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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-5424
deltacra01a01a01a02a58.jpg
DELTA AIR LINES, INC.
(Exact name of registrant as specified in its charter)
Delaware
58-0218548
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Post Office Box 20706
 
 
Atlanta
,
Georgia
 
30320-6001
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (404) 715-2600
Title of each class
 
Name of each exchange on which registered
 
Trading Symbol
Common Stock, par value $0.0001 per share
 
New York Stock Exchange
 
DAL
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Non-accelerated filer 
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Number of shares outstanding by each class of common stock, as of September 30, 2019:
Common Stock, $0.0001 par value - 646,742,854 shares outstanding
This document is also available through our website at http://ir.delta.com/.
 



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 




Unless otherwise indicated, the terms "Delta," "we," "us" and "our" refer to Delta Air Lines, Inc. and its subsidiaries.

FORWARD-LOOKING STATEMENTS

Statements in this Form 10-Q (or otherwise made by us or on our behalf) that are not historical facts, including statements about our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Known material risk factors applicable to Delta are described in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 ("Form 10-K"), other than risks that could apply to any issuer or offering. All forward-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report.


1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Delta Air Lines, Inc.

Results of Review of Interim Financial Statements
        
We have reviewed the accompanying consolidated balance sheet of Delta Air Lines, Inc. (the Company) as of September 30, 2019, the related condensed consolidated statements of operations and comprehensive income, and the consolidated statements of stockholders' equity for the three-month and nine-month periods ended September 30, 2019 and 2018, the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2019 and 2018 and the related notes (collectively referred to as the "condensed consolidated interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of Delta Air Lines, Inc. as of December 31, 2018, the related consolidated statements of operations, comprehensive income, cash flows, and stockholders' equity for the year then ended, and the related notes (not presented herein); and in our report dated February 15, 2019, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

            

 
/s/ Ernst & Young LLP
Atlanta, Georgia
 
October 10, 2019
 


2



DELTA AIR LINES, INC.
Consolidated Balance Sheets
(Unaudited)
(in millions, except share data)
September 30,
2019
 
December 31,
2018
ASSETS
Current Assets:
 
 
 
Cash and cash equivalents
$
1,899

 
$
1,565

Accounts receivable, net of an allowance for uncollectible accounts of $14 and $12 at September 30,
2019 and December 31, 2018, respectively
2,836

 
2,314

Fuel inventory
568

 
592

Expendable parts and supplies inventories, net of an allowance for obsolescence of $94 and $102
at September 30, 2019 and December 31, 2018, respectively
504

 
463

Prepaid expenses and other
1,137

 
1,406

Total current assets
6,944

 
6,340

 
 
 
 
Noncurrent Assets:
 
 
 
Property and equipment, net of accumulated depreciation and amortization of $17,213 and $15,823
at September 30, 2019 and December 31, 2018, respectively
30,796

 
28,335

Operating lease right-of-use assets
5,815

 
5,994

Goodwill
9,781

 
9,781

Identifiable intangibles, net of accumulated amortization of $871 and $862 at September 30, 2019
and December 31, 2018, respectively
4,821

 
4,830

Cash restricted for airport construction
753

 
1,136

Other noncurrent assets
4,309

 
3,850

Total noncurrent assets
56,275

 
53,926

Total assets
$
63,219

 
$
60,266

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 
 
 
Current maturities of long-term debt and finance leases
$
2,196

 
$
1,518

Current maturities of operating leases
844

 
955

Air traffic liability
5,762

 
4,661

Accounts payable
3,470

 
2,976

Accrued salaries and related benefits
3,119

 
3,287

Loyalty program deferred revenue
3,200

 
2,989

Fuel card obligation
439

 
1,075

Other accrued liabilities
1,181

 
1,117

Total current liabilities
20,211

 
18,578

 
 
 
 
Noncurrent Liabilities:
 
 
 
Long-term debt and finance leases
7,923

 
8,253

Pension, postretirement and related benefits
8,457

 
9,163

Loyalty program deferred revenue
3,496

 
3,652

Noncurrent operating leases
5,441

 
5,801

Deferred income taxes, net
1,245

 
163

Other noncurrent liabilities
1,378

 
969

Total noncurrent liabilities
27,940


28,001

 
 
 
 
Commitments and Contingencies

 

 
 
 
 
