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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from       to       
 
Commission file number 1-31443
 HAWAIIAN HOLDINGS INC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 71-0879698
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3375 Koapaka Street,Suite G-350  
Honolulu,HI 96819
(Address of Principal Executive Offices) (Zip Code)

(808) 835-3700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock ($0.01 par value)HANasdaq Stock Market, LLC
(Nasdaq Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer Accelerated filer 
Non-accelerated filer  Smaller reporting company 
 Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  No
 
As of April 19, 2024, 51,848,906 shares of the registrant’s common stock were outstanding.



Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended March 31, 2024
 
Table of Contents
 
   
   
 
   
 
  
 
   
 
   
 
   
   
   
   
   
   
   
   
   
   
   
 
2


PART I. FINANCIAL INFORMATION
ITEM 1.                   FINANCIAL STATEMENTS.
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended March 31,
 20242023
 (unaudited)
Operating Revenue: 
Passenger$583,448 $548,526 
Other62,119 64,077 
Total645,567 612,603 
Operating Expenses:  
Wages and benefits261,935 241,933 
Aircraft fuel, including taxes and delivery188,778 197,625 
Maintenance, materials and repairs70,971 50,287 
Aircraft and passenger servicing45,424 42,532 
Depreciation and amortization32,967 32,667 
Aircraft rent29,706 28,171 
Commissions and other selling28,443 28,238 
Other rentals and landing fees43,127 38,720 
Purchased services38,475 35,072 
Special items8,482  
Other45,905 34,785 
Total794,213 730,030 
Operating Loss(148,646)(117,427)
Nonoperating Income (Expense):  
Interest expense and amortization of debt discounts and issuance costs(24,069)(22,880)
Interest income10,021 16,465 
Capitalized interest3,134 1,458 
Losses on fuel derivatives(582)(5,065)
Other components of net periodic benefit cost(927)(1,494)
Gains on investments, net470 697 
Gains on foreign debt8,519 2,260 
Other, net(770)155 
Total(4,204)(8,404)
Loss Before Income Taxes(152,850)(125,831)
Income tax benefit(15,285)(27,574)
Net Loss$(137,565)$(98,257)
Net Loss Per Share  
Basic$(2.65)$(1.91)
Diluted$(2.65)$(1.91)
Weighted Average Number of Common Stock Shares Outstanding:
Basic51,838 51,507 
Diluted51,838 51,507 
'
See accompanying Notes to Consolidated Financial Statements.
3


Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
 Three Months Ended March 31,
 20242023
 (unaudited)
Net Loss$(137,565)$(98,257)
Other comprehensive income (loss), net:  
Net change related to employee benefit plans, net of tax expense of $114 and net of tax benefit of $2,316 for 2024 and 2023, respectively
350 (7,078)
Net change in available-for-sale investments, net of tax expense of $250 and $1,645 for 2024 and 2023, respectively
767 5,026 
Total other comprehensive income (loss)1,117 (2,052)
Total Comprehensive Loss$(136,448)$(100,309)


See accompanying Notes to Consolidated Financial Statements.

4


Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
March 31, 2024
(unaudited)
December 31, 2023
ASSETS  
Current Assets:  
Cash and cash equivalents$230,865 $153,273 
Restricted cash17,250 17,250 
Short-term investments666,432 755,224 
Accounts receivable, net99,117 105,858 
Income taxes receivable642 669 
Spare parts and supplies, net65,444 60,115 
Prepaid expenses and other80,304 78,551 
Total1,160,054 1,170,940 
Property and equipment, less accumulated depreciation and amortization of $1,160,495 and $1,150,529 as of March 31, 2024 and December 31, 2023, respectively
2,104,442 2,013,616 
Other Assets:  
Assets held-for-sale1,091 1,135 
Operating lease right-of-use assets393,769 413,237 
Long-term prepayments and other118,057 121,097 
Intangible assets, net13,500 13,500 
Total Assets$3,790,913 $3,733,525 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$214,848 $199,223 
Air traffic liability and current frequent flyer deferred revenue757,855 633,345 
Other accrued liabilities165,430 175,591 
Current maturities of long-term debt, less discount75,132 43,857 
Current maturities of finance lease obligations8,791 10,053 
Current maturities of operating leases79,281 83,332 
Total1,301,337 1,145,401 
Long-Term Debt1,612,235 1,537,152 
Other Liabilities and Deferred Credits:  
Noncurrent finance lease obligations56,269 60,116 
Noncurrent operating leases283,836 303,119 
Accumulated pension and other post-retirement benefit obligations142,367 140,742 
Other liabilities and deferred credits78,499 77,154 
Noncurrent frequent flyer deferred revenue304,099 308,502 
Deferred tax liability, net52,492 65,914 
Total917,562 955,547 
Commitments and Contingencies
Shareholders’ Equity:  
Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of March 31, 2024 and December 31, 2023
  
Common stock, $0.01 par value per share, 51,848,616 and 51,824,362 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
518 518 
Capital in excess of par value294,599 293,797 
Accumulated loss(257,303)(119,738)
Accumulated other comprehensive loss, net(78,035)(79,152)
Total(40,221)95,425 
Total Liabilities and Shareholders’ Equity$3,790,913 $3,733,525 
See accompanying Notes to Consolidated Financial Statements.
5


Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Common
Stock(*)
Special
Preferred
Stock(**)
Capital In Excess of Par ValueAccumulated LossAccumulated Other Comprehensive Income (Loss)Total
(unaudited)
Balance at December 31, 2023$518 $ $293,797 $(119,738)$(79,152)$95,425 
Net Loss— — — (137,565)— (137,565)
Other comprehensive income, net— — — — 1,117 1,117 
Issuance of 24,254 shares of common stock, net of shares withheld for taxes
 — (200)— — (200)
Amazon warrant vesting— — 131 — — 131 
Share-based compensation expense— — 871 — — 871 
Balance at March 31, 2024$518 $ $294,599 $(257,303)$(78,035)$(40,221)

(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of March 31, 2024 and December 31, 2023.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of March 31, 2024 and December 31, 2023.



Common
Stock(*)
Special
Preferred
Stock(**)
Capital In Excess of Par ValueAccumulated IncomeAccumulated Other Comprehensive Income (Loss)Total
(unaudited)
Balance at December 31, 2022$514 $ $287,161 $140,756 $(95,166)$333,265 
Net Loss— — — (98,257)— (98,257)
Other comprehensive loss, net— — — — (2,052)(2,052)
Issuance of 131,858 shares of common stock, net of shares withheld for taxes
1 — (1,067)— — (1,066)
Share-based compensation expense— — 1,430 — — 1,430 
Balance at March 31, 2023$515 $ $287,524 $42,499 $(97,218)$233,320 

(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of March 31, 2023 and December 31, 2022.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of March 31, 2023 and December 31, 2022.

See accompanying Notes to Consolidated Financial Statements.
6


Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
Three months ended March 31,
 20242023
(unaudited)
Net cash provided by Operating Activities$254 $118,291 
Cash flows from Investing Activities:  
Additions to property and equipment, including pre-delivery payments(127,018)(106,215)
Proceeds from the disposition of aircraft and aircraft related equipment105 9,563 
Purchases of investments(15,824)(96,806)
Proceeds from sales and maturities of investments109,485 144,069 
Net cash used in investing activities(33,252)(49,389)
Cash flows from Financing Activities:  
Long-term borrowings131,400  
Repayments of long-term debt and finance lease obligations(18,760)(24,953)
Debt issuance costs and discounts(1,849) 
Payment for taxes withheld for stock compensation(201)(1,066)
Net cash provided by (used in) financing activities110,590 (26,019)
Net increase in cash and cash equivalents77,592 42,883 
Cash, cash equivalents, and restricted cash - Beginning of Period170,523 246,620 
Cash, cash equivalents, and restricted cash - End of Period$248,115 $289,503 
Non-Cash Transactions:
Right-of-use assets acquired under operating leases$1,688 $ 
 
See accompanying Notes to Consolidated Financial Statements.

