change in the price of a barrel of crude oil would change the Company’s annual fuel expense by approximately $96 million.

Results of Operations

In this section, we compare results of operations for the year ended December 31, 2017 with results of operations for the year ended December 31, 2016, and results of operations for the year ended December 31, 2016 with results of operations for the year ended December 31, 2015.

2017 compared to 2016

Operating Revenue

The table below illustrates the year-over-year percentage change in the Company’s operating revenues for the years ended December 31 (in millions, except percentage changes):

		2017				2016				Increase (Decrease)				% Change
Passenger—Mainline		$	26,552			$	25,414			$	1,138				4.5
Passenger—Regional			5,852				6,043				(191)				(3.2)
Total passenger revenue			32,404				31,457				947				3.0
Cargo			1,035				876				159				18.2
Other operating revenue			4,297				4,223				74				1.8
Total operating revenue		$	37,736			$	36,556			$	1,180				3.2

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The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year changes:

		Increase (decrease) from 2016 (a):
		Domestic				Atlantic				Pacific				Latin				Total Consolidated				Mainline				Regional
Passenger revenue (in millions)		$	809			$	103			$	(128)			$	163			$	947			$	1,138			$	(191)
Passenger revenue			4.2 %				1.9%				(3.1)%				5.8%				3.0 %				4.5 %				(3.2)%
Average fare per passenger			0.1 %				1.4%				— %				4.1%				(0.4)%				(2.3)%				2.0 %
Yield			(0.4)%				0.9%				(2.2)%				4.1%				0.1 %				0.6 %				2.4 %
PRASM			(0.6)%				1.5%				(5.8)%				3.3%				(0.4)%				0.1 %				0.6 %
Passengers			4.2 %				0.5%				(3.1)%				1.7%				3.4 %				6.9 %				(5.0)%
RPMs (traffic)			4.7 %				0.9%				(0.9)%				1.6%				2.8 %				3.9 %				(5.4)%
ASMs (capacity)			4.9 %				0.4%				2.9 %				2.4%				3.5 %				4.4 %				(3.8)%
Passenger load factor (points)			(0.2)				0.4				(3.0)				(0.7)				(0.5)				(0.4)				(1.5)

(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics.

Consolidated passenger revenue increased $0.9 billion, or 3.0%, in 2017 as compared to 2016 primarily due to a 2.8% increase in traffic. Consolidated PRASM decreased 0.4% in 2017 as compared to 2016. The decline in PRASM was driven by factors including more aggressive low-cost carrier pricing in our hub markets, temporary share loss during roll-out of our Basic Economy pricing, and softer demand in China and Guam. Our revenue in 2017 was negatively impacted by severe storms during the third quarter.

Cargo revenue increased $159 million, or 18.2%, in 2017 as compared to 2016 due to higher year-over-year international freight volume and yield.

Operating Expense

The table below includes data related to the Company’s operating expense for the years ended December 31 (in millions, except percentage changes):

		2017				2016				Increase (Decrease)				% Change
Salaries and related costs		$	11,045			$	10,275			$	770				7.5
Aircraft fuel			6,913				5,813				1,100				18.9
Landing fees and other rent			2,240				2,165				75				3.5
Regional capacity purchase			2,232				2,197				35				1.6
Depreciation and amortization			2,149				1,977				172				8.7
Aircraft maintenance materials and outside repairs			1,856				1,749				107				6.1
Distribution expenses			1,349				1,303				46				3.5
Aircraft rent			621				680				(59)				(8.7)
Special charges			176				638				(462)				NM
Other operating expenses			5,657				5,421				236				4.4
Total operating expenses		$	34,238			$	32,218			$	2,020				6.3

Salaries and related costs increased $770 million, or 7.5%, in 2017 as compared to 2016 primarily due to higher pay rates and benefit expenses driven by collective bargaining agreements finalized in 2016, and a 2.5% increase

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in average full-time equivalent employees, partially offset by a decrease in profit sharing and other employee incentives.

Aircraft fuel expense increased $1.1 billion, or 18.9%, primarily due to increased fuel prices and a 3.5% increase in capacity. The table below presents the significant changes in aircraft fuel cost per gallon for the years ended December 31 (in millions, except percentage changes):

		(In millions)								% Change				Average price per gallon
		2017				2016					2017				2016				% Change
Total aircraft fuel purchase cost excluding fuel hedge impacts		$	6,911			$	5,596				23.5			$	1.74			$	1.43				21.7
Hedge losses reported in fuel expense			2				217				NM				—				0.06				NM
Fuel expense			6,913				5,813				18.9				1.74				1.49				16.8
Total fuel consumption (gallons)			3,978				3,904				1.9

Landing fees and other rent increased $75 million, or 3.5%, in 2017 as compared to the year-ago period due to higher rental and landing fee rates.

Regional capacity purchase costs increased $35 million, or 1.6%, in 2017 as compared to the year-ago period despite regional capacity being down 3.8% in 2017 as compared to 2016 due to increases in annual rates, maintenance cycle-related costs and lease return costs.

Depreciation and amortization increased $172 million, or 8.7%, in 2017 as compared to 2016 primarily due to additions of new and used aircraft, aircraft improvements and increases in information technology infrastructure and application development projects.

