Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2016

Financial Instruments and Fair Value Measurements

NOTE 6 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The table below presents disclosures about the financial assets and liabilities measured at fair value on a recurring basis in the Company’s financial statements (in millions):

	June 30, 2016								December 31, 2015
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	2,483	$	2,483	$	—	$	—	$	3,006	$	3,006	$	—	$	—
Short-term investments:
Corporate debt		872		—		872		—		891		—		891		—
Asset-backed securities		710		—		710		—		710		—		710		—
Certificates of deposit placed through an account registry service (“CDARS”)		261		—		261		—		281		—		281		—
U.S. government and agency notes		106		—		106		—		72		—		72		—
Auction rate securities		9		—		—		9		9		—		—		9
Other fixed-income securities		43		—		43		—		26		—		26		—
Other investments measured at NAV (a)		201		—		—		—		201		—		—		—
Enhanced equipment trust certificates (“EETC”)		24		—		—		24		26		—		—		26
Fuel derivatives liability, net		7		—		7		—		124		—		124		—
Foreign currency derivatives liability, net		1		—		1		—		—		—		—		—
Restricted cash		167		167		—		—		206		206		—		—

(a) In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The investments measured using NAV are shares of mutual funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. The Company can redeem its shares at any time at NAV subject to a three-day settlement period.

Available-for-sale investment maturities - The short-term investments shown in the table above are classified as available-for-sale. As of June 30, 2016, asset-backed securities have remaining maturities of less than one year to approximately 33 years, corporate debt securities have remaining maturities of less than one year to approximately six years and CDARS have maturities of less than one year. U.S. government and other securities have maturities of less than one year to approximately three years. The EETC securities mature in 2019.

Derivative instruments and investments presented in the tables above have the same fair value as their carrying value. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above (in millions):

	Fair Value of Debt by Fair Value Hierarchy Level
	June 30, 2016										December 31, 2015
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
Long-term debt	$	10,547	$	11,141	$	—	$	8,425	$	2,716	$	10,897	$	11,371	$	—	$	8,646	$	2,725

Fair value of the financial instruments included in the tables above was determined as follows:

Description	Fair Value Methodology
Cash and cash equivalents	The carrying amounts approximate fair value because of the short-term maturity of these assets.
Short-term investments and Restricted cash	Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, (c) internally-developed models of the expected future cash flows related to the securities, or (d) broker quotes obtained by third-party valuation services.
Fuel derivatives	Derivative contracts are privately negotiated contracts and are not exchange traded. Fair value measurements are estimated with option pricing models that employ observable inputs. Inputs to the valuation models include contractual terms, market prices, yield curves, fuel price curves and measures of volatility, among others.
Foreign currency derivatives	Fair value is determined with a formula utilizing observable inputs. Significant inputs to the valuation models include contractual terms, risk-free interest rates and forward exchange rates.
Debt	Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities.