Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2024 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)
2024 2023
(In millions, except percentage changes)
Passenger revenue $ 49,586 $ 48,512 $ 1,074 2.2
Cargo revenue 804 812 (8) (0.9)
Other operating revenue 3,821 3,464 357 10.3
Total operating revenues 54,211 52,788 1,423 2.7
Aircraft fuel and related taxes 11,418 12,257 (839) (6.8)
Salaries, wages and benefits 16,021 14,580 1,441 9.9
Total operating expenses 51,597 49,754 1,843 3.7
Operating income 2,614 3,034 (420) (13.9)
Pre-tax income 1,154 1,121 33 2.9
Income tax provision 308 299 9 2.9
Net income 846 822 24 2.9
Pre-tax income – GAAP $ 1,154 $ 1,121 $ 33 2.9
Adjusted for: pre-tax net special items (1)
667 1,341 (674) (50.2)
Pre-tax income excluding net special items $ 1,821 $ 2,462 $ (641) (26.0)
(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.
Pre-Tax Income and Net Income
Pre-tax income and net income were $1.2 billion and $846 million, respectively, in 2024. This compares to 2023 pre-tax income and net income of $1.1 billion and $822 million, respectively.
Pre-tax income on a GAAP basis increased slightly in 2024 as compared to 2023. This was driven primarily by increases in passenger revenue, lower costs for aircraft fuel and related taxes and decreases in pre-tax net special items, offset in part by increases in certain operating expenses including salaries, wages and benefits, maintenance, materials and repairs and certain other operating expenses.
Excluding the effects of pre-tax net special items, pre-tax income was $1.8 billion and $2.5 billion in 2024 and 2023, respectively. The year-over-year decrease in our pre-tax income excluding pre-tax net special items was principally driven by certain operating expenses as mentioned above, offset in part by increases in passenger revenue and lower costs for aircraft fuel and related taxes.
In September 2024, American and the Association of Professional Flight Attendants, the union representing our mainline flight attendants, ratified a new collective bargaining agreement. This five-year agreement provides wage rate increases, quality-of-life benefits and other benefit-related items. The ratified agreement also included a provision for a one-time payment. In 2024, 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 $514 million which was paid in November 2024.
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Revenue
In 2024, we reported total operating revenues of $54.2 billion, an increase of $1.4 billion, or 2.7%, as compared to 2023. Passenger revenue was $49.6 billion, an increase of $1.1 billion, or 2.2%, as compared to 2023. In 2024, revenue passenger miles (RPMs) increased 7.3%, resulting in a load factor of 84.9% as compared to 83.5% in 2023. Passenger yield decreased 4.7% on 5.5% capacity growth year-over-year, as measured by available seat miles (ASMs). Our passenger revenue in 2024 was impacted by certain commercial initiatives we had previously deployed, along with an over-supply of industry capacity in the first half of the year. Mid-year, we took actions to adjust our strategy as well as capacity growth which, combined with industry capacity deceleration, resulted in sequential year-over-year improvement in passenger unit revenue performance in the third and fourth quarters of 2024.
Cargo revenue decreased $8 million, or 0.9%, in 2024 as compared to 2023, primarily due to an 11.8% decrease in cargo yield driven by increased air freight capacity, offset in part by a 12.3% increase in cargo ton miles.
Other operating revenue increased $357 million, or 10.3%, in 2024 as compared to 2023, driven primarily by higher revenue associated with our loyalty program. During 2024 and 2023, cash payments from co-branded credit card and other partners were $6.1 billion and $5.2 billion, respectively, an increase of 17% year-over-year. Cash remuneration in 2024 included a one-time cash payment related to the new co-branded credit card agreement announced in December 2024. This one-time cash payment will be amortized over the life of the new agreement beginning in 2026.
Our total revenue per available seat mile (TRASM) was 18.51 cents in 2024, a 2.6% decrease as compared to 19.01 cents in 2023.