Aircraft maintenance materials and outside repairs increased $107 million, or 6.1%, in 2017 as compared to 2016 primarily due to an increase in airframe and engine maintenance visits and additional repairs to wireless and inflight entertainment equipment.

Aircraft rent decreased $59 million, or 8.7%, in 2017 as compared to 2016 primarily due to the purchase of leased aircraft and lower lease renewal rates.

The table below presents special charges incurred by the Company during the years ended December 31 (in millions):

		2017				2016
Severance and benefit costs		$	116			$	37
Impairment of assets			25				412
Cleveland airport lease restructuring			—				74
Labor agreement costs			—				64
(Gains) losses on sale of assets and other special charges			35				51
Total special charges		$	176			$	638

See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Other operating expenses increased $236 million, or 4.4%, in 2017 as compared to 2016 primarily due to increased costs in food, marketing and technology associated with the Company’s enhanced customer experience initiatives, and due to volume-driven increases in cargo trucking and handling costs.

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Nonoperating Income (Expense)

The following table illustrates the year-over-year dollar and percentage changes in the Company’s nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):

		2017				2016				Increase (Decrease)				% Change
Interest expense		$	(643)			$	(614)			$	29				4.7
Interest capitalized			84				72				12				16.7
Interest income			57				42				15				35.7
Miscellaneous, net			3				(19)				(22)				NM
Total nonoperating expense, net		$	(499)			$	(519)			$	(20)				(3.9)

2016 compared to 2015

Operating Revenue

The table below illustrates the year-over-year percentage change in the Company’s operating revenues for the years ended December 31 (in millions, except percentage changes):

		2016				2015				Increase (Decrease)				% Change
Passenger—Mainline		$	25,414			$	26,333			$	(919)				(3.5)
Passenger—Regional			6,043				6,452				(409)				(6.3)
Total passenger revenue			31,457				32,785				(1,328)				(4.1)
Cargo			876				937				(61)				(6.5)
Other operating revenue			4,223				4,142				81				2.0
Total operating revenue		$	36,556			$	37,864			$	(1,308)				(3.5)

The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year-over-year changes:

		Increase (decrease) in 2016 from 2015 (a):
		Domestic				Atlantic				Pacific				Latin				Total Consolidated				Mainline				Regional
Passenger revenue (in millions)		$	(523)			$	(512)			$	(215)			$	(78)			$	(1,328)			$	(919)			$	(409)
Passenger revenue			(2.7)%				(8.6)%				(4.9)%				(2.7)%				(4.1)%				(3.5)%				(6.3)%
Average fare per passenger			(4.7)%				(5.2)%				(5.6)%				(7.9)%				(5.9)%				(8.0)%				(2.2)%
Yield			(3.8)%				(4.6)%				(7.4)%				(7.7)%				(4.8)%				(4.8)%				(3.1)%
PRASM			(4.2)%				(8.4)%				(6.7)%				(5.5)%				(5.4)%				(5.5)%				(2.7)%
Passengers			2.1 %				(3.7)%				0.7 %				5.7 %				2.0 %				4.9 %				(4.3)%
RPMs (traffic)			1.1 %				(4.3)%				2.7 %				5.4 %				0.8 %				1.4 %				(3.4)%
ASMs (capacity)			1.6 %				(0.2)%				2.0 %				2.9 %				1.4 %				2.1 %				(3.7)%
Passenger load factor (points)			(0.3)				(3.3)				0.6				2.0				(0.5)				(0.6)				0.3

(a) See Part II, Item 6, Selected Financial Data, of this report for the definition of these statistics.

Consolidated passenger revenue decreased $1.3 billion, or 4.1%, in 2016 as compared to 2015. Consolidated PRASM decreased 5.4% in 2016 as compared to 2015. The decline in PRASM was driven by factors including a competitive domestic fare environment, lower surcharges, a strong U.S. dollar and reductions from energy-related corporate travel.

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Cargo revenue decreased $61 million, or 6.5%, in 2016 as compared to 2015 due to lower freight yields and lower mail volumes year-over-year, partially offset by an increase in freight volumes. Freight yields were negatively impacted as air freighter competitors increased capacity in response to lower fuel prices. Another contributing factor to the year-over-year decrease was a U.S. West Coast port labor dispute that resulted in an increase in air freight results in the first quarter of 2015. The labor dispute was resolved during the first quarter of 2015.

Operating Expense

The table below includes data related to the Company’s operating expense for the years ended December 31 (in millions, except percentage changes):

		2016				2015				Increase (Decrease)				% Change
Salaries and related costs		$	10,275			$	9,713			$	562				5.8
Aircraft fuel			5,813				7,522				(1,709)				(22.7)
Regional capacity purchase			2,197				2,290				(93)				(4.1)
Landing fees and other rent			2,165				2,203				(38)				(1.7)
Depreciation and amortization			1,977				1,819				158				8.7
Aircraft maintenance materials and outside repairs			1,749				1,651				98				5.9
Distribution expenses			1,303				1,342				(39)				(2.9)
Aircraft rent			680				754				(74)				(9.8)
Special charges			638				326				312				NM
Other operating expenses			5,421				5,078				343				6.8
Total operating expenses		$	32,218			$	32,698			$	(480)				(1.5)

Salaries and related costs increased $562 million, or 5.8%, in 2016 as compared to 2015 primarily due to higher pay rates and benefit expenses driven by new and extended collective bargaining agreements, an increase in employee incentive expenses due to improvements in operational performance and a 2.2% increase in average full-time equivalent employees, partially offset by a reduction in profit sharing expense in 2016 as compared to 2015, a reduction in medical and dental costs and the results of certain costs savings initiatives in 2016.