Stockholders' Equity:
 
 
 
Common stock at $0.0001 par value; 1,500,000,000 shares authorized, 655,694,564 and 688,136,306
shares issued at September 30, 2019 and December 31, 2018, respectively

 

Additional paid-in capital
11,177

 
11,671

Retained earnings
11,772

 
10,039

Accumulated other comprehensive loss
(7,645
)
 
(7,825
)
Treasury stock, at cost, 8,951,710 and 8,191,831 shares at September 30, 2019 and
December 31, 2018, respectively
(236
)
 
(198
)
Total stockholders' equity
15,068

 
13,687

Total liabilities and stockholders' equity
$
63,219

 
$
60,266

 
 
 
 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3


DELTA AIR LINES, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions, except per share data)
2019
 
2018
 
2019
 
2018
Operating Revenue:
 
 
 
 
 
 
 
Passenger
$
11,410

 
$
10,796

 
$
32,032

 
$
30,107

Cargo
189

 
226

 
567

 
651

Other
961

 
931

 
2,969

 
2,938

  Total operating revenue
12,560

 
11,953

 
35,568

 
33,696

 
 
 
 
 
 
 
 
Operating Expense:
 
 
 
 
 
 
 
Salaries and related costs
2,884

 
2,753

 
8,275

 
8,004

Aircraft fuel and related taxes
2,239

 
2,498

 
6,508

 
6,693

Regional carriers expense, excluding fuel
900

 
885

 
2,698

 
2,586

Contracted services
685

 
562

 
1,974

 
1,646

Depreciation and amortization
631

 
573

 
1,960

 
1,759

Passenger commissions and other selling expenses
539

 
535

 
1,505

 
1,473

Aircraft maintenance materials and outside repairs
424

 
371

 
1,334

 
1,233

Landing fees and other rents
460

 
439

 
1,321

 
1,254

Profit sharing
517

 
399

 
1,256

 
991

Ancillary businesses and refinery
279

 
410

 
945

 
1,396

Passenger service
345

 
329

 
938

 
892

Aircraft rent
110

 
99

 
318

 
291

Other
476

 
455

 
1,317

 
1,305

Total operating expense
10,489

 
10,308

 
30,349

 
29,523

 
 
 
 
 
 
 
 
Operating Income
2,071

 
1,645

 
5,219

 
4,173

 
 
 
 
 
 
 
 
Non-Operating (Expense)/Income:

 

 
 
 
 
Interest expense, net
(70
)
 
(73
)
 
(228
)
 
(244
)
Unrealized gain/(loss) on investments, net
(35
)
 
50

 
(17
)
 
(171
)
Miscellaneous, net
(19
)
 
66

 
(174
)
 
48

Total non-operating (expense)/income, net
(124
)
 
43

 
(419
)
 
(367
)
 
 
 
 
 
 
 
 
Income Before Income Taxes
1,947

 
1,688

 
4,800

 
3,806

 
 
 
 
 
 
 
 
Income Tax Provision
(452
)
 
(366
)
 
(1,131
)
 
(890
)
 
 
 
 
 
 
 
 
Net Income
$
1,495

 
$
1,322

 
$
3,669

 
$
2,916

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
2.32

 
$
1.93

 
$
5.61

 
$
4.20

Diluted Earnings Per Share
$
2.31

 
$
1.92

 
$
5.59

 
$
4.18

Cash Dividends Declared Per Share
$
0.40

 
$
0.35

 
$
1.10

 
$
0.96

 
 
 
 
 
 
 
 
Comprehensive Income
$
1,545

 
$
1,393

 
$
3,849

 
$
3,002

 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4


DELTA AIR LINES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended September 30,
(in millions)
2019
 
2018
Net Cash Provided by Operating Activities
$
7,468

 
$
5,769

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Property and equipment additions:
 
 
 
Flight equipment, including advance payments
(2,774
)
 
(2,833
)
Ground property and equipment, including technology
(1,090
)
 
(972
)
Purchase of short-term investments

 
(145
)
Redemption of short-term investments
206

 
490

Purchase of equity investments
(170
)
 

Other, net
32

 
87

Net cash used in investing activities
(3,796
)

(3,373
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Payments on long-term debt and finance lease obligations
(2,805
)
 
(2,741
)
Repurchase of common stock
(1,802
)
 
