Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of December 31, 2011, the Company held certain items that are required to be measured at fair value on a recurring basis. These included cash equivalents, short-term investments (primarily treasury bills, commercial paper, and certificates of deposit), certain noncurrent investments, interest rate derivative contracts, fuel derivative contracts, and available-for-sale securities. The majority of the Company's short-term investments consist of instruments classified as Level 1. However, the Company has certificates of deposit and commercial paper that are classified as Level 2, due to the fact that the fair value for these instruments is determined utilizing observable inputs in non-active markets. Noncurrent investments consist of certain auction rate securities, primarily those collateralized by student loan portfolios, which are guaranteed by the U.S. Government. Other available-for-sale securities primarily consist of investments associated with the Company's excess benefit plan.

The Company's fuel and interest rate derivative instruments consist of over-the-counter (OTC) contracts, which are not traded on a public exchange. Fuel derivative instruments include swaps, as well as different types of option contracts, whereas interest rate derivatives consist solely of swap agreements. See Note 10 for further information on the Company's derivative instruments and hedging activities. The fair values of swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized these swap contracts as Level 2. The Company determines the value of option contracts utilizing an option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are provided by financial institutions that trade these contracts. Because certain of the inputs used to determine the fair value of option contracts are unobservable (principally implied volatility), the Company has categorized these option contracts as Level 3. The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds.

The Company's investments associated with its excess benefit plan consist of mutual funds that are publicly traded and for which market prices are readily available. This plan is a deferred compensation plan designed to hold Employee contributions in excess of limits established by Section 415 of the Internal Revenue Code. Payments under this plan are made based on the participant's distribution election and plan balance. Assets related to the funded portion of the deferred compensation plan are held in a trust and we remain liable to these participants for the unfunded portion of the plan. The Company records changes in the fair value of the liability and the asset in the Company's earnings.

All of the Company's auction rate security instruments, totaling $67 million at December 31, 2011, are classified as available-for-sale securities and are reflected at estimated fair value in the Consolidated Balance Sheet. In periods when an auction process successfully took place every 30-35 days, quoted market prices would be readily available, which would qualify the securities as Level 1. However, due to events in credit markets beginning during first quarter 2008, the auction events for these remaining instruments failed, and have continued to fail through the current period. Therefore, the Company determines the estimated fair values of these securities utilizing a discounted cash flow analysis or other type of valuation model. The Company has performed, and routinely updates, a valuation for each of its auction rate security instruments, considering, among other items, the collateralization underlying the security investments, the expected future cash flows, including the final maturity, associated with the securities, and estimates of the next time the security is expected to have a successful auction or return to full par value.

In association with its estimate of fair value related to auction rate security instruments as of December 31, 2011, the Company has recorded a temporary unrealized decline in fair value of $14 million, with an offsetting entry to AOCI. The Company continues to believe that this decline in fair value is due entirely to market liquidity issues, because the underlying assets for the majority of these auction rate securities held by the Company are currently rated investment grade by Moody's, Standard and Poor's, and Fitch and are almost entirely backed by the U.S. Government. The range of maturities for the Company's auction rate securities are from 7 years to 36 years. Considering the relative insignificance of these securities in comparison to the Company's liquid assets and other sources of liquidity, the Company has no current intention of selling these securities nor does it expect to be required to sell these securities before a recovery in their cost basis. At the time of the first failed auctions during first quarter 2008, the Company held a total of $463 million in auction rate securities and, since that time, has been able to sell $382 million of these instruments at par value.

The Company remains in discussions with its remaining counterparties to determine whether mutually agreeable decisions can be reached regarding the effective repurchase of its remaining auction rate securities. The Company continues to earn interest on its outstanding auction rate security instruments. Any future fluctuation in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous temporary write-downs, would be recorded to AOCI. If the Company determines that any future valuation adjustment is other than temporary, it will record a charge to earnings as appropriate.

The following tables present the Company's assets and liabilities that are measured at fair value on a recurring basis at December 31, 2011 and December 31, 2010:

				Fair value measurements at reporting date using:
				Quoted prices in		Significant		Significant
				active markets		other observable		unobservable
				for identical assets		inputs		inputs
Description		December 31, 2011		(Level 1)		(Level 2)		(Level 3)
Assets		(in millions)
Cash equivalents
	Cash equivalents (a)	$	774	$	774	$	-	$	-
	Commercial paper		48		-		48		-
	Certificates of deposit		7		-		7		-
Short-term investments:
	Treasury bills		2,014		2,014		-		-
	Certificates of deposit		221		-		221		-
	Commercial paper		80		-		80		-
Noncurrent investments (b)
	Auction rate securities		67		-		-		67
	Certificates of deposit		25		-		25		-
Interest rate derivatives (see Note 10)			66		-		66		-
Fuel derivatives:
	Option contracts (c)		709		-		-		709
	Swap contracts (d)		180		-		180		-
	Option contracts (d)		345		-		-		345
Other available-for-sale securities			43		38		-		5
Total assets		$	4,579	$	2,826	$	627	$	1,126

Liabilities
Fuel derivatives:
	Swap contracts (c)	$	(65)	$	-	$	(65)	$	-
	Option contracts (c)		(371)		-		-		(371)
	Swap contracts (d)		(576)		-		(576)		-
	Option contracts (d)		(266)		-		-		(266)
Interest rate derivatives (see Note 10)			(132)		-		(132)		-
Deferred compensation			(121)		(121)		-		-
Total liabilities		$	(1,531)	$	(121)	$	(773)	$	(637)


(a) Cash equivalents is primarily composed of money market investments.
(b) Noncurrent investments are included in Other assets in the Consolidated Balance Sheet.
(c) In the Consolidated Balance Sheet, amounts are presented as a net asset, and are also net of cash collateral received from counterparties. See Note 10.
(d) In the Consolidated Balance Sheet, amounts are presented as a net liability, and are also net of cash collateral provided to counterparties. See Note 10.