The decrease in aircraft fuel expense was primarily attributable to decreased fuel prices and a reduction in fuel hedge losses, partially offset by the impact of a 1.4% increase in capacity. 2016 fuel expense includes the benefit of a $20 million fuel tax refund. The table below presents the significant changes in aircraft fuel cost per gallon for the years ended December 31 (in millions, except percentage changes):

		(In millions)								% Change				Average price per gallon
		2016				2015					2016				2015				% Change
Total aircraft fuel purchase cost excluding fuel hedge impacts		$	5,596			$	6,918				(19.1)			$	1.43			$	1.78				(19.7)
Hedge losses reported in fuel expense			217				604				NM				0.06				0.16				NM
Fuel expense			5,813				7,522				(22.7)				1.49				1.94				(23.2)
Total fuel consumption (gallons)			3,904				3,886				0.5

Depreciation and amortization increased $158 million, or 8.7%, in 2016 as compared to 2015 primarily due to additions of new aircraft, conversions of operating leases to capital leases, aircraft improvements, accelerated depreciation of certain assets related to several fleet types and increases in information technology assets.

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Aircraft maintenance materials and outside repairs increased $98 million, or 5.9%, in 2016 as compared to 2015 primarily due to a year-over-year increase in airframe maintenance visits as a result of the cyclical timing of these visits and volume-driven increases in component costs, partially offset by a reduction in costs due to the timing of maintenance on certain engines.

Aircraft rent decreased $74 million, or 9.8%, in 2016 as compared to 2015 primarily due to lease expirations, the purchase or capital lease conversion of several operating leased aircraft and lower lease renewal rates for certain aircraft.

The table below presents special charges incurred by the Company during the years ended December 31 (in millions):

		2016				2015
Impairment of assets		$	412			$	79
Cleveland airport lease restructuring			74				—
Labor agreement costs			64				18
Severance and benefit costs			37				107
(Gains) losses on sale of assets and other special charges			51				122
Total special charges		$	638			$	326

See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Other operating expenses increased $343 million, or 6.8%, in 2016 as compared to 2015 primarily due to increases in ground handling costs, food and technology costs associated with the Company’s enhanced customer experience initiatives, rate-driven increases in hotel expenses for crews, increases in marketing expenses related to the 2016 Summer Olympics and volume-driven increases in cargo costs.

Nonoperating Income (Expense)

The following table illustrates the year-over-year dollar and percentage changes in the Company’s nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):

		2016				2015				Increase (Decrease)				% Change
Interest expense		$	(614)			$	(669)			$	(55)				(8.2)
Interest capitalized			72				49				23				46.9
Interest income			42				25				17				68.0
Miscellaneous, net			(19)				(352)				(333)				(94.6)
Total nonoperating expense, net		$	(519)			$	(947)			$	(428)				(45.2)

The decrease in interest expense of $55 million, or 8.2%, in 2016 as compared to 2015 was primarily due to the prepayment of certain debt issuances in 2015 and declining balances of other debt, partially offset by interest expense on debt issued for the acquisition of new aircraft, the conversion of certain operating leases to capital leases and certain constructed airport assets accounted for as capital leases.

In 2015, Miscellaneous, net included losses of $80 million from fuel derivatives not qualifying for hedge accounting. Foreign currency losses were approximately $43 million and $129 million in 2016 and 2015, respectively. Foreign currency results included $8 million and $61 million of foreign exchange losses for 2016 and 2015, respectively, related to the Company’s cash holdings in Venezuela. Miscellaneous, net for 2015 also includes a $134 million special charge related to the write-off of unamortized non-cash debt discounts for the early redemption of the 6% Notes due 2026 (the “2026 Notes”) and the 6% Notes due 2028 (the “2028 Notes”).

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Liquidity and Capital Resources

As of December 31, 2017, the Company had $3.8 billion in unrestricted cash, cash equivalents and short-term investments, a decrease of $0.6 billion from December 31, 2016. The Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the Company’s Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (as amended by the First Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of November 15, 2017, the “2017 Credit Agreement”) available for borrowings as of December 31, 2017. As of December 31, 2017, the Company had $109 million of restricted cash and cash equivalents, which is primarily collateral for letters of credit and collateral associated with obligations for facility leases and workers’ compensation. We may be required to post significant additional cash collateral to provide security for obligations. Restricted cash and cash equivalents at December 31, 2016 totaled $124 million.