(1,250
)
Cash dividends
(721
)
 
(670
)
Proceeds from short-term obligations
1,750

 

Proceeds from long-term obligations
500

 
3,124

Fuel card obligation
(636
)
 
(1
)
Other, net
(8
)
 
(63
)
Net cash used in financing activities
(3,722
)
 
(1,601
)
 
 
 
 
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash Equivalents
(50
)
 
795

Cash, cash equivalents and restricted cash equivalents at beginning of period
2,748

 
1,853

Cash, cash equivalents and restricted cash equivalents at end of period
$
2,698

 
$
2,648

 
 
 
 
Non-Cash Transactions:
 
 
 
Right-of-use assets acquired under operating leases
$
459

 
$
908

Operating leases converted to finance leases
189

 

Flight and ground equipment acquired under finance leases
619

 
69

 
 
 
 
 
 
 
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash equivalents reported within the Consolidated Balance Sheets to the total of the same such amounts shown above:
 
September 30,
(in millions)
2019
 
2018
Current assets:
 
 
 
Cash and cash equivalents
$
1,899

 
$
1,380

Restricted cash included in prepaid expenses and other
46

 
54

Noncurrent assets:
 
 
 
Cash restricted for airport construction
753

 
1,214

Total cash, cash equivalents and restricted cash equivalents
$
2,698

 
$
2,648

 
 
 
 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


5


DELTA AIR LINES, INC.
Consolidated Statements of Stockholders' Equity
(Unaudited)

 
Common Stock
Additional
Paid-In Capital
 Retained
Earnings
Accumulated
Other
Comprehensive Loss
Treasury Stock
 
(in millions, except per share data)
Shares
Amount
Shares
Amount
Total
Balance at December 31, 2018
688

$

$
11,671

$
10,039

$
(7,825
)
8

$
(198
)
$
13,687

Net income



730




730

Dividends declared



(232
)



(232
)
Other comprehensive income




59



59

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $49.75(1) per share)
2


27



1

(35
)
(8
)
Stock purchased and retired
(26
)

(444
)
(881
)



(1,325
)
Balance at March 31, 2019
664


11,254

9,656

(7,766
)
9

(233
)
12,911

Net income



1,443




1,443

Dividends declared



(229
)



(229
)
Other comprehensive income




72



72

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $55.06(1) per share)


31




(2
)
29

Stock purchased and retired
(5
)

(84
)
(184
)



(268
)
Balance at June 30, 2019
659


11,201

10,686

(7,694
)
9

(235
)
13,958

Net income



1,495




1,495

Dividends declared



(261
)



(261
)
Other comprehensive income




49



49

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $58.68(1) per share)


36




(1
)
35

Stock purchased and retired
(3
)

(60
)
(148
)



(208
)
Balance at September 30, 2019
656

$

$
11,177

$
11,772

$
(7,645
)
9

$
(236
)
$
15,068


(1) 
Weighted average price per share.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


DELTA AIR LINES, INC.
Consolidated Statements of Stockholders' Equity
(Unaudited)

 
Common Stock
Additional
Paid-In Capital
 Retained
Earnings
Accumulated
Other
Comprehensive Loss
Treasury Stock
 
(in millions, except per share data)
Shares
Amount
Shares
Amount
Total
Balance at December 31, 2017
715

$

$
12,053

$
8,256

$
(7,621
)
7

$
(158
)
$
12,530

Net income



557




557

Change in accounting principle and other



(139
)
(106
)


(245
)
Dividends declared



(216
)



(216
)
Other comprehensive income




46



46

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $55.08(1) per share)
1


10



1

(36
)
(26
)
Stock options exercised
1


1





1

Stock purchased and retired
(6
)

(97
)
(228
)



(325
)
Balance at March 31, 2018
711


11,967

8,230

(7,681
)
8

(194
)
12,322

Net income



1,036




1,036

Change in accounting principle and other



(13
)



(13
)
Dividends declared



(213
)



(213
)
Other comprehensive income




75



75

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $52.99(1) per share)


29




(2
)
27

Stock purchased and retired
(12
)

(189
)
(411
)



(600
)
Balance at June 30, 2018
699


11,807

8,629

(7,606
)
8

(196
)
12,634

Net income



1,322




1,322

Dividends declared



(242
)



(242
)
Other comprehensive income




71



71

Shares of common stock issued and compensation expense associated with equity awards (Treasury shares withheld for payment of taxes, $52.59(1) per share)


32




(1
)
31

Stock purchased and retired
(5
)

(99
)
(226
)



(325
)
Balance at September 30, 2018
694

$

$
11,740

$
9,483

$
(7,535
)
8

$
(197
)
$
13,491


(1) 
Weighted average price per share.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

7


DELTA AIR LINES, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Delta Air Lines, Inc. and our wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Form 10-K for the year ended December 31, 2018.