Fuel
In 2024, aircraft fuel expense totaled $11.4 billion, a decrease of $839 million, or 6.8%, as compared to 2023. This decrease was primarily driven by a 12.2% decrease in the average price per gallon of aircraft fuel including related taxes to $2.60 in 2024 from $2.96 in 2023, offset in part by a 6.1% increase in gallons of fuel consumed due to increased capacity.
As of December 31, 2024, 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. See Part I, Item 1A. Risk Factors – “ Our business is very dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on consumer demand, our operating results and liquidity.”
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. In 2024, we continued to focus on our reengineering the business initiatives through the use of digital solutions, process enhancements and procurement transformation. We will continue to invest in reengineering our business in 2025 and beyond to build an even more efficient airline and continue to manage costs while delivering a better experience for our customers and team.
Our 2024 CASM was 17.61 cents, a decrease of 1.7%, from 17.92 cents in 2023. This decrease in CASM was primarily driven by lower aircraft fuel costs as well as a decrease in mainline operating special items, net, offset in part by higher costs for salaries, wages and benefits and maintenance, materials and repairs.
Our 2024 CASM excluding net special items and fuel was 13.50 cents, an increase of 2.6%, from 13.15 cents in 2023, which was primarily driven by higher costs for salaries, wages and benefits and maintenance, materials and repairs.
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, 2024, we had $10.3 billion in total available liquidity, consisting of $7.0 billion in unrestricted cash and short-term investments and $3.3 billion in total undrawn capacity under revolving credit and other short-term facilities.
During 2024, we completed the following financing transactions (see Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information):
• entered into a revolving credit facility that provides for borrowing capacity of up to $350 million, maturing in March 2027 with an option to extend for an additional year;
• amended the 2013, 2014 and 2023 Credit Agreements to reduce the applicable interest rate margins, and terminated all revolving commitments under the April 2016 Credit Agreement, increasing overall available revolving credit capacity from $2.8 billion to $2.9 billion, maturing in June 2029;
• amended the 2013 and 2023 Term Loan Facilities to reduce the applicable interest rate margins;
• prepaid in full $487 million of the outstanding principal amount of the 3.75% senior notes due 2025 (3.75% Senior Notes);
• prepaid $263 million toward portions of the outstanding principal amounts of the 10.75% senior secured IP notes (the IP Notes) and the 10.75% senior secured LGA/DCA notes (LGA/DCA Notes);
• issued $684 million of enhanced equipment trust certificates (EETCs) in connection with the financing of certain aircraft that had been previously delivered; and
• issued $990 million of equipment loans and other notes payable in connection with the financing of certain aircraft.
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.
Recent Developments
On January 29, 2025, American Eagle flight 5342 was involved in a fatal accident in Washington, D.C. The Bombardier CRJ 700 aircraft operated by PSA was en route to Washington, D.C. from Wichita, Kansas when it was involved in a midair collision near Ronald Reagan Washington National Airport. American has industry standard insurance coverage for this incident, and is continuing its assessment of the impact on its business resulting from the accident.
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AAG’s Results of Operations
For a comparison of the 2023 to 2022 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 2023 Form 10-K.
Operating Statistics
The table below sets forth selected operating data for the years ended December 31, 2024 and 2023.
Year Ended December 31, Increase
(Decrease)
2024 2023
Revenue passenger miles (millions) (a)
248,795 231,926 7.3%
Available seat miles (millions) (b)
292,948 277,723 5.5%
Passenger load factor (percent) (c)
84.9 83.5 1.4pts
Yield (cents) (d)
19.93 20.92 (4.7)%
Passenger revenue per available seat mile (cents) (e)
16.93 17.47 (3.1)%
Total revenue per available seat mile (cents) (f)
18.51 19.01 (2.6)%
Fuel consumption (gallons in millions) 4,391 4,140 6.1%
Average aircraft fuel price including related taxes (dollars per gallon) 2.60 2.96 (12.2)%
Total operating cost per available seat mile (cents) (g)
17.61 17.92 (1.7)%
Aircraft at end of period (h)
1,562 1,521 2.7%
Full-time equivalent employees at end of period 133,300 132,100 0.9%
(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 seven regional aircraft in temporary storage as of December 31, 2024 as follows: five Embraer 145 and two Bombardier CRJ 900.
Operating Revenues
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2024 2023
(In millions, except percentage changes)
Passenger $ 49,586 $ 48,512 $ 1,074 2.2
Cargo 804 812 (8) (0.9)
Other 3,821 3,464 357 10.3
Total operating revenues $ 54,211 $ 52,788 $ 1,423 2.7
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This table presents our passenger revenue and the year-over-year change in certain operating statistics:
Increase (Decrease)
vs. Year Ended December 31, 2023
Year Ended
December 31, 2024 Passenger
Revenue RPMs ASMs Load
Factor Passenger
Yield PRASM
(In millions)
Passenger revenue $ 49,586 2.2% 7.3% 5.5% 1.4pts (4.7)% (3.1)%
Passenger revenue increased $1.1 billion, or 2.2%, in 2024 from 2023. In 2024, RPMs increased 7.3%, resulting in a load factor of 84.9% as compared to 83.5% in 2023. Passenger yield decreased 4.7% on 5.5% capacity growth year-over-year, as measured by ASMs. Our passenger revenue in 2024 was impacted by certain commercial initiatives we had previously deployed, along with an over-supply of industry capacity in the first half of the year. Mid-year, we took actions to adjust our strategy as well as capacity growth which, combined with industry capacity deceleration, resulted in sequential year-over-year improvement in passenger unit revenue performance in the third and fourth quarters of 2024.
Cargo revenue decreased $8 million, or 0.9%, in 2024 from 2023 primarily due to an 11.8% decrease in cargo yield driven by increased air freight capacity, offset in part by a 12.3% increase in cargo ton miles.
Other operating revenue increased $357 million, or 10.3%, in 2024 from 2023 driven primarily by higher revenue associated with our loyalty program. During 2024 and 2023, cash payments from co-branded credit card and other partners were $6.1 billion and $5.2 billion, respectively, an increase of 17% year-over-year. Cash remuneration in 2024 included a one-time cash payment related to the new co-branded credit card agreement announced in December 2024. This one-time cash payment will be amortized over the life of the new agreement beginning in 2026.
Total operating revenues in 2024 increased $1.4 billion, or 2.7%, from 2023 driven primarily by the increase in passenger revenue as described above. Our TRASM was 18.51 cents in 2024, a 2.6% decrease as compared to 19.01 cents in 2023.
Operating Expenses
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2024 2023
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 11,418 $ 12,257 $ (839) (6.8)
Salaries, wages and benefits 16,021 14,580 1,441 9.9
Regional expenses 5,042 4,643 399 8.6
Maintenance, materials and repairs 3,794 3,265 529 16.2
Other rent and landing fees 3,303 2,928 375 12.8
Aircraft rent 1,242 1,369 (127) (9.2)
Selling expenses 1,812 1,799 13 0.7
Depreciation and amortization 1,926 1,936 (10) (0.5)
Mainline operating special items, net 610 971 (361) (37.2)
Other 6,429 6,006 423 7.0
Total operating expenses $ 51,597 $ 49,754 $ 1,843 3.7
Additional detail regarding changes in our operating expenses is as follows:
Aircraft fuel and related taxes decreased $839 million, or 6.8%, in 2024 from 2023 primarily due to a 12.2% decrease in the average price per gallon of aircraft fuel including related taxes to $2.60 in 2024 from $2.96 in 2023, offset in part by a 6.1% increase in gallons of fuel consumed due to increased capacity.
Salaries, wages and benefits increased $1.4 billion, or 9.9%, in 2024 from 2023 primarily driven by higher wage rates and costs for benefit-related items associated with the ratification of new CBAs with our mainline pilots in August 2023 and with our mainline flight attendants in September 2024.
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Regional expenses increased $399 million, or 8.6%, in 2024 from 2023 primarily due to an increase in regional flight operations at our wholly-owned regional carriers, as regional capacity as measured by ASMs increased 12.4% year over year, and also due to higher maintenance, materials and repair costs driven by an increase in the volume of engine overhauls and airframe heavy checks.