7


Hawaiian Holdings, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 
1. General
 
Business and Basis of Presentation

Hawaiian Holdings, Inc. (Holdings) and its direct wholly owned subsidiary, Hawaiian Airlines, Inc. (Hawaiian), are incorporated in the State of Delaware. Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian. References to the "Company", "we", "us", and "our" in these Notes to Consolidated Financial Statements include both Holdings and Hawaiian unless the context requires otherwise.

The accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC). Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal variations in the demand for air travel, among other factors common to the airline industry, the results of operations for the periods presented are not necessarily indicative of the results of operations for the entire year. The accompanying unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and the notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Unless otherwise noted, all amounts disclosed are stated before consideration of income taxes.

2. Merger Agreement with Alaska Air Group
On December 2, 2023, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Alaska Air Group, Inc., a Delaware corporation (Alaska), and Marlin Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Alaska (Merger Sub), pursuant to which, subject to satisfaction or waiver of conditions therein, Merger Sub will merge with and into the Company (the Merger), with the Company surviving as a wholly owned subsidiary of Alaska.
At the effective time of the Merger (the Effective Time), each share of the Company's common stock, Series B Special Preferred Stock, Series C Special Preferred Stock, and Series D Special Preferred Stock issued and outstanding immediately prior to the Effective Time, subject to certain customary exceptions specified in the Merger Agreement, will be converted into the right to receive $18.00 per share, payable to the holder in cash, without interest.
Completion of the Merger is subject to customary closing conditions, including approval by the Company's stockholders, which was obtained on February 16, 2024; performance by the parties in all material respects of all their obligations under the Merger Agreement; the receipt of required regulatory approvals; and the absence of an order or law preventing, materially restraining, or materially impairing the consummation of the Merger.

On February 7, 2024, the Company and Alaska each received a request for additional information and documentary material (together, the Second Request) from the Department of Justice (the DOJ) in connection with the DOJ’s review of the Merger. On March 27, 2024, the Company and Alaska entered into a timing agreement with the DOJ pursuant to which we agreed, among other things, not to consummate the Merger before 90 days following the date on which both parties have certified substantial compliance with the Second Request unless we have received written notice from the DOJ prior to the end of such 90-day period that the DOJ has closed its investigation of the Merger.

The Merger Agreement includes customary termination rights in favor of each party. In certain circumstances, the Company may be required to pay Alaska a termination fee of $39.6 million in connection with the termination of the Merger Agreement.
The Merger is expected to close within 12 to 18 months of the date of the Merger Agreement.
During the three months ended March 31, 2024 and 2023, the Company incurred $8.5 million and $0.0 million, respectively, of costs related to the Merger Agreement, which was recorded as a Special item in the Consolidated Statements of Operations.
8


3. Accumulated Other Comprehensive Income (Loss)
 
Reclassifications out of accumulated other comprehensive income (loss) by component are as follows: 
Details about accumulated other comprehensive income (loss) componentsThree months ended March 31,Affected line items in the consolidated statements of operations where net income is presented
20242023
 (in thousands) 
Amortization of defined benefit plan items   
Actuarial loss$290 $450 Nonoperating income (expense), other, net
Prior service cost173 145 Nonoperating income (expense), other, net
Total before tax463 595  
Tax benefit(114)(147) 
Total, net of tax$349 $448  
Short-term investments   
Realized gain on sales of investments$(79)$(393)Gains (losses) on investments, net
Realized loss on sales of investments30 911 Gains (losses) on investments, net
Total before tax(49)518  
Income tax expense12 128  
Total, net of tax$(37)$646  
Total reclassifications for the period$312 $1,094  

A roll-forward of the amounts included in accumulated other comprehensive income (loss), net of taxes, for the three months ended March 31, 2024 and 2023 is as follows:
Three months ended March 31, 2024Defined Benefit
Plan Items
Short-Term InvestmentsTotal
 (in thousands)
Beginning balance$(60,677)$(18,475)$(79,152)
Other comprehensive income before reclassifications, net of tax1 804 805 
Amounts reclassified from accumulated other comprehensive income (loss), net of tax349 (37)312 
Net current-period other comprehensive income350 767 1,117 
Ending balance$(60,327)$(17,708)$(78,035)

Three months ended March 31, 2023Defined Benefit Plan ItemsShort-Term InvestmentsTotal
 (in thousands)
Beginning balance$(59,439)$(35,727)$(95,166)
Other comprehensive income (loss) before reclassifications, net of tax(7,526)4,380 (3,146)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax448 646 1,094 
Net current-period other comprehensive income (loss)(7,078)5,026 (2,052)
Ending balance$(66,517)$(30,701)$(97,218)


4. Loss Per Share
 
Basic loss per share, which excludes dilution, is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period.