We have a significant amount of fixed obligations, including debt, aircraft leases and financings, leases of airport property and other facilities and pension funding obligations. At December 31, 2017, the Company had approximately $14.4 billion of debt and capital lease obligations, including $1.7 billion that are due within the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of new aircraft and related spare engines. As of December 31, 2017, our current liabilities exceeded our current assets by approximately $5.6 billion. However, approximately $6.1 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel in the near future and not cash outlays. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations.

The Company will continue to evaluate opportunities to prepay its debt, including open market repurchases, to reduce its indebtedness and related interest.

For 2018, the Company expects between $3.6 billion and $3.8 billion of gross capital expenditures. See Note 13 to the financial statements included in Part II, Item 8 of this report for additional information on commitments.

As of December 31, 2017, a substantial portion of the Company’s assets, principally aircraft, route authorities, airport slots and loyalty program intangible assets, was pledged under various loan and other agreements. We must sustain our profitability and/or access the capital markets to meet our significant long-term debt and capital lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines. See Note 10 to the financial statements included in Part II, Item 8 of this report for additional information on assets provided as collateral by the Company.

The following is a discussion of the Company’s sources and uses of cash from 2015 through 2017.

Operating Activities

2017 compared to 2016

Cash flow provided by operations for the year ended December 31, 2017 was $3.4 billion compared to $5.5 billion in the same period in 2016, the decrease resulting from lower operating income and reduced cash flows from certain changes in working capital items. Excluding the non-cash impairment of the Newark slots, operating income for 2017 was approximately $1.2 billion lower than 2016. Working capital changes reduced cash flow from operations by an additional $1.2 billion year-over-year in 2017 as compared to 2016. The following were significant working capital items in 2017:

	•		$0.9 billion decrease in advanced purchase of miles due to increased utilization of pre-purchased miles.

	•		$0.4 billion increase in prepayments for maintenance contracts.

2016 compared to 2015

Cash flow provided by operations for the year ended December 31, 2016 was $5.5 billion compared to $6.0 billion in the same period in 2015. Working capital changes reduced cash flow from operations by

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$0.5 billion year-over-year in 2016 as compared to 2015. The following were significant working capital items in 2016:

	•		Frequent flyer and advance purchase of miles decreased $0.6 billion due to increased utilization of pre-purchased miles.

	•		Other assets, including spare parts, increased by $0.3 billion as part of the Company’s efforts to improve fleet reliability.

	•		Accounts payable increased $0.2 billion, driven by the timing of payments.

Investing Activities

2017 compared to 2016

The Company’s capital expenditures were $4.0 billion and $3.2 billion in 2017 and 2016, respectively. The Company’s capital expenditures for both years were primarily attributable to the purchase of new aircraft, aircraft improvements, facility and fleet-related costs and the purchase of information technology assets.

2016 compared to 2015

The Company’s capital expenditures were $3.2 billion and $2.7 billion in 2016 and 2015, respectively. The Company’s capital expenditures for both years were primarily attributable to the purchase of aircraft, facility and fleet-related costs and the purchase of information technology assets.

Financing Activities

Significant financing events in 2017 were as follows:

Share Repurchases

The Company used $1.8 billion of cash to purchase approximately 28 million shares of its common stock during 2017, completing its July 2016 repurchase authorization. In December 2017, UAL’s Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL’s common stock. As of December 31, 2017, the Company had approximately $3.0 billion remaining to purchase shares under its share repurchase program.

Debt Issuances

During 2017, United received and recorded $1.8 billion of proceeds as debt related to enhanced equipment trust certificate (“EETC”) offerings created in 2016 and 2017 to finance the purchase of aircraft.

In 2017, UAL issued, and United guaranteed, (i) $400 million aggregate principal amount of unsecured 4.25% Senior Notes due October 1, 2022, and (ii) $300 million aggregate principal amount of unsecured 5% Senior Notes due February 1, 2024.

In 2017, United and UAL, as borrower and guarantor, respectively, increased the term loan under the 2017 Credit Agreement by approximately $440 million.

During 2017, United borrowed approximately $497 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017.

Debt and Capital Lease Principal Payments

During the year ended December 31, 2017, the Company made debt and capital lease principal payments of $1.0 billion.

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Significant financing events in 2016 were as follows:

Share Repurchases

The Company used $2.6 billion of cash to purchase 50 million shares of its common stock during 2016 under its share repurchase programs.

Debt Issuances

In 2016, United completed two EETC offerings for a total principal amount of $2.0 billion. Of the $2.0 billion, United received and recorded $708 million of proceeds as debt as of December 31, 2016 to finance the purchase of 17 aircraft.

In 2016, United borrowed approximately $369 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2016.

Debt and Capital Lease Principal Payments

During the year ended December 31, 2016, the Company made debt and capital lease principal payments of $1.4 billion.

Significant financing events in 2015 were as follows:

Share Repurchases

The Company used $1.2 billion of cash to purchase 21 million shares of its common stock during 2015 under its share repurchase programs.

Debt Issuances

During 2015, United issued $1.4 billion of debt related to EETC offerings to finance aircraft.

In 2015, United borrowed approximately $590 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2015.

Debt and Capital Lease Principal Payments

During the year ended December 31, 2015, the Company made debt and capital lease principal payments of $2.3 billion, including the following prepayments:

	•		UAL used cash to repurchase all $321 million par value 2026 Notes.

