Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Management
Market risk is the potential loss from adverse changes in: (i) prevailing interest rates, (ii) foreign exchange rates, (iii) credit risk and (iv) inflation. Our exposure to market risk relates to interest payments due on our long-term debt, derivative instruments, income on cash and cash equivalents, accounts receivable and payable, subscriber incentive liabilities and deferred revenue. We manage our exposure to these risks through established policies and procedures. We do not engage in trading, market making or other speculative activities in the derivatives markets. Our objective is to mitigate potential income statement, cash flow and fair value exposures resulting from possible future adverse fluctuations in interest and foreign exchange rates.
Interest Rate Risk
As of December 31, 2025, our exposure to interest rate risk relates primarily to our interest rate swaps and interest rates under our Amended and Restated Credit Agreement on our senior secured credit facilities. Offsetting some of this exposure is interest income received from our time deposits and money market funds. The objectives of our investment in time deposits and money market funds are (i) preservation of principal, (ii) liquidity and (iii) yield. If future short-term interest rates averaged 10% lower than they were during the year ended December 31, 2025, the impact to our interest income from these investments would not be material. This amount was determined by applying the hypothetical interest rate change to our average time deposits and money market funds invested.
Interest rate swaps designated as cash flow hedges outstanding at December 31, 2025 and matured during the years ended December 31, 2025, 2024 and 2023 are as follows:
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Notional Amount Interest Rate
Received
Interest Rate Paid Effective Date Maturity Date
Designated as Hedging Instrument
$200 million 1 month SOFR (1)
3.09% (2)
April 30, 2022 December 31, 2023
$150 million 1 month SOFR (1)
3.98% (3)
June 30, 2022 December 31, 2023
$250 million 1 month SOFR (1)
4.72%
June 30, 2023 June 30, 2026
$250 million 1 month SOFR (1)
3.88%
December 31, 2023 December 31, 2024
$250 million 1 month SOFR (1)
4.37%
January 16, 2024 January 31, 2026
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(1) Subject to a 0.5% floor.
(2) Fixed fee of 1.71% effective April 30, 2022, and expiring December 30, 2022, and 3.09% effective December 31, 2022, and expiring December 31, 2023.
(3) Fixed fee of 2.79% effective June 30, 2022, and expiring December 30, 2022, and 3.98% effective December 31, 2022, and expiring December 31, 2023.
Currently approximately 10% of our debt, net of cash and hedging impacts from interest rates swaps, is variable and impacted by changes in interest rates. Since outstanding balances under our senior secured credit facilities incur interest at rates based on SOFR, subject to an applicable floor, increases or decreases in short-term interest rates would impact our interest expense. If our mix of interest rate-sensitive assets and liabilities changes significantly, we may enter into additional derivative transactions to manage our net interest rate exposure. The fair value of these interest rate swaps was a net liability of $1 million and $2 million as of December 31, 2025 and 2024, respectively.
Global capital markets experienced sustained volatility throughout 2025, driven by escalating geopolitical conflicts—including the prolonged war in Ukraine and renewed Middle East hostilities—rising trade frictions and tariff related disruptions, and continued ambiguity regarding inflation trends and the future path of U.S. monetary policy. During 2024 and 2025, we refinanced portions of our debt which resulted in interest rates higher than prior years, increasing current and future interest expense. Subject to market conditions, we may opportunistically refinance portions of our debt in the near term which, at current interest rates and market conditions, may negatively impact our interest expense or result in higher dilution. See “Risk Factors—We are exposed to interest rate fluctuations."
Foreign Currency Risk
We conduct various operations outside the United States, primarily in Asia Pacific, Europe and Latin America. Our foreign currency risk is primarily associated with operating expenses. During the year ended December 31, 2025, foreign currency operations included $117 million of revenue and $589 million of operating expenses, representing approximately 4% and 24% of our total revenue and operating expenses, respectively. During the year ended December 31, 2024, foreign currency operations included $132 million of revenue and $596 million of operating expenses, representing approximately 5% and 24% of our total revenue and operating expenses, respectively. During the year ended December 31, 2023, foreign currency operations included $135 million of revenue and $550 million of operating expenses, representing approximately 5% and 19% of our total revenue and operating expenses, respectively.
The principal foreign currencies involved include the Euro, the Indian Rupee, the British Pound Sterling, the Australian Dollar, the Polish Zloty, and the Singapore Dollar. Our most significant foreign currency denominated operating expenses is in the Euro, which comprised approximately 7% of our operating expenses for the years ended December 31, 2025 and 2024. In recent years, exchange rates between foreign currencies and the U.S. dollar have fluctuated significantly and may continue to do so in the future. During times of volatile currency movements, this risk can impact our earnings. Additionally, approximately 20% of our exposure in foreign currency operating expenses is naturally hedged by foreign currency cash receipts associated with foreign currency revenue.
We are also exposed to foreign currency fluctuations through the translation of the financial condition and results of operations of our foreign operations into U.S. dollars in consolidation. These gains and losses are recognized as a component of accumulated other comprehensive income (loss) and is included in stockholders’ (deficit) equity. We recognized a net translation gain in other comprehensive income (loss) of $1 million for the year ended December 31, 2025, a loss of $1 million for the year ended December 31, 2024, and a gain of $4 million for the year ended December 31, 2023.
Credit Risk
Our customers are primarily located in the United States, Canada, Europe, Latin America and Asia, and are concentrated in the travel industry.
We generate a significant portion of our revenues and corresponding accounts receivable from services provided to the commercial air travel industry. Our other accounts receivable are generally due from other participants in the travel and transportation industry. As of December 31, 2025 and 2024, approximately $196 million, or 91%, and $184 million, or 84%, respectively, of our trade accounts receivable were attributable to services provided to the commercial air travel industry and travel agency customers. Substantially all of our accounts receivable represents trade balances. We generally do not require security or collateral from our customers as a condition of sale. See “ Risk Factors —Our travel supplier customers may
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experience financial instability or consolidation, pursue cost reductions, change their distribution model or undergo other changes.”
We regularly monitor the financial condition of the air transportation industry. We believe the credit risk related to the air carriers’ difficulties is significantly mitigated by the fact that we collect a significant portion of the receivables from these carriers through clearing houses, such as the Airline Clearing House (“ACH”). As of December 31, 2025, 2024 and 2023, approximately 57%, 54%, and 53%, respectively, of our air customers make payments through the ACH, or other similar clearing houses, which accounts for approximately 88%, 89% and 82%, respectively, of transaction revenue related to air customers. ACH requires participants to deposit certain balances into their demand deposit accounts by certain deadlines, which facilitates a timely settlement process. For these carriers, we believe the use of ACH mitigates our credit risk with respect to airline bankruptcies. For those carriers from which we do not collect payments through the ACH or other similar clearing houses, our credit risk is higher. We monitor these carriers and account for the related credit risk through our normal reserve policies.
Inflation
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity or cash flows. See “Risk Factors—Our business could be harmed by adverse global and regional economic and political conditions."
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