Management believes the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including normal recurring items, considered necessary for a fair statement of results for the interim periods presented.

Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices and other factors, operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of operating results for the entire year.

We reclassified certain prior period amounts to conform to the current period presentation. Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes.

Recent Accounting Standards

Comprehensive Income. In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220)." This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income/(loss) ("AOCI") to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard is effective for interim and annual reporting periods beginning after December 15, 2018. We adopted this standard effective January 1, 2019 with the election not to reclassify $1.2 billion of stranded tax effects, primarily related to our pension plans, from AOCI to retained earnings.


NOTE 2. REVENUE RECOGNITION

Passenger Revenue

Passenger revenue is primarily composed of passenger ticket sales, loyalty travel awards and travel-related services performed in conjunction with a passenger’s flight.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2019
2018
 
2019
2018
Ticket
$
10,029

$
9,553

 
$
27,986

$
26,514

Loyalty travel awards
732

678

 
2,174

1,976

Travel-related services
649

565

 
1,872

1,617

Total passenger revenue
$
11,410

$
10,796

 
$
32,032

$
30,107



We recognized approximately $3.7 billion in passenger revenue during the nine months ended September 30, 2019 that was recorded in our air traffic liability balance at December 31, 2018. We expect the remaining balance of the December 31, 2018 liability to be recognized by the end of 2019.


8



Other Revenue
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2019
2018
 
2019
2018
Loyalty program
$
485

$
369

 
$
1,443

$
1,075

Ancillary businesses and refinery
291

433

 
990

1,475

Miscellaneous
185

129

 
536

388

Total other revenue
$
961

$
931

 
$
2,969

$
2,938



Loyalty Program

Our SkyMiles loyalty program generates customer loyalty by rewarding customers with incentives to travel on Delta. This program allows customers to earn mileage credits by flying on Delta, Delta Connection and other airlines that participate in the loyalty program. When traveling, customers earn redeemable mileage credits based on the passenger's loyalty program status and ticket price. Customers can also earn mileage credits through participating companies such as credit card companies, hotels, car rental agencies and ridesharing companies. To facilitate transactions with participating companies, we sell mileage credits to non-airline businesses, customers and other airlines. Mileage credits are redeemable by customers in future periods for air travel on Delta and other participating airlines, membership in our Sky Club and other program awards. During the nine months ended September 30, 2019 and 2018, total cash sales from marketing agreements related to our loyalty program were $3.1 billion and $2.6 billion, respectively, which are allocated to travel and other performance obligations.

Our most significant contract to sell mileage credits relates to our co-brand credit card relationship with American Express. Our agreements with American Express provide for joint marketing, grant certain benefits to Delta-American Express co-branded credit card holders ("cardholders") and American Express Membership Rewards program participants, and allow American Express to market its services or products using our customer database. Cardholders earn mileage credits for making purchases using co-branded cards, and certain cardholders may also check their first bag for free, are granted discounted access to Delta Sky Club lounges and receive priority boarding and other benefits while traveling on Delta. Additionally, participants in the American Express Membership Rewards program may exchange their points for mileage credits under the loyalty program. We sell mileage credits at agreed-upon rates to American Express which are then provided to their customers under the co-brand credit card program and the Membership Rewards program.

We account for marketing agreements, including those with American Express, consistent with the accounting method that allocates the consideration received to the individual products and services delivered. We allocate the value based on the relative selling prices of those products and services, which generally consist of award travel, priority boarding, baggage fee waivers, lounge access and the use of our brand. We determine our best estimate of the selling prices by considering a discounted cash flow analysis using multiple inputs and assumptions, including: (1) the expected number of miles awarded and number of miles redeemed, (2) equivalent ticket value ("ETV") for the award travel obligation, (3) published rates on our website for baggage fees, discounted access to Delta Sky Club lounges and other benefits while traveling on Delta and (4) brand value.

