Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

•Level 1. Observable inputs such as quoted prices in active markets.

•Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

•Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows:

(a)Market Approach. Prices and other relevant information generated by observable transactions involving identical or comparable assets or liabilities; and

(b)Income Approach. Techniques to convert future amounts to a single present value amount based on market expectations (including present value techniques and option-pricing models).

Assets (Liabilities) Measured at Fair Value on a Recurring Basis(1)

	December 31, 2020								Valuation Technique
(in millions)	Total		Level 1		Level 2		Level 3
Cash equivalents	$	5,755	$	5,755	$	—	$	—	(a)
Restricted cash equivalents	1,747		1,747		—		—		(a)
Short-term investments
U.S. Government securities	5,789		3,919		1,870		—		(a)
Long-term investments	1,417		948		38		431		(a)(b)
Hedge derivatives, net
Fuel hedge contracts	(9)		—		(9)		—		(a)(b)
Interest rate contracts	23		—		23		—		(a)
Foreign currency exchange contracts	(13)		—		(13)		—		(a)

	December 31, 2019								Valuation Technique
(in millions)	Total		Level 1		Level 2		Level 3
Cash equivalents	$	586	$	586	$	—	$	—	(a)
Restricted cash equivalents	847		847		—		—		(a)
Long-term investments	1,099		881		33		185		(a)(b)
Hedge derivatives, net
Fuel hedge contracts	1		(1)		2		—		(a)(b)
Interest rate contracts	61		—		61		—		(a)
Foreign currency exchange contracts	6		—		6		—		(a)

(1)See Note 11, "Employee Benefit Plans," for fair value of benefit plan assets.

Cash Equivalents and Restricted Cash Equivalents. Cash equivalents generally consist of money market funds. Restricted cash equivalents are recorded in prepaid expenses and other and cash restricted for airport construction on our balance sheet and generally consist of money market funds, time deposits, commercial paper and negotiable certificates of deposit, which primarily relate to proceeds from debt issued to finance, among other things, a portion of the construction costs for our new terminal facilities at New York's LaGuardia Airport. The fair value of these cash equivalents is based on a market approach using prices generated by market transactions involving identical or comparable assets.

Short-Term Investments. The fair values of our short-term investments are based on a market approach using industry standard valuation techniques that incorporate observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security or other observable information.

Long-Term Investments. Our long-term investments that are measured at fair value primarily consist of equity investments, which are valued based on market prices or other observable transactions and inputs, and are recorded in equity investments on our balance sheet. In addition, our equity investments in private companies (such as the interests we received in Wheels Up during 2020), are classified as Level 3 in the fair value hierarchy as their equity is not traded on a public exchange and our valuations incorporate certain unobservable inputs, including non-public equity issuances and forecasts provided by our investees. Our equity investments in LATAM and Grupo Aeroméxico, which have no remaining value following impairment charges recorded in 2020 due to their entry into bankruptcy proceedings, became classified as Level 3 fair value investments during 2020. Fair value measurement using unobservable inputs is inherently uncertain, and a change in significant inputs could result in different fair values. During the year ended December 31, 2020 there were no material gains or losses as a result of fair value adjustments. See Note 5, "Investments," for further information on our long-term investments.

Hedge Derivatives. A portion of our derivative contracts are negotiated over-the-counter with counterparties without going through a public exchange. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk). Such contracts are classified as Level 2 within the fair value hierarchy. The remainder of our hedge contracts are comprised of futures contracts, which are traded on a public exchange. These contracts are classified within Level 1 of the fair value hierarchy.

•Fuel Hedge Contracts. Our fuel hedge portfolio consists of options, swaps and futures. Option and swap contracts are valued under income approaches using option pricing models and discounted cash flow models, respectively, based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets. Futures contracts and options on futures contracts are traded on a public exchange and valued based on quoted market prices.

•Interest Rate Contracts. Our interest rate derivatives are swap contracts, which are valued based on data readily observable in public markets.

•Foreign Currency Exchange Contracts. Our foreign currency derivatives consist of forward contracts and are valued based on data readily observable in public markets.