Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2023 Financial Overview
The selected financial data presented below is derived from AAG’s audited consolidated financial statements included in Part II, Item 8A of this report and should be read in conjunction with those financial statements and the related notes thereto.
Year Ended
December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2023 2022
(In millions, except percentage changes)
Passenger revenue $ 48,512 $ 44,568 $ 3,944 8.8
Cargo revenue 812 1,233 (421) (34.1)
Other operating revenue 3,464 3,170 294 9.3
Total operating revenues 52,788 48,971 3,817 7.8
Aircraft fuel and related taxes 12,257 13,791 (1,534) (11.1)
Salaries, wages and benefits 14,580 12,972 1,608 12.4
Total operating expenses 49,754 47,364 2,390 5.0
Operating income 3,034 1,607 1,427 88.8
Pre-tax income 1,121 186 935 nm (2)
Income tax provision 299 59 240 nm
Net income 822 127 695 nm
Pre-tax income – GAAP $ 1,121 $ 186 $ 935 nm
Adjusted for: pre-tax net special items (1)
1,341 272 1,069 nm
Pre-tax income excluding net special items $ 2,462 $ 458 $ 2,004 nm
(1) See Part II, Item 6. Selected Consolidated Financial Data – “Reconciliation of GAAP to Non-GAAP Financial Measures” and Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for details on the components of pre-tax net special items.
(2) Not meaningful or greater than 100% change.
Pre-Tax Income and Net Income
Pre-tax income and net income were $1.1 billion and $822 million, respectively, in 2023. This compares to 2022 pre-tax income and net income of $186 million and $127 million, respectively.
The year-over-year improvement in our pre-tax income on a GAAP basis was driven primarily by higher passenger revenue and lower fuel costs. Continued strength in demand for air travel and a 7.6% increase in revenue passenger miles (RPMs) as compared to 2022 contributed to record passenger revenue in 2023. Aircraft fuel costs were lower primarily due to a 16.3% decrease in the average price per gallon of aircraft fuel as compared to 2022. The increase to pre-tax income was partially offset by increases in certain operating expenses including salaries, wages and benefits costs, primarily as a result of the ratification of a new collective bargaining agreement with our mainline pilots, as described below. The 2023 period also included $1.3 billion of pre-tax net special items, principally related to one-time charges resulting from the new collective bargaining agreement.
Excluding the effects of pre-tax net special items, pre-tax income was $2.5 billion and $458 million in 2023 and 2022, respectively. The year-over-year improvement in our pre-tax income excluding pre-tax net special items was primarily due to record passenger revenue in 2023 and lower fuel costs, offset in part by increases in certain operating expenses including salaries, wages and benefits, as described above.
In May 2023, American and the Allied Pilots Association, the union representing our mainline pilots, reached an agreement in principle on a new collective bargaining agreement, which was ratified in August 2023. This four-year agreement provides wage rate increases, including an initial wage rate increase of 21% effective as of January 1, 2023,
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quality-of-life benefits and other benefit-related items. The additional compensation for the 2023 period prior to contract ratification as a result of the higher wage rates was recorded within salaries, wages and benefits in the consolidated statements of operations in the second and third quarters of 2023. The agreement also included a provision for a one-time payment upon ratification. In 2023, one-time charges resulting from the ratification of this new agreement were recorded as mainline operating special items, net in the consolidated statement of operations, including the one-time payment of $754 million as well as adjustments to other benefit-related items of $235 million. The one-time payment and the additional compensation were principally paid in 2023, with remaining payments expected to be paid in the first quarter of 2024.
Revenue
In 2023, we reported total operating revenues of $52.8 billion, an increase of $3.8 billion, or 7.8%, as compared to 2022. Passenger revenue was $48.5 billion, an increase of $3.9 billion, or 8.8%, as compared to 2022. The increase in passenger revenue in 2023 was primarily due to a 7.6% increase in RPMs, driven by the continued strength in demand for air travel, resulting in an 83.5% load factor.
Cargo revenue decreased $421 million, or 34.1%, in 2023 as compared to 2022, primarily due to a 29.4% decrease in cargo yield and a 6.7% decrease in cargo ton miles driven by lower demand and increased air freight capacity globally.
Other operating revenue increased $294 million, or 9.3%, in 2023 as compared to 2022, driven primarily by higher revenue associated with our loyalty program. During 2023 and 2022, cash payments from co-branded credit card and other partners were $5.2 billion and $4.5 billion, respectively.
Our total revenue per available seat mile (TRASM) was 19.01 cents in 2023, a 1.0% increase as compared to 18.82 cents in 2022.
Fuel
In 2023, aircraft fuel expense totaled $12.3 billion, a decrease of $1.5 billion, or 11.1%, as compared to 2022. This decrease was primarily driven by a 16.3% decrease in the average price per gallon of aircraft fuel including related taxes to $2.96 in 2023 from $3.54 in 2022, offset in part by a 6.1% increase in gallons of fuel consumed due to increased capacity.
As of December 31, 2023, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review this policy from time to time based on market conditions and other factors. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices.
Other Costs
We remain committed to actively managing our cost structure, which we believe is necessary in an industry in which economic prospects are heavily dependent upon two variables we cannot control: general economic conditions and the price of fuel.
Our 2023 CASM was 17.92 cents, a decrease of 1.6%, from 18.20 cents in 2022. This decrease in CASM was primarily driven by lower aircraft fuel costs in 2023, as described above, offset by higher salaries, wages and benefits costs associated with the ratification of a new collective bargaining agreement with our mainline pilots, as described above.
Our 2023 CASM excluding net special items and fuel was 13.15 cents, an increase of 2.5%, from 12.83 cents in 2022, which was primarily driven by higher salaries, wages and benefits costs associated with the ratification of a new collective bargaining agreement with our mainline pilots, as described above.
For a reconciliation of total operating CASM to total operating CASM excluding net special items and fuel, see Part II, Item 6. Selected Consolidated Financial Data – “Reconciliation of GAAP to Non-GAAP Financial Measures.”