	•		UAL used cash to repurchase all $311 million par value 2028 Notes.

	•		UAL used cash to prepay, at par, $300 million principal amount of its $500 million term loan due September 2021.

For additional information regarding these Liquidity and Capital Resource matters, see Notes 3, 10, 11 and 12 to the financial statements included in Part II, Item 8 of this report. For information regarding non-cash investing and financing activities, see the Company’s statements of consolidated cash flows.

Credit Ratings. As of the filing date of this report, UAL and United had the following corporate credit ratings:

				S&P		Moody’s		Fitch
		UAL		BB-		Ba2		BB
		United		BB-		*		BB
		*The credit agency does not issue corporate credit ratings for subsidiary entities.

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These credit ratings are below investment grade levels. Downgrades from these rating levels, among other things, could restrict the availability, or increase the cost, of future financing for the Company.

Other Liquidity Matters

Below is a summary of additional liquidity matters. See the indicated notes to our consolidated financial statements included in Part II, Item 8 of this report for additional details related to these and other matters affecting our liquidity and commitments.

Pension and other postretirement plans		Note 8
Long-term debt and debt covenants		Note 10
Leases and capacity purchase agreements		Note 11
Commitments and contingencies		Note 13

Contractual Obligations. The Company’s business is capital intensive, requiring significant amounts of capital to fund the acquisition of assets, particularly aircraft. In the past, the Company has funded the acquisition of aircraft through outright purchase, by issuing debt, by entering into capital or operating leases, or through vendor financings. The Company also often enters into long-term lease commitments with airports to ensure access to terminal, cargo, maintenance and other required facilities.

The table below provides a summary of the Company’s material contractual obligations as of December 31, 2017 (in billions):

		2018				2019				2020				2021				2022				After 2022				Total
Long-term debt (a)		$	1.6			$	1.2			$	1.2			$	1.2			$	1.5			$	6.9			$	13.4
Capital lease obligations—principal portion			0.1				0.1				0.1				0.1				0.1				0.8				1.1
Total debt and capital lease obligations			1.7				1.3				1.3				1.3				1.6				7.7				14.5
Interest on debt and capital lease obligations (b)			0.6				0.5				0.5				0.4				0.4				1.0				3.4
Aircraft operating lease obligations			1.0				0.9				0.6				0.5				0.4				1.5				4.9
Regional CPAs (c)			2.0				1.8				1.6				1.5				1.4				3.2				11.5
Other operating lease obligations			1.2				1.1				1.2				0.9				0.8				6.1				11.3
Postretirement obligations (d)			0.1				0.1				0.1				0.1				0.1				0.6				1.1
Pension obligations (e)			—				—				—				—				0.1				0.7				0.8
Capital purchase obligations (f)			3.2				2.9				2.1				2.4				1.8				9.8				22.2
Total contractual obligations		$	9.8			$	8.6			$	7.4			$	7.1			$	6.6			$	30.6			$	69.7

(a)	Long-term debt presented in the Company’s financial statements is net of $163 million of debt discount, premiums and debt issuance costs which are being amortized over the debt terms. Contractual payments are not net of the debt discount, premiums and debt issuance costs.

(b)	Includes interest portion of capital lease obligations of $72 million in 2018, $63 million in 2019, $59 million in 2020, $56 million in 2021, $52 million in 2022 and $391 million thereafter. Interest payments on variable interest rate debt were calculated using London interbank offered rates (“LIBOR”) applicable at December 31, 2017.

(c)

Represents our estimates of future minimum noncancelable commitments under our CPAs and does not include the portion of the underlying obligations for aircraft and facility rent that is disclosed as part of aircraft and nonaircraft operating leases. Amounts also exclude a portion of United’s capital lease obligation recorded for certain of its CPAs. See Note 11 to the financial statements included in Part II, Item 8 of this report for the significant assumptions used to estimate the payments.

(d)	Amounts represent postretirement benefit payments, net of subsidy receipts, through 2026. Benefit payments approximate plan contributions as plans are substantially unfunded.

(e)	Represents an estimate of the minimum funding requirements as determined by government regulations for United’s U.S. pension plans. Amounts are subject to change based on numerous assumptions, including the performance of assets in the plans and bond rates. See Critical Accounting Policies, below, for a discussion of our current year assumptions regarding United’s pension plans.

(f)	Represents contractual commitments for firm order aircraft, spare engines and other capital purchase commitments. See Note 13 to the financial statements included in Part II, Item 8 of this report for a discussion of our purchase commitments.

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Off-Balance Sheet Arrangements. An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support, or that engages in leasing, hedging or research and development arrangements. The Company’s primary off-balance sheet arrangements include operating leases, which are summarized in the contractual obligations table under Contractual Obligations, above, and certain municipal bond obligations, as discussed below.

As of December 31, 2017, United had cash collateralized $75 million of letters of credit. United also had $362 million of surety bonds securing various obligations at December 31, 2017. Most of the letters of credit have evergreen clauses and are expected to be renewed on an annual basis. The surety bonds have expiration dates through 2021.