9


The potentially dilutive shares that were excluded from the computation of diluted weighted average common stock shares outstanding because their effect would have been antidilutive was 705,999 and 95,819 for the three months ended March 31, 2024 and 2023, respectively. Certain warrant shares held by Amazon have not been included in the computation as their performance condition has not yet been satisfied. As of March 31, 2024 and 2023, the unvested Amazon warrant shares excluded from antidilutive shares were 8,183,451 for both periods. Refer to Note 11 to the Notes to Consolidated Financial Statements for additional discussion.

The following table shows the computation of basic and diluted loss per share:
 Three Months Ended March 31,
 20242023
 (in thousands, except for per share data)
Numerator:  
Net Loss$(137,565)$(98,257)
Denominator:  
Weighted average common stock shares outstanding - Basic51,838 51,507 
Dilutive effect of share-based awards and warrants  
Weighted average common stock shares outstanding - Diluted51,838 51,507 
Net Loss Per Share  
Basic$(2.65)$(1.91)
Diluted$(2.65)$(1.91)


5. Revenue Recognition
The majority of the Company's passenger revenue is derived from passenger ticket sales. Other revenue is primarily derived from the Company's cargo operations and loyalty program. The Company's primary operations are that of its wholly owned subsidiary, Hawaiian. Principally all operations of Hawaiian either originate and/or end in the state of Hawai'i. The management of such operations is based on a system-wide approach due to the interdependence of Hawaiian's route structure in its various markets. As Hawaiian offers only one significant line of business (i.e., air transportation), management has concluded that it has only one segment. The Company's operating revenues by geographic region (as defined by the U.S. Department of Transportation (DOT)) are summarized below:
Three Months Ended March 31,
20242023
Geographic Information(in thousands)
Domestic$492,410 $486,129 
Pacific153,157 126,474 
Total operating revenue$645,567 $612,603 

Hawaiian attributes operating revenue by geographic region based on the destination of each flight segment. Hawaiian's tangible assets consist primarily of flight equipment, which is mobile across geographic markets, and therefore has not been allocated to specific geographic regions.
Other operating revenue consists of cargo revenue, commissions, and fees earned under certain joint marketing agreements with other companies. These amounts are recognized when the service is provided.
10


Three Months Ended March 31,
20242023
Passenger Revenue by Type(in thousands)
Passenger revenue, excluding frequent flyer$539,622 $505,962 
Frequent flyer revenue, transportation component43,826 42,564 
Passenger Revenue$583,448 $548,526 
Other revenue (e.g., cargo and other miscellaneous)$33,547 $35,139 
Frequent flyer revenue, marketing and brand component28,572 28,938 
Other Revenue$62,119 $64,077 

As of March 31, 2024 and December 31, 2023, the Company's air traffic liability balance, as it relates to passenger tickets (excluding frequent flyer liability), was $539.1 million and $423.1 million, respectively, which generally represents revenue that is expected to be realized in future periods.

During the three months ended March 31, 2024 and 2023, the amount of passenger ticket revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $250.2 million and $294.5 million, respectively.

Non-refundable tickets sold and credits issued generally expire 13 months from the date of issuance or scheduled flight, as applicable. The Company records an estimate of breakage revenue on the scheduled flight date for tickets that will expire unused. These estimates are based on the evaluation of actual historical results, available market information, and forecasted trends, including weather or other events impacting customer travel. During the three months ended March 31, 2024 and 2023, the Company recognized advanced breakage of $17.4 million and $12.6 million, respectively. The Company will continue to monitor customers' travel behavior and may adjust its estimates in the future.
Frequent Flyer Accounting

The Company's frequent flyer liability is recorded in Air traffic liability (short-term) and Noncurrent frequent flyer deferred revenue on its unaudited Consolidated Balance Sheets. The table below presents the Company's frequent flyer liability balance:
March 31, 2024December 31, 2023
(in thousands)
Air traffic liability (current portion of frequent flyer revenue)$211,321 $201,418 
Noncurrent frequent flyer deferred revenue304,099 308,502 
Total frequent flyer liability$515,420 $509,920 

The table below presents a roll forward of Frequent flyer deferred revenue for the three months ended March 31, 2024 and 2023:
 20242023
 (in thousands)
Total frequent flyer liability - beginning balance$509,920 $484,580 
Miles awarded50,860 54,502 
Travel miles redeemed (Passenger Revenue)(43,826)(42,564)
Non-travel miles redeemed (Other Revenue)(1,534)(1,226)
Total frequent flyer liability - ending balance$515,420 $495,292 

6.  Short-Term Investments

The following is a summary of short-term investments held as of March 31, 2024 and December 31, 2023:
11


March 31, 2024
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
(in thousands)
Debt securities
Corporate debt securities$160,488 $217 $(11,617)$149,088 
U.S. government and agency securities309,856 37 (4,819)305,074 
Other fixed income securities33,843 33 (5,261)28,615 
Asset-backed securities29,659 100 (1,207)28,552 
Collateralized loan obligations36,270 25 (800)35,495 
Bank notes8,672  (182)8,490 
Total debt securities578,788 412 (23,886)555,314 
Derivatives492 1,163 (148)1,507 
Equity securities119,015  (10,504)108,511 
Other investments measured at net asset value1,000 100  1,100 
Total short-term investments$699,295 $1,675 $(34,538)$666,432 
 December 31, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
(in thousands)
Debt securities
Corporate debt securities$217,777 $440 $(10,717)$207,500 
U.S. government and agency securities305,169 168 (4,908)300,429 
Other fixed income securities35,319 42 (6,847)28,514 
Asset-backed securities24,298 69 (1,281)23,086 
Collateralized loan obligations39,628 83 (1,335)38,376 
Bank notes9,118  (204)8,914 
Total debt securities631,309 802 (25,292)606,819 
Derivatives233 1,026 (745)514 
Equity securities161,677  (14,866)146,811 
Other investments measured at net asset value1,000 80  1,080 
Total short-term investments$794,219 $1,908 $(40,903)$755,224 

The following tables present fair values and gross unrealized losses by security type and length of time that individual debt securities have been in a continuous unrealized loss position:

Less than 12 Months12 Months or Greater Total
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
March 31, 2024(in thousands)
Debt securities
Corporate debt securities$17,505 $(938)$120,679 $(10,679)$138,184 $(11,617)
U.S. government and agency securities273,683 (3,482)8,489 (1,337)282,172 (4,819)
Other fixed income securities1,281 (23)23,982 (5,238)25,263 (5,261)
Asset-backed securities3,903 (43)14,234 (1,164)18,137 (1,207)
Collateralized loan obligations6,993 (129)20,890 (671)27,883 (800)
Bank notes7,350 (97)1,139 (85)8,489 (182)
$310,715 $(4,712)$189,413 $(19,174)$500,128 $(23,886)
12


Less than 12 Months12 Months or Greater Total
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
December 31, 2023(in thousands)
Debt securities
Corporate debt securities$9,784 $(233)$154,607 $(10,484)$164,391 $(10,717)
U.S. government and agency securities82,930 (608)193,400 (4,300)276,330 (4,908)
Other fixed income securities1,867 (26)21,933 (6,821)23,800 (6,847)
Asset-backed securities2,225 (17)14,881 (1,264)17,106 (1,281)
Collateralized loan obligations5,032 (63)29,445 (1,272)34,477 (1,335)
Bank notes8,396 (164)519 (40)8,915 (204)
$110,234 $(1,111)$414,785 $(24,181)$525,019 $(25,292)
As of March 31, 2024 and December 31, 2023, the Company's unrealized losses from debt securities were generated from 393 positions out of 495 positions and 394 positions out of 502 positions, respectively.
The Company reviews debt securities quarterly for credit losses and impairment. If the cost of an investment exceeds its fair value, the Company will evaluate, among other factors, general market conditions, credit quality of debt instrument issuers, and the extent to which the fair value is less than cost. This determination requires significant judgment. In making this judgment, the Company employs a systematic methodology that considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. In addition, the Company considers specific adverse conditions related to the financial health of, and business outlook for, the investee. If the Company has plans to sell the security or it is more likely than not that the Company will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in Other, net, within non-operating expense on the unaudited consolidated statements of operations, and a new cost basis in the investment is established. If market, industry, and/or investee conditions deteriorate, the Company may incur future impairments.

Debt securities in a continuous unrealized loss position for twelve months or greater as of March 31, 2024 and December 31, 2023 were primarily attributable to changes in interest rates, relative to when the investment securities were purchased. The Company does not intend to sell any of these investments and it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis, which may be at maturity. Accordingly, the Company has determined that the unrealized losses on its debt securities as of March 31, 2024 were temporary in nature. The Company has evaluated these debt securities and did not recognize any significant credit losses as of March 31, 2024 and December 31, 2023.

For the three months ended March 31, 2024 and 2023, the unrealized gains on equity securities, recorded in Gains on Investment, net, in Nonoperating income (expense) were $5.1 million and $0.9 million, respectively.

Contractual maturities of debt securities as of March 31, 2024 are shown below:
 Under 1 Year1 to 5 YearsOver 5 YearsTotal
(in thousands)
Debt Securities
Corporate debt$132 $66,935 $82,021 $149,088 
U.S. government and agency debt7,109 284,695 13,270 305,074 
Other fixed income securities425 14,410 13,780 28,615 
Asset-backed securities305 9,627 18,620 28,552 
Collateralized loan obligations  35,495 35,495 
Bank notes 4,489 4,001 8,490 
Total debt securities$7,971 $380,156 $167,187 $555,314 
The Company classifies its investments as current assets as these securities are available for use in its current operation.

13


7.  Fair Value Measurements
 
Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement (ASC 820), defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
 
Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;
 
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the assets or liabilities; and
 
Level 3 — Unobservable inputs for which there is little or no market data and that are significant to the fair value of the assets or liabilities.

The tables below present the Company’s financial assets and liabilities measured at fair value on a recurring basis:
 Fair Value Measurements as of March 31, 2024
 TotalLevel 1Level 2Level 3
 (in thousands)
Cash equivalents$139,427 $138,084 $1,343 $ 
Restricted cash17,250 17,250   
Short-term investments
Debt securities
Corporate debt securities149,088  144,526 4,562 
U.S. government and agency securities305,074  305,074  
Other fixed income securities28,615  28,615  
Asset-backed securities28,552  20,768 7,784 
Collateralized loan obligations35,495  35,029 466 
Bank notes8,490  1,692 6,798 
Total debt securities555,314  535,704 19,610 
Derivatives1,507  1,507  
Equity securities108,511 107,623 888  
Other investments measured at net asset value1,100    
Total short-term investments666,432 107,623 538,099 19,610 
Other Assets
Fuel derivative contracts3,189  3,189  
Assets held-for-sale1,091   1,091 
Total assets measured at fair value$827,389 $262,957 $542,631 $20,701 
 
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 Fair Value Measurements as of December 31, 2023
 TotalLevel 1Level 2Level 3
 (in thousands)
Cash equivalents$99,965 $99,279 $686 $ 
Restricted cash17,250 17,250   
Short-term investments
Debt securities
Corporate debt securities207,500  202,873 4,627 
U.S. government and agency securities300,429  300,429  
Other fixed income securities28,514  28,514  
Asset-backed securities23,086  15,172 7,914 
Collateralized loan obligations38,376  38,123 253 
Bank notes8,914  2,046 6,868 
Total debt securities606,819  587,157 19,662 
Derivatives514  514  
Equity securities146,811 146,031 780  
Other investments measured at net asset value1,080    
Total short-term investments755,224 146,031 588,451 19,662 
Other Assets
Fuel derivative contracts2,069  2,069  
Assets held-for-sale1,135   1,135 
Total assets measured at fair value$875,643 $262,560 $591,206 $20,797 

Cash equivalents and restricted cash. The Company's Level 1 cash equivalents consist of money market securities and mutual funds, which are valued based on quoted prices in an active market. The carrying amounts approximate fair value because of the short-term maturity of these assets. Level 2 cash equivalents consist primarily of debt securities with original maturity dates less than 90 days. The fair value of these instruments is based on a market approach using prices generated by market transactions involving similar assets. Restricted cash includes funds held in a controlled account to be used for debt service payments associated with the Company's loyalty and intellectual brand offering. As of March 31, 2024, approximately $17.3 million was held in the controlled account designated for debt servicing and was classified as restricted cash on the Company's Consolidated Balance Sheets.

Short-term investments. The Company's Level 1 short-term investments consist of equity mutual funds, which are valued based on a market approach using prices generated by market transactions involving identical assets. Level 2 short-term investments consist of corporate debt securities, U.S. government and agency securities, other fixed income securities, asset-backed securities, collateralized loan obligations, bank notes, equity securities, and derivative instruments as further discussed in Note 8, which are valued based on a market approach using industry standard valuation techniques that incorporate inputs such as quoted prices for similar assets, interest rates, benchmark curves, credit ratings, and other observable inputs or market data. Certain asset-backed securities, collateralized loan obligations, and private bank notes that are not readily marketable are classified as Level 3 in the fair value hierarchy and valued using certain unobservable inputs including future cash flows and discount rates.

The reconciliation of the Company's short-term investments measured at fair value on a recurring basis using unobservable inputs (Level 3) for the three months ended March 31, 2024 is as follows:

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Short-term Investment Activity for the three months ended March 31, 2024
Asset-Backed SecuritiesBank NotesCollateralized Loan ObligationsCorporate Debt SecuritiesTotal
(in thousands)
Beginning balance as of December 31, 2023
$7,914 $6,868 $253 $4,627 $19,662 
Purchases  213  213 
Sale of investments   (10)(10)
Redemptions and paydowns(39)(72)  (111)
Amortization and accretion, net29   (68)(39)
Realized and unrealized gains (losses), net(120)2  13 (105)
Ending balance as of March 31, 2024
$7,784 $6,798 $466 $4,562 $19,610 

Short-term Investment Activity for the three months ended March 31, 2023
Asset-Backed SecuritiesBank NotesCollateralized Loan ObligationsCorporate Debt SecuritiesTotal
(in thousands)
Beginning balance as of December 31, 2022
$9,033 $9,426 $2,558 $8,173 $29,190 
Purchases 944   944 
Sale of investments (2,189)  (2,189)
Redemptions and paydowns(41)(185) (12)(238)
Amortization and accretion, net16 1  (24)(7)
Realized and unrealized gains (losses), net(145)61 (130)80 (134)
Ending balance as of March 31, 2023
$8,863 $8,058 $2,428 $8,217 $27,566 

Other investments at net asset value (NAV). In accordance with relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The investments measured using NAV are investments in a partnership for which a secondary market does not exist. Investments in the partnership are carried at estimated NAV as determined by and reported by the general partners of the partnerships and represent the proportionate share of the estimated fair value of the underlying assets of the limited partnerships. The Company can redeem its shares upon approval by the respective partnerships' managing member.

Fuel derivative contracts. The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global fuel prices. The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into derivative financial instruments. Any changes in fair value of these derivative instruments are adjusted through other Nonoperating income (expense) in the period of change. The Company’s fuel derivative contracts consist of crude oil call options, which are not traded on a public exchange. The fair value of these instruments is determined based on inputs available or derived from public markets including contractual terms, market prices, yield curves, and measures of volatility among others.

Assets held for sale. The Company's assets held for sale consist of aircraft, engine, rotable and expendable aircraft parts. The assets are measured at the lower of the carrying amount or fair value less cost to sell and a loss is recognized for any initial adjustment of the assets' carrying amount to fair value less cost to sell. The fair value measurements for the Company's held-for-sale assets were based on Level 3 inputs, which include information obtained from third-party valuation sources and other market sources, including recent offers from potential buyers. Refer to Note 13 to the Notes to Consolidated Financial Statements for additional discussion.

The table below presents the Company’s debt measured at fair value: 
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Fair Value of Debt