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Liquidity
As of December 31, 2023, we had $10.4 billion in total available liquidity, consisting of $7.6 billion in unrestricted cash and short-term investments and $2.9 billion in total undrawn capacity under revolving credit and other short-term facilities.
During 2023, we completed the following financing transactions (see Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information):
• refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility (the 2013 Term Loan Facility Refinancing) through the combination of (i) the issuance of $750 million in aggregate principal amount of 7.25% senior secured notes due 2028 (the 7.25% Senior Secured Notes) and (ii) the entry into the Seventh Amendment to the 2013 Credit Agreement, pursuant to which the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility was extended to February 2028 from June 2025;
• extended the maturity of certain commitments under the 2013 Revolving Facility, 2014 Revolving Facility and April 2016 Revolving Facility to October 2026;
• issued $1.0 billion aggregate principal amount of 8.50% senior secured notes due 2029 (the 8.50% Senior Secured Notes) in a private offering and entered into the 2023 Credit Agreement that provides for a term loan facility (the 2023 Term Loan Facility) in an aggregate principal amount of $1.1 billion. The net proceeds from the offering of the 8.50% Senior Secured Notes, together with net proceeds from borrowings under the 2023 Term Loan Facility and cash on hand were used to redeem all of American’s outstanding 11.75% senior secured notes due 2025 (the 11.75% Senior Secured Notes);
• issued $1.1 billion of equipment loans and other notes payable in connection with the financing of certain aircraft; and
• repurchased $552 million of secured and unsecured notes in the open market.
A significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities and/or contain covenants requiring us to meet certain loan to value, collateral coverage and/or peak debt service coverage ratios.
See Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on our debt obligations.
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AAG’s Results of Operations
For a comparison of the 2022 to 2021 reporting periods, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “ AAG’s Results of Operations” of our 2022 Form 10-K.
Operating Statistics
The table below sets forth selected operating data for the years ended December 31, 2023 and 2022.
Year Ended December 31, Increase
(Decrease)
2023 2022
Revenue passenger miles (millions) (a)
231,926 215,624 7.6%
Available seat miles (millions) (b)
277,723 260,226 6.7%
Passenger load factor (percent) (c)
83.5 82.9 0.6pts
Yield (cents) (d)
20.92 20.67 1.2%
Passenger revenue per available seat mile (cents) (e)
17.47 17.13 2.0%
Total revenue per available seat mile (cents) (f)
19.01 18.82 1.0%
Fuel consumption (gallons in millions) 4,140 3,901 6.1%
Average aircraft fuel price including related taxes (dollars per gallon) 2.96 3.54 (16.3)%
Total operating cost per available seat mile (cents) (g)
17.92 18.20 (1.6)%
Aircraft at end of period (h)
1,521 1,461 4.1%
Full-time equivalent employees at end of period 132,100 129,700 1.9%
(a) Revenue passenger mile (RPM) – A basic measure of sales volume. One RPM represents one passenger flown one mile.
(b) Available seat mile (ASM) – A basic measure of production. One ASM represents one seat flown one mile.
(c) Passenger load factor – The percentage of available seats that are filled with revenue passengers.
(d) Yield – A measure of airline revenue derived by dividing passenger revenue by RPMs.
(e) Passenger revenue per available seat mile (PRASM) – Passenger revenue divided by ASMs.
(f) Total revenue per available seat mile (TRASM) – Total revenues divided by ASMs.
(g) Total operating cost per available seat mile (CASM) – Total operating expenses divided by ASMs.
(h) Includes aircraft owned and leased by American as well as aircraft operated by third-party regional carriers under capacity purchase agreements. Excluded from the aircraft count above are 77 regional aircraft in temporary storage as of December 31, 2023 as follows: 57 Embraer 145, 11 Bombardier CRJ 700, six Bombardier CRJ 900 and three Embraer 170.
Operating Revenues
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2023 2022
(In millions, except percentage changes)
Passenger $ 48,512 $ 44,568 $ 3,944 8.8
Cargo 812 1,233 (421) (34.1)
Other 3,464 3,170 294 9.3
Total operating revenues $ 52,788 $ 48,971 $ 3,817 7.8
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This table presents our passenger revenue and the year-over-year change in certain operating statistics:
Increase
vs. Year Ended December 31, 2022
Year Ended
December 31, 2023 Passenger
Revenue RPMs ASMs Load
Factor Passenger
Yield PRASM
(In millions)
Passenger revenue $ 48,512 8.8% 7.6% 6.7% 0.6pts 1.2% 2.0%
Passenger revenue increased $3.9 billion, or 8.8%, in 2023 from 2022 primarily due to continued strength in demand for air travel, resulting in a 7.6% increase in RPMs and an 83.5% load factor in 2023.
Cargo revenue decreased $421 million, or 34.1%, in 2023 from 2022 primarily due to a 29.4% decrease in cargo yield and a 6.7% decrease in cargo ton miles driven by lower demand and increased air freight capacity globally.
Other operating revenue increased $294 million, or 9.3%, in 2023 from 2022 driven primarily by higher revenue associated with our loyalty program. During 2023 and 2022, cash payments from co-branded credit card and other partners were $5.2 billion and $4.5 billion, respectively.
Total operating revenues in 2023 increased $3.8 billion, or 7.8%, from 2022 driven primarily by the increase in passenger revenue as described above. Our TRASM was 19.01 cents in 2023, a 1.0% increase as compared to 18.82 cents in 2022.
Operating Expenses
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2023 2022
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 12,257 $ 13,791 $ (1,534) (11.1)
Salaries, wages and benefits 14,580 12,972 1,608 12.4
Regional expenses 4,643 4,385 258 5.9
Maintenance, materials and repairs 3,265 2,684 581 21.6
Other rent and landing fees 2,928 2,730 198 7.3
Aircraft rent 1,369 1,395 (26) (1.9)
Selling expenses 1,799 1,815 (16) (0.9)
Depreciation and amortization 1,936 1,977 (41) (2.1)
Mainline operating special items, net 971 193 778 nm
Other 6,006 5,422 584 10.8
Total operating expenses $ 49,754 $ 47,364 $ 2,390 5.0
Additional detail regarding changes in our operating expenses is as follows:
Aircraft fuel and related taxes decreased $1.5 billion, or 11.1%, in 2023 from 2022 primarily due to a 16.3% decrease in the average price per gallon of aircraft fuel including related taxes to $2.96 in 2023 from $3.54 in 2022, offset in part by a 6.1% increase in gallons of fuel consumed due to increased capacity.
Salaries, wages and benefits increased $1.6 billion, or 12.4%, in 2023 from 2022 primarily driven by higher wage rates associated with the ratification of a new collective bargaining agreement with our mainline pilots.
Regional expenses increased $258 million, or 5.9%, in 2023 from 2022 primarily due to increased costs at our wholly-owned regional carriers, including pay rate increases and higher costs for maintenance, materials and repairs driven by an increase in the volume of engine overhauls.
Maintenance, materials and repairs increased $581 million, or 21.6%, in 2023 from 2022 primarily due to increased costs for engine overhauls and airframe heavy checks driven by higher volume, flight hours and cost of materials.
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Other rent and landing fees increased $198 million, or 7.3%, in 2023 from 2022 primarily due to rate increases at certain airports, incremental engine leases and higher landing fees.
Selling expenses remained flat in 2023 from 2022 primarily due to a decrease in commissions expense, offset primarily by higher credit card fees driven by the overall increase in passenger revenues.
Other operating expenses increased $584 million, or 10.8%, in 2023 from 2022 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground handling and airport lounge operations, as well as certain general and administrative expenses.
Operating Special Items, Net
Year Ended December 31,
2023 2022
(In millions)
Labor contract expenses (1)
$ 989 $ —
Severance expenses (2)
23 —
Fleet impairment (3)
— 149
Litigation reserve adjustments — 37
Other operating special items, net (41) 7
Mainline operating special items, net 971 193
Regional operating special items, net 8 5
Operating special items, net $ 979 $ 198
(1) Labor contract expenses relate to one-time charges resulting from the ratification of a new collective bargaining agreement with our mainline pilots, including a one-time payment of $754 million as well as adjustments to other benefit-related items of $235 million.
(2) Severance expenses included costs associated with headcount reductions in certain corporate functions.
(3) Fleet impairment included a non-cash impairment charge to write down the carrying value of our retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft. We retired our Airbus A330 fleet in 2020 as a result of the decline in demand for air travel due to the COVID-19 pandemic.
Nonoperating Results
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2023 2022
(In millions, except percentage changes)
Interest income $ 591 $ 216 $ 375 nm
Interest expense, net (2,145) (1,962) (183) 9.3
Other income (expense), net (359) 325 (684) nm
Total nonoperating expense, net $ (1,913) $ (1,421) $ (492) 34.6
Interest income increased $375 million in 2023 compared to 2022 primarily as a result of higher returns on our short-term investments. Interest expense, net increased $183 million, or 9.3%, in 2023 compared to 2022 primarily due to higher interest rates on our variable-rate debt instruments, offset in part by debt repayments.
In 2023, other nonoperating expense, net primarily included $362 million of net special charges principally associated with debt refinancings and extinguishments and mark-to-market net unrealized losses associated with certain equity investments, offset in part by $32 million of non-service related pension and other postretirement benefit plan income.
In 2022, other nonoperating income, net primarily included $424 million of non-service related pension and other postretirement benefit plan income, offset in part by $74 million of net special charges principally for mark-to-market net unrealized losses associated with certain equity investments.
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The decrease in non-service related pension and other postretirement benefit plan income in 2023 as compared to 2022 is principally due to an increase in interest cost for the pension and other postretirement benefit obligations driven by higher discount rates and a decrease in expected return on pension plan assets from a reduction in plan assets.
Income Taxes
In 2023, we recorded an income tax provision of $299 million with an effective rate of approximately 27%, which was substantially non-cash. Substantially all of our income before income taxes is attributable to the United States. At December 31, 2023, we had approximately $13.7 billion of gross federal NOLs and $4.7 billion of other carryforwards available to reduce future federal taxable income, of which $3.4 billion will expire beginning in 2029 if unused and $15.0 billion can be carried forward indefinitely. We also had approximately $5.5 billion of NOL carryforwards to reduce future state taxable income at December 31, 2023, which will expire in taxable years 2023 through 2043 if unused.
In 2022, we recorded an income tax provision of $59 million at an effective rate of approximately 32%, which was substantially non-cash.
See Note 6 to AAG’s Consolidated Financial Statements in Part II, Item 8A for additional information on income taxes.
American’s Results of Operations
For a comparison of the 2022 to 2021 reporting periods, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “ American’s Results of Operations” of American’s 2022 Form 10-K.
Operating Revenues
Year Ended December 31, Increase (Decrease) Percent
Increase (Decrease)
2023 2022
(In millions, except percentage changes)
Passenger $ 48,512 $ 44,568 $ 3,944 8.8
Cargo 812 1,233 (421) (34.1)
Other 3,460 3,164 296 9.3
Total operating revenues $ 52,784 $ 48,965 $ 3,819 7.8
Passenger revenue increased $3.9 billion, or 8.8%, in 2023 from 2022 primarily due to continued strength in demand for air travel, resulting in an increase in RPMs and an increase in load factor in 2023.
Cargo revenue decreased $421 million, or 34.1%, in 2023 from 2022 primarily due to decreases in cargo yield and cargo ton miles driven by lower demand and increased air freight capacity globally.
Other operating revenue increased $296 million, or 9.3%, in 2023 from 2022 driven primarily by higher revenue associated with American’s loyalty program. During 2023 and 2022, cash payments from co-branded credit card and other partners were $5.2 billion and $4.5 billion, respectively.