As of December 31, 2017, United is the guarantor of approximately $1.8 billion in aggregate principal amount of tax-exempt special facilities revenue bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the respective governing bodies. The leasing arrangements associated with a majority of these obligations are accounted for as operating leases. The leasing arrangements associated with a portion of these obligations are accounted for as capital leases. The annual lease payments for those obligations are included in the contractual obligations table under Contractual Obligations, above.

As of December 31, 2017, United is the guarantor of $157 million of aircraft mortgage debt issued by one of United’s regional carriers. The aircraft mortgage debt is subject to increased cost provisions and the Company would potentially be responsible for those costs under the guarantees. The increased cost provisions in the $157 million of aircraft mortgage debt are similar to those in certain of the Company’s debt agreements. See discussion under Increased Cost Provisions, below, for additional information on increased cost provisions related to the Company’s debt.

EETCs. As of December 31, 2017, United had $8.6 billion principal amount of equipment notes outstanding issued under EETC financings. Generally, the structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on United’s consolidated balance sheet because the proceeds held by the depositary are not United’s assets.

Increased Cost Provisions. In United’s financing transactions that include loans, United typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on LIBOR, for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At December 31, 2017, the Company had $3.4 billion of floating rate debt and $60 million of fixed rate debt, with remaining terms of up to 11 years, that are subject to these increased cost provisions. In several financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to 11 years and an aggregate balance of $3.3 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S. entities to withholding taxes, subject to customary exclusions.

Fuel Consortia. United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The

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consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2017, approximately $1.5 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2017, the Company’s contingent exposure was approximately $244 million principal amount of such bonds based on its recent consortia participation. The Company’s contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire when the tax-exempt bonds are paid in full, which ranges from 2022 to 2049. The Company did not record a liability at the time these indirect guarantees were made.

Critical Accounting Policies

Critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially different accounting under different assumptions and conditions. The Company has prepared the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates under different assumptions or conditions. The Company has identified the following critical accounting policies that impact the preparation of the financial statements.

Revenue Recognition. The Company records passenger ticket sales and tickets sold by other airlines for use on United as passenger revenue when the transportation is provided or upon estimated breakage. The value of unused passenger tickets is included in current liabilities as Advance ticket sales. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records a reserve against its interline billings and payables if historical experience indicates that these amounts are different. Non-refundable tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date. Basic Economy tickets cannot be extended and refunds are not allowed except for ticket cancellations that are within 24 hours of purchase and one week or more prior to the original scheduled departure flight.

Fees charged in association with changes or extensions to non-refundable tickets are recorded as other revenue at the time the fee is incurred. The fare on the changed ticket, including any additional collection of fare, is deferred and recognized in accordance with our transportation revenue recognition policy at the time the transportation is provided. Change fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company’s additional service to modify a previous sale. Therefore, the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes.

The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the evaluation of actual historical results and forecasted trends. Refundable tickets expire after one year from the date of issuance.

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”). Topic 606 prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard impacts the classification of certain revenue streams and affects the timing of revenue and expense recognition for others. For the Company, the most significant impact of the standard is the reclassification of certain ancillary fees from other operating revenue into passenger revenue on the statement of consolidated operations. For 2016 and 2017, the amount to be

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reclassified at adoption of the new standard from other operating revenue into passenger revenue under Topic 606 is approximately $2.0 billion and $2.1 billion, respectively. These ancillary fees are directly related to passenger travel, such as ticket change fees and baggage fees, and will no longer be considered distinct performance obligations separate from the passenger travel component. In addition, the ticket change fees, which were previously recognized when received, will be recognized when transportation is provided. On January 1, 2018, we adopted Topic 606 using the full-retrospective approach. See Note 1 to the financial statements included in Part II, Item 8 of this report for additional information on recently issued accounting standards.

Frequent Flyer Accounting. United’s MileagePlus program is designed to increase customer loyalty. Program participants earn miles by flying on United and certain other participating airlines. Program participants can also earn miles through purchases from other non-airline partners that participate in United’s loyalty program. We sell miles to these partners, which include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded air travel and non-travel awards. The Company records its obligation for future award redemptions using a deferred revenue model.

When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement. The Company determines the estimated selling price of air transportation and miles as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro rata basis. The miles are recorded in Frequent flyer deferred revenue on the Company’s consolidated balance sheet and recognized into revenue when the transportation is provided.

The Company’s estimated selling price of miles is based on an equivalent ticket value less fulfillment discount, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles. The equivalent ticket value is based on the prior 12 months’ weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region. The estimated selling price of miles is adjusted by a fulfillment discount that considers a number of factors, including redemption patterns of various customer groups.

United has a significant contract to sell MileagePlus miles to its co-branded credit card partner, Chase. United identified the following significant revenue elements in its Second Amended and Restated Co-Branded Card Marketing Services Agreement (the “Co-Brand Agreement”): the air transportation element represented by the value of the mile (generally resulting from its redemption for future air transportation and whose fair value is described above); use of the United brand and access to MileagePlus member lists; advertising; and other travel related benefits.