Maintenance, materials and repairs increased $529 million, or 16.2%, in 2024 from 2023 primarily due to increased costs for engine overhauls, component part repairs and airframe heavy checks driven by higher volume and cost of materials.
Other rent and landing fees increased $375 million, or 12.8%, in 2024 from 2023 primarily driven by rate increases at certain airports as a result of extensive airport redevelopment projects and an 8.1% increase in the number of departures.
Aircraft rent decreased $127 million, or 9.2%, in 2024 from 2023 primarily due to decreased rental payments associated with aircraft operating lease extensions.
Selling expenses increased $13 million, or 0.7%, in 2024 from 2023 primarily due to higher credit card fees driven by the overall increase in passenger revenues, as well as an increase in advertising expense and booking fees, offset in part by a decrease in commissions expense.
Other operating expenses increased $423 million, or 7.0%, in 2024 from 2023 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground and cargo handling, passenger accommodation and airport lounge operations, as well as certain general and administrative expenses.
Operating Special Items, Net
Year Ended December 31,
2024 2023
(In millions)
Labor contract expenses (1)
$ 605 $ 989
A330 fleet-related adjustments (2)
(42) —
Severance expenses 13 23
Other operating special items, net 34 (41)
Mainline operating special items, net 610 971
Regional operating special items, net (3)
33 8
Operating special items, net $ 643 $ 979
(1) Labor contract expenses for 2024 related to one-time charges resulting from the ratification of new CBAs with our mainline flight attendants and passenger service team members, including one-time payments and adjustments to vacation accruals resulting from pay rate increases.
Labor contract expenses for 2023 related to one-time charges resulting from the ratification of a new CBA 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) 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. In 2022, we recorded a non-cash impairment charge to write down the carrying value of our retired Airbus A330 fleet to their then estimated fair value due to the market conditions for certain used aircraft, and in 2024, we entered into a sales agreement for our remaining Airbus A330 aircraft, resulting in a $42 million gain.
(3) Regional operating special items, net for 2024 included a $33 million non-cash write down of regional aircraft resulting from the decision to permanently park 43 Embraer 145 aircraft.
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Nonoperating Results
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2024 2023
(In millions, except percentage changes)
Interest income $ 468 $ 591 $ (123) (20.8)
Interest expense, net (1,934) (2,145) 211 (9.9)
Other income (expense), net 6 (359) 365 nm (1)
Total nonoperating expense, net $ (1,460) $ (1,913) $ 453 (23.7)
(1) Not meaningful or greater than 100% change.
Interest income decreased $123 million, or 20.8%, in 2024 compared to 2023 primarily due to a decrease in the average balance of short-term investments. Interest expense, net decreased $211 million, or 9.9%, in 2024 compared to 2023 primarily due to lower outstanding debt in 2024, as we continue our efforts to strengthen the balance sheet.
In 2024, other nonoperating income, net included $113 million of non-service related pension and other postretirement benefit plan income, offset in part by $48 million of foreign currency losses and $24 million of net special charges primarily for debt refinancings and extinguishments and mark-to-market net unrealized losses associated with certain equity investments.
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.
Income Taxes
In 2024, we recorded an income tax provision of $308 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, 2024, we had approximately $12.9 billion of gross federal NOLs and $5.9 billion of other carryforwards available to reduce future federal taxable income, of which $2.6 billion will expire beginning in 2033 if unused and $16.2 billion can be carried forward indefinitely. We also had approximately $5.2 billion of NOL carryforwards to reduce future state taxable income at December 31, 2024, which will expire in taxable years 2024 through 2044 if unused.
In 2023, we recorded an income tax provision of $299 million at an effective rate of approximately 27%, 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 2023 to 2022 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 2023 Form 10-K.
