AAL 2019 Proxy Statement

2018 Compensation Decisions and Outcomes Reflected Our Pay for Performance Philosophy We design our annual and long-term incentives to include performance metrics that focus on profitability, operating efficiency and investor returns, and our named executive officers’ 2018 compensation outcomes reflected our performance on those measures. Limited Increases to 2018 Target Direct Compensation. We made only limited increases of 2.5% in the target cash compensation and 3% in the target long-term incentive compensation provided to our named executive officers, which was consistent with the overall budgeted increase for the general management population. Mr. Parker’s 2018 total target direct compensation (which is provided 100% in the form of long-term equity incentives) was below the average total direct compensation of his peers at Delta and United (using the most recently publicly available data as of May 2018). The target direct compensation provided to our other named executive officers is competitive with that of the other large network airlines. In addition, between 85% and 90% of their 2018 total target compensation was comprised of variable pay. As a result, the compensation ultimately realized by our other named executive officers will be significantly determined by our financial performance and the performance of our stock, and is therefore closely aligned with the interests of our stockholders. Only ~50% of Target Bonus Earned. Our 2018 STIP was based on pre-established adjusted pre-tax income targets (excluding special items, profit sharing and annual incentive programs and related payroll taxes and 401(k) company contributions). We believe that pre-tax income is the most effective measure for assessing our executive officers’ contributions to our financial performance. Under the program, the target payment was payable if we earned $5.0 billion in adjusted pre-tax income in 2018, which the Compensation Committee believed would be a challenging goal, and no incentive would be earned if adjusted pre-tax income was below $3.0 billion. The Compensation Committee is committed to setting rigorous goals under the short-term incentive program and set these levels following consideration of budgeted performance, taking into account fuel price environment and other broad market factors, as well as plan design considerations. Based on our achievement of 2018 adjusted pre-tax income (excluding special items, profit sharing and annual incentive programs and related payroll taxes and 401(k) company contributions) of $3.0 billion, our named executive officers (other than Mr. Parker, whose compensation is provided 100% in the form of equity incentives) were awarded only 50.5% of their 2018 target bonuses under the 2018 STIP. Corresponding Reduction to 2019 Long-Term Incentive Grant. At Mr. Parker’s request, the target value for his 2019 long-term incentive grant was also decreased by $700,000. This decrease approximates the economic impact of our 2018 performance under the 2018 STIP to his compensation as if he had been a participant in the program and is in addition to the significant impact our adjusted pre-tax net income performance has had on the performance- vesting component of Mr. Parker’s 2018 compensation, as detailed below. Performance-Vesting RSUs Earned or Tracking Below Target. For 2018, we continued the structure of our long- term incentive program, which for our named executive officers incorporates both performance- and time-vesting RSU components, with the performance-vesting component weighted at least 50% by value to further align management and stockholder interests. Because they are delivered in shares of our Company’s stock, the value of RSUs that comprise our executives’ equity incentives is directly aligned with stockholder returns. Moreover, the performance-vesting component of the RSUs will be earned not earlier than the third anniversary of the grant date based on our relative three-year pre-tax income margin as compared to that of a pre-defined group of airlines, and the number of shares earned is further adjusted upward or downward by up to 25% based on our three-year TSR relative to that of the same pre-defined group of airlines. Relative pre-tax income margin maintains a focus on long- term profitability and operating efficiency, and we believe it is an effective measure of relative financial performance in our industry. Adjusting performance achievement positively or negatively based on relative TSR demonstrates our commitment to generating returns for our stockholders and further aligns management interests with stockholder interests. Under the performance-vesting component of the RSUs, the number of shares earned will vary between 50% and 200% of the target number of performance-vesting RSUs originally awarded, depending on our relative performance on both pre-tax income margin and three-year TSR, and no shares will be earned if threshold performance on the pre-tax income margin measure is not achieved. In addition, if the Company’s absolute TSR over the measurement period is negative, no upward adjustment will be made to the payout based on this modifier, and the maximum number of shares that may be earned will be capped at 160%. Each named executive officer held three outstanding awards of performance-vesting RSUs as of the end of 2018. The 2016 grant was earned and each of the 2017 and 2018 grants are tracking at well below target (at 72.5% with respect to the 2016 grant, at 58.5% with respect to the 2017 grant and at 54.7% with respect to the 2018 grant).

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2019 Proxy Statement |