Total operating revenues in 2023 increased $3.8 billion, or 7.8%, from 2022 driven primarily by the increase in passenger revenue as described above.
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Operating Expenses
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2023 2022
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 12,257 $ 13,791 $ (1,534) (11.1)
Salaries, wages and benefits 14,572 12,965 1,607 12.4
Regional expenses 4,619 4,345 274 6.3
Maintenance, materials and repairs 3,265 2,684 581 21.6
Other rent and landing fees 2,928 2,730 198 7.3
Aircraft rent 1,369 1,395 (26) (1.9)
Selling expenses 1,799 1,815 (16) (0.9)
Depreciation and amortization 1,927 1,969 (42) (2.2)
Mainline operating special items, net 971 193 778 nm
Other 6,008 5,425 583 10.8
Total operating expenses $ 49,715 $ 47,312 $ 2,403 5.1
Additional detail regarding changes in American’s operating expenses is as follows:
Aircraft fuel and related taxes decreased $1.5 billion, or 11.1%, in 2023 from 2022 primarily due to a 16.3% decrease in the average price per gallon of aircraft fuel including related taxes to $2.96 in 2023 from $3.54 in 2022, offset in part by a 6.1% increase in gallons of fuel consumed due to increased capacity.
Salaries, wages and benefits increased $1.6 billion, or 12.4%, in 2023 from 2022 primarily driven by higher wage rates associated with the ratification of a new collective bargaining agreement with American’s mainline pilots.
Regional expenses increased $274 million, or 6.3%, in 2023 from 2022 primarily due to contractual rate increases with American’s regional carriers.
Maintenance, materials and repairs increased $581 million, or 21.6%, in 2023 from 2022 primarily due to increased costs for engine overhauls and airframe heavy checks driven by higher volume, flight hours and cost of materials.
Other rent and landing fees increased $198 million, or 7.3%, in 2023 from 2022 primarily due to rate increases at certain airports, incremental engine leases and higher landing fees.
Selling expenses remained flat in 2023 from 2022 primarily due to a decrease in commissions expense, offset primarily by higher credit card fees driven by the overall increase in passenger revenues.
Other operating expenses increased $583 million, or 10.8%, in 2023 from 2022 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground handling and airport lounge operations, as well as certain general and administrative expenses.
Operating Special Items, Net
Year Ended December 31,
2023 2022
(In millions)
Labor contract expenses (1)
$ 989 $ —
Severance expenses (2)
23 —
Fleet impairment (3)
— 149
Litigation reserve adjustments — 37
Other operating special items, net (41) 7
Mainline operating special items, net $ 971 $ 193
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(1) Labor contract expenses relate to one-time charges resulting from the ratification of a new collective bargaining agreement with American’s mainline pilots, including a one-time payment of $754 million as well as adjustments to other benefit-related items of $235 million.
(2) Severance expenses included costs associated with headcount reductions in certain corporate functions.
(3) Fleet impairment included a non-cash impairment charge to write down the carrying value of American’s retired Airbus A330 fleet to the estimated fair value due to the market conditions for certain used aircraft. American retired its Airbus A330 fleet in 2020 as a result of the decline in demand for air travel due to the COVID-19 pandemic.
Nonoperating Results
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2023 2022
(In millions, except percentage changes)
Interest income $ 1,078 $ 349 $ 729 nm
Interest expense, net (2,206) (1,872) (334) 17.8
Other income (expense), net (359) 324 (683) nm
Total nonoperating expense, net $ (1,487) $ (1,199) $ (288) 24.0
Interest income increased $729 million in 2023 compared to 2022 primarily as a result of higher returns on American’s short-term investments and related party receivables from AAG. Interest expense, net increased $334 million, or 17.8%, in 2023 compared to 2022 primarily due to higher interest rates on American’s variable-rate debt instruments and related party payables from AAG’s wholly-owned subsidiaries, offset in part by debt repayments.
In 2023, other nonoperating expense, net primarily included $362 million of net special charges principally associated with debt refinancings and extinguishments and mark-to-market net unrealized losses associated with certain equity investments, offset in part by $33 million of non-service related pension and other postretirement benefit plan income.
In 2022, other nonoperating income, net primarily included $423 million of non-service related pension and other postretirement benefit plan income, offset in part by $72 million of net special charges principally for mark-to-market net unrealized losses associated with certain equity investments.
The decrease in non-service related pension and other postretirement benefit plan income in 2023 as compared to 2022 is principally due to an increase in interest cost for the pension and other postretirement benefit obligations driven by higher discount rates and a decrease in expected return on pension plan assets from a reduction in plan assets.
Income Taxes
American is a member of AAG’s consolidated federal and certain state income tax returns.
In 2023, American recorded an income tax provision of $394 million with an effective rate of approximately 25%, which was substantially non-cash. Substantially all of American’s income before income taxes is attributable to the United States. At December 31, 2023, American had approximately $13.7 billion of gross federal NOLs and $3.6 billion of other carryforwards available to reduce future federal taxable income, of which $3.8 billion will expire beginning in 2033 if unused and $13.5 billion can be carried forward indefinitely. American also had approximately $5.3 billion of NOL carryforwards to reduce future state taxable income at December 31, 2023, which will expire in taxable years 2023 through 2043 if unused.
In 2022, American recorded an income tax provision of $116 million at an effective rate of approximately 26%, which was substantially non-cash.
See Note 5 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on income taxes.
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Liquidity and Capital Resources
Liquidity
At December 31, 2023, AAG had $10.4 billion in total available liquidity and $910 million in restricted cash and short-term investments. Additional detail regarding our available liquidity is provided in the table below (in millions):
AAG American
December 31, December 31,
2023 2022 2023 2022
Cash $ 578 $ 440 $ 567 $ 429
Short-term investments 7,000 8,525 6,998 8,523
Undrawn facilities 2,862 3,033 2,862 3,033
Total available liquidity $ 10,440 $ 11,998 $ 10,427 $ 11,985
In the ordinary course of our business, we or our affiliates may, at any time and from time to time, seek to prepay, retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, prepayments, retirements or exchanges, if any, will be conducted on such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, legal and contractual restrictions and other factors. The amounts involved may be material. For further information regarding our debt repurchases for the year ended December 31, 2023, see Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.
Certain Covenants
Our debt agreements contain customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, may restrict the ability of us and our subsidiaries to incur additional indebtedness, pay dividends or repurchase stock. Our debt agreements also contain customary change of control provisions, which may require us to repay or redeem such indebtedness upon certain events constituting a change of control under the relevant agreement, in certain cases at a premium. Additionally, certain of our debt financing agreements (including our secured notes, term loans, revolving credit facilities and spare engine enhanced equipment trust certificates (EETCs)) contain loan to value (LTV), collateral coverage or peak debt service coverage ratio covenants and certain agreements require us to appraise the related collateral annually or semiannually. Pursuant to such agreements, if the applicable LTV, collateral coverage or peak debt service coverage ratio exceeds or falls below a specified threshold, as the case may be, we will be required, as applicable, to pledge additional qualifying collateral (which in some cases may include cash or investment securities), withhold additional cash in certain accounts, or pay down such financing, in whole or in part, or the interest rate for the relevant financing will be increased. As of the most recent applicable measurement dates, we were in compliance with each of the foregoing LTV, collateral coverage and peak debt service coverage tests. Additionally, a significant portion of our debt financing agreements contain covenants requiring us to maintain an aggregate of at least $2.0 billion of unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities, and our AAdvantage Financing contains a peak debt service coverage ratio, pursuant to which failure to comply with a certain threshold may result in early repayment, in whole or in part, of the AAdvantage Financing. For further information regarding our debt covenants, see Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B.
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Sources and Uses of Cash
For a comparison of the 2022 and 2021 reporting periods, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “ Sources and Uses of Cash” of our 2022 Form 10-K.
AAG
Operating Activities
Our net cash provided by operating activities was $3.8 billion and $2.2 billion in 2023 and 2022, respectively, a $1.6 billion year-over-year increase due to higher profitability and cash provided by working capital management.
Investing Activities
Our net cash used in investing activities was $502 million in 2023 as compared to net cash provided by investing activities of $636 million in 2022.
Our principal investing activities in 2023 included $2.6 billion of capital expenditures, which primarily related to the purchase of 17 Boeing 737-8 MAX aircraft, ten Airbus A321neo aircraft, seven Embraer 175 aircraft, seven Bombardier CRJ 900 aircraft and 28 spare engines. These cash outflows were offset in part by $1.5 billion in net sales of short-term investments and $230 million of proceeds from the sale of property and equipment and sale-leaseback transactions.
Our principal investing activities in 2022 included $3.7 billion in net sales of short-term investments. These cash inflows were offset in part by $2.5 billion of capital expenditures, which primarily related to the purchase of 24 Airbus A321neo aircraft and 12 spare engines, and $321 million of equity investments, principally related to GOL.
Financing Activities
Our net cash used in financing activities was $3.2 billion and $2.6 billion in 2023 and 2022, respectively.
Our principal financing activities in 2023 included $2.9 billion in net repayments of debt and finance lease obligations primarily due to scheduled debt repayments. In February 2023, we refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility through the combination of (i) issuing $750 million in aggregate principal amount of the 7.25% Senior Secured Notes and (ii) extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility. In December 2023, we issued $1.0 billion aggregate principal amount of the 8.50% Senior Secured Notes and entered into the 2023 Term Loan Facility in an aggregate principal amount of $1.1 billion. The net proceeds of the 8.50% Senior Secured Notes, together with net proceeds from borrowings under the 2023 Term Loan Facility and cash on hand, were used to redeem all of the outstanding 11.75% Senior Secured Notes. In addition, we borrowed $1.1 billion in connection with the financing of certain aircraft and repurchased $552 million of secured and unsecured notes in the open market.
Our principal financing activities in 2022 included $3.8 billion in repayments of debt and finance lease obligations, consisting of $2.2 billion of scheduled debt repayments including the repayment of $401 million in connection with the maturity of our 5.000% unsecured notes, the $1.2 billion prepayment of the December 2016 Term Loan Facility and the repurchase of $349 million of unsecured notes in the open market. These cash outflows were offset in part by $1.1 billion of long-term debt proceeds, consisting of $866 million from the issuance of equipment notes related to EETCs and $205 million in connection with the financing of certain aircraft.
American
Operating Activities
American’s net cash provided by operating activities was $3.7 billion and $1.3 billion in 2023 and 2022, respectively, a $2.4 billion year-over-year increase due to higher profitability and cash provided by working capital management.
Investing Activities
American’s net cash used in investing activities was $449 million in 2023 as compared to net cash provided by investing activities of $693 million in 2022.
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American’s principal investing activities in 2023 included $2.5 billion of capital expenditures, which primarily related to the purchase of 17 Boeing 737-8 MAX aircraft, ten Airbus A321neo aircraft, seven Embraer 175 aircraft, seven Bombardier CRJ 900 aircraft and 28 spare engines. These cash outflows were offset in part by $1.5 billion in net sales of short-term investments and $230 million of proceeds from the sale of property and equipment and sale-leaseback transactions.
American’s principal investing activities in 2022 included $3.7 billion in net sales of short-term investments. These cash inflows were offset in part by $2.5 billion of capital expenditures, which primarily related to the purchase of 24 Airbus A321neo aircraft and 12 spare engines, and $321 million of equity investments, principally related to GOL.
Financing Activities
American’s net cash used in financing activities was $3.2 billion and $1.8 billion in 2023 and 2022, respectively.
American’s principal financing activities in 2023 included $2.9 billion in net repayments of debt and finance lease obligations primarily due to scheduled debt repayments. In February 2023, American refinanced approximately $1.8 billion in aggregate principal amount of term loans outstanding under the 2013 Term Loan Facility through the combination of (i) issuing $750 million in aggregate principal amount of the 7.25% Senior Secured Notes and (ii) extending the maturity of $1.0 billion in term loans under the 2013 Term Loan Facility. In December 2023, American issued $1.0 billion aggregate principal amount of the 8.50% Senior Secured Notes and entered into the 2023 Term Loan Facility in an aggregate principal amount of $1.1 billion. The net proceeds of the 8.50% Senior Secured Notes, together with net proceeds from borrowings under the 2023 Term Loan Facility and cash on hand, were used to redeem all of the outstanding 11.75% Senior Secured Notes. In addition, American borrowed $1.1 billion in connection with the financing of certain aircraft and repurchased $539 million of secured notes in the open market.
American’s principal financing activities in 2022 included $3.0 billion in repayments of debt and finance lease obligations, consisting of $1.8 billion of scheduled debt repayments and the $1.2 billion prepayment of the December 2016 Term Loan Facility. These cash outflows were offset in part by $1.1 billion of long-term debt proceeds, consisting of $866 million from the issuance of equipment notes related to EETCs and $205 million in connection with the financing of certain aircraft.
Commitments
For further information regarding our commitments, see the Notes to AAG’s Consolidated Financial Statements in Part II, Item 8A and the Notes to American’s Consolidated Financial Statements in Part II, Item 8B at the referenced footnotes below.
AAG American
Debt Note 4
Note 3
Leases Note 5
Note 4
Employee Benefit Plans Note 9
Note 8
Commitments, Contingencies and Guarantees Note 11
Note 10
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us.
We have no off-balance sheet arrangements of the types described in the first three categories above that we believe may have a material current or future effect on financial condition, liquidity or results of operations.
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Pass-Through Trusts
American currently has 308 owned aircraft and 60 owned spare aircraft engines, which in each case were financed with EETCs issued by pass-through trusts. These trusts are off-balance sheet entities, the primary purpose of which is to finance the acquisition of flight equipment or to permit issuance of debt backed by existing flight equipment. In the case of aircraft EETCs, rather than finance each aircraft separately when such aircraft is purchased, delivered or refinanced, these trusts allow American to raise the financing for a number of aircraft at one time and, if applicable, place such funds in escrow pending a future purchase, delivery or refinancing of the relevant aircraft. Similarly, in the case of the spare engine EETCs, the trusts allow American to use its existing pool of spare engines to raise financing under a single facility. The trusts have also been structured to provide for certain credit enhancements, such as liquidity facilities to cover certain interest payments, that reduce the risks to the purchasers of the trust certificates and, as a result, reduce the cost of aircraft financing to American.
Each trust covers a set number of aircraft or spare engines scheduled to be delivered, financed or refinanced upon the issuance of the EETC or within a specific period of time thereafter. At the time of each covered aircraft or spare engine financing, the relevant trust used the proceeds from the issuance of the EETC (which may have been available at the time of issuance thereof or held in escrow until financing of the applicable aircraft following its delivery) to purchase equipment notes relating to the financed aircraft or engines. The equipment notes are issued, at American’s election, in connection with a mortgage financing of the aircraft or spare engines. The equipment notes are secured by a security interest in the aircraft or engines, as applicable. The pass-through trust certificates are not direct obligations of, nor are they guaranteed by, AAG or American. However, the equipment notes issued to the trusts are direct obligations of American and, in certain instances, have been guaranteed by AAG. As of December 31, 2023, $7.7 billion associated with these mortgage financings is reflected as debt in the accompanying consolidated balance sheet.
Letters of Credit and Other
We provide financial assurance, such as letters of credit and surety bonds, primarily to support projected workers’ compensation obligations and airport commitments. As of December 31, 2023, we had $318 million of letters of credit and surety bonds securing various obligations, of which $94 million is collateralized with our restricted cash. The letters of credit and surety bonds that are subject to expiration will expire on various dates through 2028.
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Contractual Obligations
The following table provides details of our estimated material cash requirements from contractual obligations as of December 31, 2023 (in millions). The table does not include commitments that are contingent on events or other factors that are uncertain or unknown at this time and is subject to other conventions as set forth in the applicable accompanying footnotes.
Payments Due by Period
2024 2025 2026 2027 2028 2029 and Thereafter Total
American (a)
Long-term debt:
Principal amount (b), (d) (See Note 3)
$ 3,502 $ 3,702 $ 4,582 $ 4,618 $ 5,060 $ 6,062 $ 27,526
Interest obligations (c), (d)
1,679 1,341 1,037 737 475 492 5,761
Finance lease obligations (See Note 4)
156 140 114 71 30 89 600
Aircraft and engine purchase commitments (e) (See Note 10(a))
2,410 3,725 3,580 1,118 829 645 12,307
Operating lease commitments (See Note 4)
1,821 1,565 1,347 1,182 1,052 4,051 11,018
Regional capacity purchase agreements (f) (See Note 10(b))
2,038 1,992 1,702 1,473 693 1,332 9,230
Minimum pension obligations (g) (See Note 8)
280 251 244 165 140 65 1,145
Retiree medical and other postretirement benefits (See Note 8)
125 131 137 137 135 606 1,271
Other purchase obligations (h) (See Note 10(a))
4,673 2,044 1,396 150 124 843 9,230
Total American Contractual Obligations $ 16,684 $ 14,891 $ 14,139 $ 9,651 $ 8,538 $ 14,185 $ 78,088
AAG Parent and Other AAG Subsidiaries (a)
Long-term debt:
Principal amount (b) (See Note 4)
$ — $ 1,487 $ — $ — $ — $ 3,746 $ 5,233
Interest obligations (c)
121 145 156 190 192 399 1,203
Finance lease obligations (See Note 5)
10 — — — — — 10
Operating lease commitments (See Note 5)
20 12 9 5 3 26 75
Minimum pension obligations (g) (See Note 9)
4 2 2 1 1 3 13
Total AAG Contractual Obligations $ 16,839 $ 16,537 $ 14,306 $ 9,847 $ 8,734 $ 18,359 $ 84,622
(a) For additional information, see the Notes to AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, referenced in the table above.