Effective January 1, 2019, we amended our co-brand agreement with American Express, and we also amended other agreements with American Express during the current year. The new agreements increase the value we receive and extend the terms to 2029. The products and services delivered are consistent with previous agreements, and we continue to use the accounting method that allocates the consideration received based on the relative selling prices of those products and services.

We defer the amount for award travel obligation as part of loyalty program deferred revenue and recognize loyalty travel awards in passenger revenue as the mileage credits are used for travel. Revenue allocated to services performed in conjunction with a passenger’s flight, such as baggage fee waivers, is recognized as travel-related services in passenger revenue when the related service is performed. Revenue allocated to access Delta Sky Club lounges is recognized as miscellaneous in other revenue as access is provided. Revenue allocated to the remaining performance obligations, primarily brand value, is recorded as loyalty program in other revenue over time as miles are delivered.


9


Current Activity of the Loyalty Program. Mileage credits are combined in one homogeneous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the loyalty deferred revenue balance at the beginning of the period as well as miles that were issued during the period.

The table below presents the activity of the current and noncurrent loyalty liability and includes miles earned through travel and miles sold to participating companies, which are primarily through marketing agreements.
(in millions)
 
 
2019
2018
Balance at January 1
 
 
$
6,641

$
6,321

Mileage credits earned
 
 
2,352

2,322

Travel mileage credits redeemed
 
 
(2,175
)
(1,976
)
Non-travel mileage credits redeemed
 
 
(122
)
(125
)
Balance at September 30
 
 
$
6,696

$
6,542



The timing of mileage redemptions can vary widely; however, the majority of new miles are redeemed within two years.

Revenue by Geographic Region

Operating revenue for the airline segment is recognized in a specific geographic region based on the origin, flight path and destination of each flight segment. The majority of the revenues of the refinery, consisting of fuel sales to the airline, have been eliminated in the Condensed Consolidated Financial Statements. The remaining operating revenue for the refinery segment is included in the domestic region. Our passenger and operating revenue by geographic region is summarized in the following tables:
 
Passenger Revenue
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2019
2018
 
2019
2018
Domestic
$
7,971

$
7,395

 
$
22,755

$
21,093

Atlantic
2,060

1,996

 
5,042

4,837

Latin America
683

675

 
2,298

2,228

Pacific
696

730

 
1,937

1,949

Total
$
11,410

$
10,796

 
$
32,032

$
30,107



 
Operating Revenue
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2019
2018
 
2019
2018
Domestic
$
8,651

$
8,125

 
$
24,925

$
23,480

Atlantic
2,336

2,244

 
5,788

5,494

Latin America
757

741

 
2,559

2,449

Pacific
816

843

 
2,296

2,273

Total
$
12,560

$
11,953

 
$
35,568

$
33,696




10


NOTE 3. FAIR VALUE MEASUREMENTS

Assets (Liabilities) Measured at Fair Value on a Recurring Basis
(in millions)
September 30,
2019
Level 1
Level 2
Cash equivalents
$
1,489

$
1,489

$

Restricted cash equivalents
798

798


Long-term investments
1,214

1,009

205

Hedge derivatives, net
 
 
 
Fuel hedge contracts
22

15

7

Interest rate contracts
82


82

Foreign currency exchange contracts
21


21

(in millions)
December 31,
2018
Level 1
Level 2
Cash equivalents
$
1,222

$
1,222

$

Restricted cash equivalents
1,183

1,183


Short-term investments
 
 


U.S. government and agency securities
50

45

5

Asset- and mortgage-backed securities
36


36

Corporate obligations
90


90

Other fixed income securities
27


27

Long-term investments
1,084

880

204

Hedge derivatives, net
 
 
 
Fuel hedge contracts
15

20

(5
)
Interest rate contracts
1


1

Foreign currency exchange contracts
(3
)

(3
)


Cash Equivalents and Restricted Cash Equivalents. Cash equivalents generally consist of money market funds. Restricted cash equivalents 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 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 were based on a market approach using industry standard valuation techniques that incorporated observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security or other observable information and were recorded in prepaid expenses and other on the Consolidated Balance Sheet ("balance sheet").

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 are recorded in other noncurrent assets on our balance sheet. See Note 4, "Investments," for further information on our equity investments.


11


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 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.