Operating Revenues
Year Ended December 31, Increase (Decrease) Percent
Increase (Decrease)
2024 2023
(In millions, except percentage changes)
Passenger $ 49,586 $ 48,512 $ 1,074 2.2
Cargo 804 812 (8) (0.9)
Other 3,814 3,460 354 10.3
Total operating revenues $ 54,204 $ 52,784 $ 1,420 2.7
Passenger revenue increased $1.1 billion, or 2.2%, in 2024 from 2023. American’s passenger revenue in 2024 was impacted by certain commercial initiatives it had previously deployed, along with an over-supply of industry capacity in the first half of the year. Mid-year, American took actions to adjust its strategy as well as capacity growth which, combined with
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industry capacity deceleration, resulted in sequential year-over-year improvement in passenger unit revenue performance in the third and fourth quarters of 2024.
Cargo revenue decreased $8 million, or 0.9%, in 2024 from 2023 primarily due to a decrease in cargo yield driven by increased air freight capacity, offset in part by an increase in cargo ton miles.
Other operating revenue increased $354 million, or 10.3%, in 2024 from 2023 driven primarily by higher revenue associated with American’s loyalty program. During 2024 and 2023, cash payments from co-branded credit card and other partners were $6.1 billion and $5.2 billion, respectively, an increase of 17% year-over-year. Cash remuneration in 2024 included a one-time cash payment related to the new co-branded credit card agreement announced in December 2024. This one-time cash payment will be amortized over the life of the new agreement beginning in 2026.
Total operating revenues in 2024 increased $1.4 billion, or 2.7%, from 2023 driven primarily by the increase in passenger revenue as described above.
Operating Expenses
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2024 2023
(In millions, except percentage changes)
Aircraft fuel and related taxes $ 11,418 $ 12,257 $ (839) (6.8)
Salaries, wages and benefits 16,012 14,572 1,440 9.9
Regional expenses 5,009 4,619 390 8.4
Maintenance, materials and repairs 3,794 3,265 529 16.2
Other rent and landing fees 3,303 2,928 375 12.8
Aircraft rent 1,242 1,369 (127) (9.2)
Selling expenses 1,812 1,799 13 0.7
Depreciation and amortization 1,919 1,927 (8) (0.4)
Mainline operating special items, net 610 971 (361) (37.2)
Other 6,431 6,008 423 7.0
Total operating expenses $ 51,550 $ 49,715 $ 1,835 3.7
Additional detail regarding changes in American’s operating expenses is as follows:
Aircraft fuel and related taxes decreased $839 million, or 6.8%, in 2024 from 2023 primarily due to a 12.2% decrease in the average price per gallon of aircraft fuel including related taxes to $2.60 in 2024 from $2.96 in 2023, offset in part by a 6.1% increase in gallons of fuel consumed due to increased capacity.
Salaries, wages and benefits increased $1.4 billion, or 9.9%, in 2024 from 2023 primarily driven by higher wage rates and costs for benefit-related items associated with the ratification of new CBAs with American’s mainline pilots in August 2023 and with its mainline flight attendants in September 2024.
Regional expenses increased $390 million, or 8.4%, in 2024 from 2023 primarily due to an increase in regional flight operations and costs at American’s regional carriers.
Maintenance, materials and repairs increased $529 million, or 16.2%, in 2024 from 2023 primarily due to increased costs for engine overhauls, component part repairs and airframe heavy checks driven by higher volume and cost of materials.
Other rent and landing fees increased $375 million, or 12.8%, in 2024 from 2023 primarily driven by rate increases at certain airports as a result of extensive airport redevelopment projects and an increase in the number of departures.
Aircraft rent decreased $127 million, or 9.2%, in 2024 from 2023 primarily due to decreased rental payments associated with aircraft operating lease extensions.
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Selling expenses increased $13 million, or 0.7%, in 2024 from 2023 primarily due to higher credit card fees driven by the overall increase in passenger revenues, as well as an increase in advertising expense and booking fees, offset in part by a decrease in commissions expense.
Other operating expenses increased $423 million, or 7.0%, in 2024 from 2023 primarily driven by the increase in flight operations, including increased costs for onboard food and catering, crew travel, ground and cargo handling, passenger accommodation and airport lounge operations, as well as certain general and administrative expenses.