(b) Amounts represent contractual amounts due. Excludes $349 million and $14 million of unamortized debt discount, premium and issuance costs as of December 31, 2023 for American and AAG Parent, respectively.
(c) For variable-rate debt, future interest obligations are estimated using the current forward rates at December 31, 2023.
(d) Includes $7.7 billion of future principal payments and $1.0 billion of future interest payments as of December 31, 2023, related to EETCs associated with mortgage financings of certain aircraft and spare engines.
(e) See Part I, Item 2. Properties – “Aircraft and Engine Purchase Commitments” for additional information about the firm commitment aircraft delivery schedule, in particular the footnote to the table thereunder as to potential changes to such delivery schedule. Due to uncertainty surrounding the timing of delivery of certain aircraft, the amounts in the table represent our most current estimate based on contractual delivery schedules adjusted for updates and revisions to such schedules communicated to management by the applicable equipment manufacturer. However, the actual delivery schedule may differ, potentially materially, based on various potential factors including production delays by the manufacturer and regulatory concerns. Additionally, the amounts in the table exclude five Boeing 787 Family
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aircraft scheduled to be delivered in 2024, for which we have obtained committed lease financing. This financing is reflected in the operating lease commitments line above.
(f) Represents minimum payments under capacity purchase agreements with third-party regional carriers. These commitments are estimates of costs based on assumed minimum levels of flying under the capacity purchase agreements and American’s actual payments could differ materially. Rental payments under operating leases for certain aircraft flown under these capacity purchase agreements are reflected in the operating lease commitments line above.
(g) Represents minimum pension contributions based on actuarially determined estimates as of December 31, 2023 and is based on estimated payments through 2033. In January 2024, we made $280 million of required pension contributions.
(h) Includes purchase commitments for aircraft fuel, flight equipment maintenance and information technology support and excludes obligations under certain fuel offtake agreements or other agreements for which the timing of the related expenditure is uncertain, or which are subject to material contingencies, such as the construction of a production facility.
Capital Raising Activity and Other Possible Actions
In light of our significant financial commitments related to, among other things, the servicing and amortization of existing debt and equipment leasing arrangements and new flight equipment, we and our subsidiaries will regularly consider, and enter into negotiations related to, capital raising and liability management activity, which may include the entry into leasing transactions and future issuances of, and transactions designed to manage the timing and amount of, secured or unsecured debt obligations or additional equity or equity-linked securities in public or private offerings or otherwise. The cash available from operations (if any) and these sources, however, may not be sufficient to cover our cash obligations because economic factors may reduce the amount of cash generated by operations or increase costs. For instance, an economic downturn or general global instability caused by military actions, terrorism, disease outbreaks (such as the COVID-19 pandemic), natural disasters or other causes could reduce the demand for air travel, which would reduce the amount of cash generated by operations. See Part I, Item 1A. Risk Factors – “Downturns in economic conditions could adversely affect our business” for additional discussion. An increase in costs, either due to an increase in borrowing costs caused by a reduction in credit ratings or a general increase in interest rates, or due to an increase in the cost of fuel, maintenance, aircraft, aircraft engines or parts, could decrease the amount of cash available to cover cash contractual obligations. Moreover, certain of our financing arrangements contain significant minimum cash balance or similar liquidity requirements. As a result, we cannot use all of our available cash to fund operations, capital expenditures and cash obligations without violating these requirements. See Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 3 to American’s Consolidated Financial Statements in Part II, Item 8B for information regarding our financing arrangements.
In the past, we have from time to time refinanced, redeemed or repurchased our debt and taken other steps to reduce or otherwise manage the aggregate amount and cost of our debt, lease and other obligations or otherwise improve our balance sheet. Going forward, depending on market conditions, our cash position and other considerations, we may continue to take such actions, and the amounts involved may be material.
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OTHER INFORMATION
Basis of Presentation
See Note 1 to each of AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, for information regarding the basis of presentation.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. We believe our estimates and assumptions are reasonable; however, actual results could differ from those estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. We have identified the following critical accounting policies that impact the preparation of our consolidated financial statements. See the “ Basis of Presentation and Summary of Significant Accounting Policies ” included in Note 1 to each of AAG’s and American’s Consolidated Financial Statements in Part II, Items 8A and 8B, respectively, for additional discussion of the application of these estimates and other accounting policies.
Passenger Revenue
We recognize all revenues generated from transportation on American and our regional flights operated under the brand name American Eagle, including associated baggage fees and other inflight services, as passenger revenue when transportation is provided. Ticket and other related sales for transportation that has not yet been provided are initially deferred and recorded as air traffic liability on our consolidated balance sheets. The air traffic liability principally represents tickets sold for future travel on American and partner airlines.
The contract duration of passenger tickets is generally one year. The majority of tickets sold are nonrefundable. A small percentage of tickets, some of which are partially used tickets, expire unused. The estimate for tickets expected to expire unused is generally based on an analysis of our historical data and other current applicable factors such as policy changes. We have consistently applied this accounting method to estimate and recognize revenue from unused tickets at the date of travel. This estimate is periodically evaluated based on subsequent activity to validate its accuracy. Any adjustments resulting from periodic evaluations of the estimated air traffic liability are included in passenger revenue during the period in which the evaluations are completed.
Loyalty Revenue
We currently operate the loyalty program, AAdvantage. This program awards mileage credits to passengers who fly on American, any one world airline or other partner airlines, or by using the services of other program participants, such as our co-branded credit cards, and certain hotels and car rental companies. Mileage credits can be redeemed for travel on American and other participating partner airlines, as well as non-air travel awards such as hotels and rental cars. For mileage credits earned by AAdvantage program members, we apply the deferred revenue method.