				Fair value measurements at reporting date using:
				Quoted prices in		Significant		Significant
				active markets		other observable		unobservable
				for identical assets		inputs		inputs
Description		December 31, 2010		(Level 1)		(Level 2)		(Level 3)
Assets		(in millions)
Cash equivalents		$	1,261	$	1,261	$	-	$	-
Short-term investments:
	Treasury bills		2,010		2,010		-		-
	Certificates of deposit		267		-		267		-
Noncurrent investments (a)			93		-		-		93
Interest rate derivatives			73		-		73		-
Fuel derivatives:
	Swap contracts (b)		286		-		286		-
	Option contracts (b)		788		-		-		788
	Swap contracts (c)		33		-		33		-
	Option contracts (c)		233		-		-		233
Other available-for-sale securities			39		34		-		5
Total assets		$	5,083	$	3,305	$	659	$	1,119

Liabilities
Fuel derivatives:
	Swap contracts (b)	$	(476)	$	-	$	(476)	$	-
	Option contracts (b)		(216)		-		-		(216)
	Swap contracts (c)		(387)		-		(387)		-
	Option contracts (c)		(119)		-		-		(119)
Interest rate derivatives			(4)		-		(4)		-
Deferred Compensation			(109)		(109)
Total liabilities		$	(1,311)	$	(109)	$	(867)	$	(335)


(a) Auction rate securities included in Other assets in the Consolidated Balance Sheet.
(b) In the Consolidated Balance Sheet, amounts are presented as a net asset, and are also net of cash collateral received from counterparties. See Note 10.
(c) In the Consolidated Balance Sheet, amounts are presented as a net liability, and are also net of cash collateral provided to counterparties. See Note 10.

The Company had no transfers of assets or liabilities between any of the above levels during the years ended December 31, 2011 or 2010. The following tables present the Company's activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for 2011 and 2010:

		Fair value measurements using significant
		unobservable inputs (Level 3)
		Fuel		Auction rate			Other
(in millions)		derivatives		securities			securities		Total
Balance at December 31, 2010		$	686	$	93		$	5	$	784
Total gains or (losses) (realized or unrealized)
	Included in earnings		(26)		-			-		(26)
	Included in other comprehensive income		30		3			-		33
Purchases			449		-			-		449
Sales			(546)		(29)			-		(575)
Settlements			(176)		-			-		(176)
Balance at December 31, 2011		$	417	$	67	(a)	$	5	$	489

The amount of total gains or (losses) for the
	period included in earnings attributable to the
	change in unrealized gains or losses relating to
	assets still held at December 31, 2011	$	64	$	-		$	-	$	64

(a) Included in Other assets in the Consolidated Balance Sheet.

		Fair value measurements using significant
		unobservable inputs (Level 3)
		Fuel		Auction rate			Other
(in millions)		derivatives		securities			securities		Total
Balance at December 31, 2009		$	140	$	174		$	8	$	322
Total gains or (losses) (realized or unrealized)
	Included in earnings		132		-			(3)		129
	Included in other comprehensive income		68		-			-		68
Purchases			527		-			-		527
Sales			(172)		(81)			-		(253)
Settlements			(9)		-			-		(9)
Balance at December 31, 2010		$	686	$	93	(a)	$	5	$	784

The amount of total gains or (losses) for the
	period included in earnings attributable to the
	change in unrealized gains or losses relating to
	assets still held at December 31, 2010	$	142	$	-		$	-	$	142

(a) Included in Other assets in the Consolidated Balance Sheet.

All settlements from fuel derivative contracts that are deemed “effective” are included in Fuel and oil expense in the period the underlying fuel is consumed in operations. Any “ineffectiveness” associated with hedges, including amounts that settled in the current period (realized), and amounts that will settle in future periods (unrealized), is recorded in earnings immediately, as a component of Other (gains) losses, net. See Note 10 for further information on hedging. Any gains and losses (realized and unrealized) related to other investments are reported in Other operating expenses, and were immaterial for 2011 and 2010.

The carrying amounts and estimated fair values of the Company's (including AirTran) long-term debt (including current maturities) at December 31, 2011, are contained in the below table. The estimated fair values of publicly held long-term debt were based on quoted market prices.

	Carrying		Estimated fair
(in millions)	value		value
French Credit Agreements due 2012	$	7	$	7
6.5% Notes due 2012		387		382
5.25% Notes due 2014		375		393
5.75% Notes due 2016		329		355
5.25% Convertible Senior Notes due 2016		118		117
5.125% Notes due 2017		336		349
Fixed-rate 717 Aircraft Notes payable through 2017 - 10.38%		67		66
French Credit Agreements due 2018		64		65
Fixed-rate 737 Aircraft Notes payable through 2018 - 7.02%		42		43
Term Loan Agreement due 2019 - 6.315%		269		274
Term Loan Agreement due 2019 - 6.84%		106		113
Term Loan Agreement due 2020 - 5.223%		487		440
Floating-rate 737 Aircraft Notes payable through 2020 - 1.91%		604		578
Pass through certificates due 2022		411		435
7.375% Debentures due 2027		135		148

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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