Operating Special Items, Net
Year Ended December 31,
2024 2023
(In millions)
Labor contract expenses (1)
$ 605 $ 989
A330 fleet-related adjustments (2)
(42) —
Severance expenses 13 23
Other operating special items, net 34 (41)
Mainline operating special items, net 610 971
Regional operating special items, net (3)
33 —
Operating special items, net $ 643 $ 971
(1) Labor contract expenses for 2024 related to one-time charges resulting from the ratification of new CBAs with American’s mainline flight attendants and passenger service team members, including one-time payments and adjustments to vacation accruals resulting from pay rate increases.
Labor contract expenses for 2023 related to one-time charges resulting from the ratification of a new CBA 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) 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. In 2022, American recorded a non-cash impairment charge to write down the carrying value of its retired Airbus A330 fleet to their then estimated fair value due to the market conditions for certain used aircraft, and in 2024, American entered into a sales agreement for its remaining Airbus A330 aircraft, resulting in a $42 million gain.
(3) Regional operating special items, net for 2024 included a $33 million non-cash write down of regional aircraft resulting from the decision to permanently park 43 Embraer 145 aircraft.
Nonoperating Results
Year Ended December 31, Increase
(Decrease) Percent
Increase
(Decrease)
2024 2023
(In millions, except percentage changes)
Interest income $ 1,058 $ 1,078 $ (20) (1.8)
Interest expense, net (2,029) (2,206) 177 (8.0)
Other income (expense), net 5 (359) 364 nm
Total nonoperating expense, net $ (966) $ (1,487) $ 521 (35.0)
Interest expense, net decreased $177 million, or 8.0%, in 2024 compared to 2023 primarily due to lower outstanding debt in 2024, as American continues its efforts to strengthen the balance sheet.
In 2024, other nonoperating income, net included $113 million of non-service related pension and other postretirement benefit plan income, offset in part by $47 million of foreign currency losses and $24 million of net special charges primarily for debt refinancings and extinguishments and mark-to-market net unrealized losses associated with certain equity investments.
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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.
Income Taxes
American is a member of AAG’s consolidated federal and certain state income tax returns.
In 2024, American recorded an income tax provision of $426 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, 2024, American had approximately $12.8 billion of gross federal NOLs and $4.2 billion of other carryforwards available to reduce future federal taxable income, of which $2.9 billion will expire beginning in 2033 if unused and $14.1 billion can be carried forward indefinitely. American also had approximately $5.0 billion of NOL carryforwards to reduce future state taxable income at December 31, 2024, which will expire in taxable years 2024 through 2044 if unused.
In 2023, American recorded an income tax provision of $394 million at an effective rate of approximately 25%, 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.
Liquidity and Capital Resources
Liquidity
At December 31, 2024, AAG had $10.3 billion in total available liquidity and $732 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,
2024 2023 2024 2023
Cash $ 804 $ 578 $ 795 $ 567
Short-term investments 6,180 7,000 6,177 6,998
Undrawn facilities 3,289 2,862 3,289 2,862
Total available liquidity $ 10,273 $ 10,440 $ 10,261 $ 10,427
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.
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 EETCs) contain loan to value (LTV) or collateral coverage ratio covenants and certain agreements require us to appraise the related collateral annually or semiannually. Pursuant to such agreements, if the applicable LTV or collateral 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. 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
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early repayment, in whole or in part, of the AAdvantage Financing. As of the most recent applicable measurement dates, we were in compliance with each of the foregoing covenants. 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.
Sources and Uses of Cash
For a comparison of the 2023 and 2022 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 2023 Form 10-K.
AAG
Operating Activities
Our net cash provided by operating activities was $4.0 billion and $3.8 billion in 2024 and 2023, respectively, a $180 million year-over-year increase due to sustained profitability and net changes in working capital.
Investing Activities
Our net cash used in investing activities was $968 million and $502 million in 2024 and 2023, respectively.
Our principal investing activities in 2024 included $2.7 billion of capital expenditures, which primarily related to the purchase of 16 Embraer 175 aircraft, six Boeing 737-8 MAX aircraft, four Airbus A321neo aircraft, four Boeing 737-800 aircraft lease repurchases, two Bombardier CRJ 900 aircraft, one Airbus A320 aircraft lease repurchase, 48 aircraft engines and aircraft purchase deposits. These cash outflows were offset in part by $819 million in net sales of short-term investments and $654 million of proceeds from sale-leaseback transactions and sale of property and equipment, which primarily related to the modernization of Terminals 4 and 5 at LAX.
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, 10 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.
Financing Activities
Our net cash used in financing activities was $2.8 billion and $3.2 billion in 2024 and 2023, respectively.
Our principal financing activities in 2024 included $4.5 billion in debt and finance lease repayments, consisting of $3.7 billion in scheduled repayments and the early repayments of $487 million of the outstanding principal amount of the 3.75% Senior Notes and $263 million toward portions of the outstanding principal amounts of the IP Notes and LGA/DCA Notes. These cash outflows were offset in part by $1.7 billion of proceeds from issuance of long-term debt, consisting of $990 million from the issuance of equipment loans and other notes payable and $684 million from the issuance of EETCs in connection with the financing of certain aircraft that had previously been delivered.
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.
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American
Operating Activities
American’s net cash provided by operating activities was $3.4 billion and $3.7 billion in 2024 and 2023, respectively, a $297 million year-over-year decrease due to a net increase in receivables from related parties including from the early repayment of AAG’s 3.75% Senior Notes. Excluding this net increase in receivables from related parties, American’s operating cash flows increased $320 million compared to 2023 due to sustained profitability and net changes in working capital.
Investing Activities
American’s net cash used in investing activities was $909 million and $449 million in 2024 and 2023, respectively.
American’s principal investing activities in 2024 included $2.6 billion of capital expenditures, which primarily related to the purchase of 16 Embraer 175 aircraft, six Boeing 737-8 MAX aircraft, four Airbus A321neo aircraft, four Boeing 737-800 aircraft lease repurchases, two Bombardier CRJ 900 aircraft, one Airbus A320 aircraft lease repurchase, 48 aircraft engines and aircraft purchase deposits. These cash outflows were offset in part by $819 million in net sales of short-term investments and $654 million of proceeds from sale-leaseback transactions and sale of property and equipment, which primarily related to the modernization of Terminals 4 and 5 at LAX.
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, 10 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.
Financing Activities
American’s net cash used in financing activities was $2.3 billion and $3.2 billion in 2024 and 2023, respectively.
American’s principal financing activities in 2024 included $4.0 billion in debt and finance lease repayments, consisting of $3.7 billion in scheduled repayments and the early repayment of $263 million toward portions of the outstanding principal amounts of the IP Notes and LGA/DCA Notes. These cash outflows were offset in part by $1.7 billion of proceeds from issuance of long-term debt, consisting of $990 million from the issuance of equipment loans and other notes payable and $684 million from the issuance of EETCs in connection with the financing of certain aircraft that had previously been delivered.
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.
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
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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.
Pass-Through Trusts
American currently has 292 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, 2024, $7.3 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, 2024, we had $343 million of letters of credit and surety bonds securing various obligations, of which $98 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 2037.
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Contractual Obligations
The following table provides details of our estimated material cash requirements from contractual obligations as of December 31, 2024 (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
2025 2026 2027 2028 2029 2030 and Thereafter Total
American (a)
Long-term debt:
Principal amount (b), (d) (See Note 3)
$ 4,196 $ 4,201 $ 4,983 $ 5,304 $ 3,890 $ 2,798 $ 25,372
Interest obligations (c), (d)
1,446 1,148 848 544 272 416 4,674
Finance lease obligations (See Note 4)
173 150 112 77 72 256 840
Aircraft and engine purchase commitments (e) (See Note 10(a))
2,169 4,186 4,003 3,403 3,345 9,009 26,115
Operating lease commitments (See Note 4)
1,583 1,459 1,304 1,176 1,074 3,374 9,970
Regional capacity purchase agreements (f) (See Note 10(b))
1,114 1,068 1,066 990 829 849 5,916
Minimum pension obligations (g) (See Note 8)
221 251 157 107 81 46 863
Retiree medical and other postretirement benefits (g) (See Note 8)
134 138 135 131 128 615 1,281
Other purchase obligations (h) (See Note 10(a))
4,603 1,952 1,505 381 500 3,403 12,344
Total American Contractual Obligations $ 15,639 $ 14,553 $ 14,113 $ 12,113 $ 10,191 $ 20,766 $ 87,375
AAG Parent and Other AAG Subsidiaries (a)
Long-term debt:
Principal amount (b) (See Note 4)
$ 1,000 $ — $ — $ — $ — $ 3,746 $ 4,746
Interest obligations (c)
142 181 223 222 223 230 1,221
Operating lease commitments (See Note 5)
14 13 8 7 6 40 88
Minimum pension obligations (g) (See Note 9)
3 2 1 1 1 2 10
Other purchase obligations (See Note 11(a))
8 14 12 5 2 — 41
Total AAG Contractual Obligations $ 16,806 $ 14,763 $ 14,357 $ 12,348 $ 10,423 $ 24,784 $ 93,481
(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 $300 million and $5 million of unamortized debt discount, premium and issuance costs as of December 31, 2024 for American and AAG Parent, respectively.
(c) For variable-rate debt, future interest obligations are estimated using the current forward rates at December 31, 2024.
(d) Includes $7.3 billion of future principal payments and $883 million of future interest payments as of December 31, 2024, 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 commitments for the acquisition of aircraft and engines, including the anticipated aircraft 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 and certain management assumptions. 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
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Boeing 787 Family aircraft scheduled to be delivered in 2025, for which we have obtained committed lease financing. This financing is reflected in the operating lease commitments line above.
(f) 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 and expected contributions to our retiree medical and other post-retirement plans based on actuarially determined estimates as of December 31, 2024 and is based on estimated payments through 2034. In January 2025, American made $221 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, 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, 2024, a hypothetical 10% increase in the estimated selling price of mileage credits would have decreased revenues by approximately $140 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 10 years as of December 31, 2024. Consideration received from the sale of mileage credits is predominantly 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. In December 2024, we announced a 10-year agreement with Citi to become the exclusive issuer of the AAdvantage co-branded credit card portfolio in the U.S. starting in 2026. This agreement with Citi is expected to increase the cash payments we receive from the co-branded credit card. Based on the revised terms, the products and services delivered are generally consistent with our previous agreement, and we will continue to allocate the consideration received based on the relative selling prices of these products and services.
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, 2024, a hypothetical 10% increase in our estimate of mileage credits not expected to be redeemed would have increased revenues by approximately $135 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 discount rate and expected return on plan assets.
As of December 31, 2024, our weighted average discount rate assumptions were 5.7% and 5.6% for our pension and retiree medical and other postretirement benefits obligations, respectively. 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, 2024 would increase our pension and retiree medical and other postretirement benefits obligations by approximately $645 million and $35 million, respectively, and decrease estimated 2025 pension and retiree medical and other postretirement benefits expense by approximately $10 million and $1 million, respectively.
As of January 1, 2025, our expected rate of return on plan assets is 7.75%. 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 35% U.S. fixed income securities, 22% U.S. stocks, 24% private investments, 14% developed international stocks and 5% 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 would increase estimated 2025 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, health care costs and certain other retirement assumptions. The net effect of changing these assumptions for the pension plans resulted in a decrease of $699 million in the projected benefit obligation at December 31, 2024. The net effect of changing these assumptions for retiree medical and other postretirement benefits plans resulted in a decrease of $65 million in the accumulated postretirement benefit obligation at December 31, 2024.
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, which include our NOLs and other carryforwards, when it is more likely than not that some portion, or all of our deferred tax assets, will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. 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) 2023-09: 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.
ASU 2024-03: Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-04) Disaggregation of Income Statement Expenses
This standard enhances transparency in reporting by requiring disaggregation of certain costs and expenses in the notes to financial statements. This update is effective for annual periods beginning after December 15, 2026 and interim periods within annual periods beginning after December 15, 2027, and early adoption is permitted. We are currently evaluating how the adoption of this standard will impact our disclosures.