Mileage credits earned through travel
For mileage credits earned through travel, we apply a relative selling price approach whereby the total amount collected from each passenger ticket sale is allocated between the air transportation and the mileage credits earned. The portion of each passenger ticket sale attributable to mileage credits earned is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided. The estimated selling price of mileage credits is determined using an equivalent ticket value approach, which uses historical data, including award redemption patterns by geographic region and class of service, as well as similar cash fares as those used to settle award redemptions. The estimated selling price of mileage credits is adjusted for an estimate of mileage credits that will not be redeemed using a statistical model based on historical redemption patterns to develop an estimate of the likelihood of future redemption. For the year ended December 31, 2023, a hypothetical 10% increase in the estimated selling price of mileage credits would have decreased revenues by approximately $128 million as a result of additional amounts deferred from passenger ticket sales to be recognized in future periods.
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Mileage credits sold to co-branded credit cards and other partners
We sell mileage credits to participating airline partners and non-airline business partners, including our co-branded credit card partners, under contracts with remaining terms generally from one to six years as of December 31, 2023. Consideration received from the sale of mileage credits is variable and payment terms typically are within 30 days subsequent to the month of mileage sale. Sales of mileage credits to non-airline business partners are comprised of two components, transportation and marketing. We allocate the consideration received from these sales of mileage credits based on the relative selling price of each product or service delivered.
Our most significant mileage credit partner agreements are our co-branded credit card agreements with Citi and Barclaycard US. We identified two revenue elements in these co-branded credit card agreements: the transportation component and the marketing component.
The transportation component represents the estimated selling price of future travel awards and is determined using the same equivalent ticket value approach described above. The portion of each mileage credit sold attributable to transportation is initially deferred and then recognized in passenger revenue when mileage credits are redeemed and transportation is provided.
The marketing component includes the use of intellectual property, including the American brand and access to loyalty program member lists, which is the predominant element in these agreements, as well as advertising and other travel-related benefits. We recognize the marketing component in other revenue in the period of the mileage credit sale following the sales-based royalty method.
For the portion of our outstanding mileage credits that we estimate will not be redeemed, we recognize the associated value proportionally as the remaining mileage credits are redeemed. Our estimates use a statistical model based on historical redemption patterns to develop an estimate of the likelihood of future redemption. For the year ended December 31, 2023, a hypothetical 10% increase in our estimate of mileage credits not expected to be redeemed would have increased revenues by approximately $127 million.
Pensions and Retiree Medical and Other Postretirement Benefits
We recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of our pension and retiree medical and other postretirement benefits plans on the consolidated balance sheets with a corresponding adjustment to accumulated other comprehensive income (loss).
Our pension and retiree medical and other postretirement benefits costs and liabilities are calculated using various actuarial assumptions and methodologies. We use certain assumptions including, but not limited to, the selection of the: (1) discount rate and (2) expected return on plan assets (as discussed below). These assumptions as of December 31 were:
2023 2022
Pension weighted average discount rate (1)
5.2 % 5.6 %
Retiree medical and other postretirement benefits weighted average discount rate (1)
5.3 % 5.7 %
Expected rate of return on plan assets (2)
8.0 % 8.0 %
(1) When establishing the discount rate to measure our obligations, we match high quality corporate bonds available in the marketplace whose cash flows approximate our projected benefit disbursements. Lowering the discount rate by 50 basis points as of December 31, 2023 would increase our pension and retiree medical and other postretirement benefits obligations by approximately $740 million and $40 million, respectively, and decrease estimated 2024 pension and retiree medical and other postretirement benefits expense by approximately $5 million and $1 million, respectively.
(2) The expected rate of return on plan assets is based upon an evaluation of our historical trends and experience, taking into account current and expected market conditions and our target asset allocation of 30% U.S. fixed income securities, 24% U.S. stocks, 24% private investments, 16% developed international stocks and 6% emerging market stocks. The expected rate of return on plan assets component of our net periodic benefit cost is calculated based on the fair value of plan assets and our target asset allocation. Lowering the expected long-term rate of return on plan assets by 50 basis points as of December 31, 2023 would increase estimated 2024 pension expense and retiree medical and other postretirement benefits expense by approximately $60 million and $1 million, respectively.
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Annually, we review and revise certain economic and demographic assumptions including the pension and retiree medical and other postretirement benefits discount rates and health care costs. The net effect of changing these assumptions for the pension plans resulted in an increase of $546 million in the projected benefit obligation at December 31, 2023. The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in an increase of $89 million in the accumulated postretirement benefit obligation at December 31, 2023.
See Note 9 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 8 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information regarding our employee benefit plans.
Income Taxes
Our ability to use our NOLs and other carryforwards depends on the amount of taxable income generated in future periods. We provide a valuation allowance for our deferred tax assets when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. We consider all available positive and negative evidence and make certain assumptions in evaluating the realizability of our deferred tax assets. Many factors are considered that impact our assessment of future profitability, including conditions which are beyond our control, such as the health of the economy, the availability and price volatility of aircraft fuel and travel demand. We have determined that positive factors outweigh negative factors in the determination of the realizability of our deferred tax assets. There can be no assurance that an additional valuation allowance on our net deferred tax assets will not be required. Such valuation allowance could be material.
Recent Accounting Pronouncements
Accounting Standards Update (ASU) 2023-07: Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures
This standard improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. We are currently evaluating how the adoption of this standard will impact our reportable segment disclosures.
ASU 2023-09: Income Taxes (Topic 740) Improvements to Income Tax Disclosures
This standard enhances transparency of income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information, as well as improvements to the effectiveness and comparability of other income tax disclosures. The amendments in this update are effective for annual periods beginning after December 15, 2024, and early adoption is permitted. We are currently evaluating how the adoption of this standard will impact our income tax disclosures.