The fair value of the elements is determined using management’s estimated selling price of each element. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of the Co-Brand Agreement in order to determine the allocation of proceeds to each of the multiple elements to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of estimated selling price on a prospective basis.

The Company records passenger revenue related to the air transportation element when the transportation is delivered. The other elements are generally recognized as Other operating revenue when earned.

The Company accounts for miles sold and awarded that will never be redeemed by program members, which we refer to as breakage. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. Miles expire after 18 months of member account

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inactivity. The Company’s estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the programs.

The following table summarizes information related to the Company’s Frequent flyer deferred revenue liability:

Frequent flyer deferred revenue at December 31, 2017 (in millions)		$	4,741
Percentage of miles earned expected to expire			18%
Impact of 1% change in outstanding miles or weighted average ticket value on deferred revenue (in millions)		$	53

Long-Lived Assets. The net book value of operating property and equipment for the Company was $26 billion and $23 billion at December 31, 2017 and 2016, respectively. The assets’ recorded value is impacted by a number of accounting policy elections, including the estimation of useful lives and residual values and, when necessary, the recognition of asset impairment charges.

The Company records assets acquired, including aircraft, at acquisition cost. Depreciable life is determined through economic analysis, such as reviewing existing fleet plans, obtaining appraisals and comparing estimated lives to other airlines that operate similar fleets. The Company has generally estimated the lives of those aircraft to be between 25 and 30 years. Residual values are estimated based on historical experience with regard to the sale of both aircraft and spare parts and are established in conjunction with the estimated useful lives of the related fleets. Residual values are based on when the aircraft are acquired and typically reflect asset values that have not reached the end of their physical life. Both depreciable lives and residual values are revised periodically as facts and circumstances arise to recognize changes in the Company’s fleet plan and other relevant information. A one-year increase in the average depreciable life of the Company’s flight equipment would reduce annual depreciation expense on flight equipment by approximately $76 million.

The Company evaluates the carrying value of long-lived assets and intangible assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows for purposes of testing aircraft for impairment. An impairment charge is recognized when the asset’s carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s carrying value and fair market value.

See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information.

Indefinite-lived intangible assets. The Company has indefinite-lived intangible assets, including goodwill. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. An impairment occurs when the fair value of an intangible asset is less than its carrying value. In 2017, the Hong Kong routes had a fair value cushion that was less than 10% of its carrying value. The value of the routes was negatively impacted by the slowdown of the Hong Kong market coupled with industry oversupply. As a result, this intangible asset is susceptible to impairment risk from adverse changes in this particular market. While management has implemented strategies to address the shifts in supply and demand dynamics, further adverse changes could reduce the underlying cash flows used to estimate fair value and could trigger impairment charges of the Hong Kong routes.

See Note 2 to the financial statements included in Part II, Item 8 of this report for additional information.

Defined Benefit Plan Accounting. We sponsor defined benefit pension plans for eligible employees and retirees. The most critical assumptions impacting our defined benefit pension plan obligations and expenses are the weighted average discount rate and the expected long-term rate of return on the plan assets.

United’s pension plans’ under-funded status was $1.9 billion at December 31, 2017. Funding requirements for tax-qualified defined benefit pension plans are determined by government regulations. In 2018, we anticipate

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contributing at least $420 million to our pension plans. The fair value of the plans’ assets was $3.9 billion at December 31, 2017.

When calculating pension expense for 2018, the Company assumed that its plans’ assets would generate a long-term rate of return of approximately 7.3%. The expected long-term rate of return assumption was developed based on historical experience and input from the trustee managing the plans’ assets. The expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on a goal of earning the highest rate of return while maintaining risk at acceptable levels. Our projected long-term rate of return reflects the active management of our plans’ assets. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review actual asset allocation and the pension plans’ investments are periodically rebalanced to the targeted allocation when considered appropriate.

The defined benefit pension plans’ assets consist of return generating investments and risk mitigating investments which are held through direct ownership or through interests in common collective trusts. Return generating investments include primarily equity securities, fixed-income securities and alternative investments (e.g. private equity and hedge funds). Risk mitigating investments include primarily U.S. government and investment grade corporate fixed-income securities. The allocation of assets was as follows at December 31, 2017:

		Percent of Total				Expected Long-Term Rate of Return
Equity securities			36 %				9.5 %
Fixed-income securities			37				5.5
Alternatives			16				7.3
Other			11				7.3

Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return on plan assets by 50 basis points (from 7.3% to 6.8%) would increase estimated 2018 pension expense by approximately $20 million. Future pension obligations for United’s plans were discounted using a weighted average rate of 3.65% at December 31, 2017. The Company selected the discount rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2017 that would provide the necessary cash flows to match the projected benefit payments. The pension liability and future pension expense both increase as the discount rate is reduced. Lowering the discount rate by 50 basis points (from 3.65% to 3.15%) would increase the pension liability at December 31, 2017 by approximately $651 million and increase the estimated 2018 pension expense by approximately $80 million. Future changes in plan asset returns, plan provisions, assumed discount rates, pension funding law and various other factors related to the participants in our pension plans will impact our future pension expense and liabilities. We cannot predict with certainty what these factors will be in the future.

Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions. Under the applicable accounting standards for defined benefit pension plans, those gains and losses are not required to be recognized currently as pension benefit expense, but instead may be deferred as part of accumulated other comprehensive income and amortized into expense over the average remaining service life of the covered active employees. All gains and losses in accumulated other comprehensive income are amortized to expense over the remaining years of service of the covered active employees. At December 31, 2017 and 2016, the Company had unrecognized actuarial losses for pension benefit plans of $1.6 billion and $1.5 billion, respectively, recorded in accumulated other comprehensive income.

Other Postretirement Benefit Plan Accounting. United’s postretirement plan provides certain health care benefits, primarily in the United States, to retirees and eligible dependents, as well as certain life insurance benefits to certain retirees reflected as “Other Benefits.” United also has retiree medical programs that permit retirees who meet certain age and service requirements to continue medical coverage between retirement and

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Medicare eligibility. Eligible employees are required to pay a portion of the costs of their retiree medical benefits, which in some cases may be offset by accumulated unused sick time at the time of their retirement. Plan benefits are subject to co-payments, deductibles and other limits as described in the plans.

The Company accounts for other postretirement benefits by recognizing the difference between plan assets and obligations, or the plan’s funded status, in its financial statements. Other postretirement benefit expense is recognized on an accrual basis over employees’ approximate service periods and is generally calculated independently of funding decisions or requirements. United has not been required to pre-fund its plan obligations, which has resulted in a significant net obligation, as discussed below. The Company’s benefit obligation was $1.7 billion for the other postretirement benefit plans at December 31, 2017 and 2016.

The calculation of other postretirement benefit expense and obligations requires the use of a number of assumptions, including the assumed discount rate for measuring future payment obligations and the health care cost trend rate. The Company determines the appropriate discount rate for each of the plans based on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due. The Company’s weighted average discount rate to determine its benefit obligations as of December 31, 2017 was 3.63%, as compared to 4.07% for December 31, 2016. The health care cost trend rate assumed for 2017 was 6.50%, declining to 5.0% in 2023, as compared to assumed trend rate for 2018 of 6.25%, declining to 5.0% in 2023. A 1% increase in assumed health care trend rates would increase the Company’s total service and interest cost for the year ended December 31, 2017 by $11 million; whereas, a 1% decrease in assumed health care trend rates would decrease the Company’s total service and interest cost for the year ended December 31, 2017 by $8 million. A one percentage point decrease in the weighted average discount rate would increase the Company’s postretirement benefit liability by approximately $185 million and increase the estimated 2017 benefits expense by approximately $8 million.

Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions and prior service credits result from a retroactive reduction in benefits due under the plans. Under the applicable accounting standards for postretirement welfare benefit plans, actuarial gains and losses and prior service credits are not required to be recognized currently, but instead may be deferred as part of accumulated other comprehensive income and amortized into expense over the average remaining service life of the covered active employees or the average life expectancy of inactive participants. At December 31, 2017 and 2016, the Company had unrecognized actuarial gains for postretirement welfare benefit plans of $301 million and $384 million, respectively, recorded in accumulated other comprehensive income.

Income Taxes. The Tax Act, among other changes, reduces the federal corporate income tax rate to 21% beginning in 2018, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, we had not completed our analysis of all aspects of the Tax Act. However, we have made a provisional estimate for its effect on our existing deferred tax balances and the one-time transition tax. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. We are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

Forward-Looking Information

Certain statements throughout Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report are forward-looking and thus reflect the Company’s current expectations and beliefs with respect to certain current and future events and anticipated financial and operating performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to the Company’s operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as “expects,” “will,” “plans,” “anticipates,” “indicates,” “believes,” “estimates,” “forecast,” “guidance,” “outlook,” “goals” and similar expressions are intended to identify forward-looking statements.

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Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law.

Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); economic and political instability and other risks of doing business globally; demand for travel and the impact that global economic and political conditions have on customer travel patterns; competitive pressures on pricing and on demand; demand for transportation in the markets in which we operate; our capacity decisions and the capacity decisions of our competitors; the effects of any hostilities, act of war or terrorist attack; the effects of any technology failures or cybersecurity breaches; the impact of regulatory, investigative and legal proceedings and legal compliance risks; disruptions to our regional network; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; costs associated with any modification or termination of our aircraft orders; potential reputational or other impact from adverse events in our operations, the operations of our regional carriers or the operations of our code share partners; our ability to attract and retain customers; our ability to execute our operational plans and revenue-generating initiatives, including optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; the impact of any management changes; our ability to cost-effectively hedge against increases in the price of aircraft fuel if we decide to do so; any potential realized or unrealized gains or losses related to any fuel or currency hedging programs; labor costs; our ability to maintain satisfactory labor relations and the results of any collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; an outbreak of a disease that affects travel demand or travel behavior; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements and environmental regulations); industry consolidation or changes in airline alliances; our ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; the costs and availability of aviation and other insurance; weather conditions; our ability to utilize our net operating losses to offset future taxable income; the impact of changes in tax laws; the success of our investments in airlines in other parts of the world; and other risks and uncertainties set forth under Part I, Item 1A., Risk Factors, of this report, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC.