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EMPLOYEE BENEFIT PLANS | 12 Months Ended
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Dec. 31, 2024
Retirement Benefits [Abstract] |
EMPLOYEE BENEFIT PLANS | EMPLOYEE BENEFIT PLANS The Company has five qualified defined-benefit pension plans. Alaska Airlines is the plan sponsor for four plans, covering salaried employees, pilots, clerical, office, passenger service employees, mechanics, and related craft employees. Hawaiian Airlines is the plan sponsor for one plan, covering eligible pilots. The defined-benefit plans provide benefits based on an employee’s term of service and average compensation for a specified period of time before retirement. The qualified defined-benefit pension plans are closed to new entrants. Twelve defined-contribution retirement plans cover various employee groups of Alaska, Hawaiian, Horizon, and McGee Air Services. Accounting standards require recognition of the overfunded or underfunded status of an entity’s defined-benefit pension and other post-retirement plan as an asset or liability in the consolidated financial statements and requires recognition of the funded status in AOCL. Qualified defined-benefit pension plans The Company’s qualified defined-benefit pension plans are funded as required by the Employee Retirement Income Security Act of 1974. The defined-benefit plan assets consist primarily of marketable equity and fixed-income securities. The work groups covered by qualified defined-benefit pension plans include salaried employees, pilots, clerical, office, passenger service employees, mechanics, and related craft employees. The Company uses a December 31 measurement date for these plans. All plans are closed to new entrants. Weighted average assumptions used to determine benefit obligations The rates below vary by plan and related work group.
| 2024 |  | 2023
Discount rates | 5.62% to 5.71% |  | 5.14% to 5.16%
Rate of compensation increases | 2.01% to 2.34% |  | 2.01% to 2.34%
Weighted average assumptions used to determine net periodic benefit cost The rates below vary by plan and related work group.
| 2024 |  | 2023 |  | 2022
Discount rates | 5.14% to 5.21% |  | 5.41% to 5.42% |  | 2.82% to 2.90%
Expected return on plan assets | 5.00% to 7.10% |  | 5.00% to 6.50% |  | 3.00% to 5.25%
Rate of compensation increases | 2.01% to 2.34% |  | 2.01% to 2.35% |  | 2.02% to 2.38%
The discount rates are determined using current interest rates earned on high-quality, long-term bonds with maturities that correspond with the estimated cash distributions from the pension plans. In determining the expected return on plan assets, the Company assesses the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class is then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio. Plan assets are invested in common commingled trust funds invested in equity and fixed income securities and in certain real estate assets. At December 31, the Alaska and Hawaiian plans were managed by separate investment managers. The Alaska and Hawaiian plans each have different investment strategies and asset allocations. The target and actual asset allocation of the funds in Alaska's qualified defined-benefit plans, by asset category, are as follows:
| Salaried Plan |  | All Other Plans
| Target |  | 2024 |  | 2023 |  | Target |  | 2024 |  | 2023
Asset category: |  |  |  |  |  |  |  |  |  |  |
Domestic equity securities | 0% |  | — | % |  | 7 | % |  | 6%-44% |  | 34 | % |  | 36 | %
Non-U.S. equity securities | 0% |  | — | % |  | 3 | % |  | 0%-22% |  | 13 | % |  | 15 | %
Fixed income securities | 100% |  | 100 | % |  | 90 | % |  | 35%-85% |  | 50 | % |  | 45 | %
Real estate | 0% |  | — | % |  | — | % |  | 0%-10% |  | 3 | % |  | 4 | %
Plan assets |  |  | 100 | % |  | 100 | % |  |  |  | 100 | % |  | 100 | %
The target and actual asset allocation of the funds in Hawaiian's qualified defined-benefit plan, by asset category, are as follows:
| Target |  | 2024 |  |
Asset category: |  |  |  |  |
Equity securities | 60 | % |  | 52 | % |  |
Fixed income securities | 35 | % |  | 44 | % |  |
Real estate | 5 | % |  | 4 | % |  |
Plan assets | 100 | % |  | 100 | % |  |
The Company’s investment policy focuses on achieving maximum returns at a reasonable risk for pension assets over a full market cycle. The Company determines the strategic allocation between equities, fixed income, and real estate based on current funded status and other characteristics of the plans. As the funded status improves, the Company increases the fixed income allocation of the portfolio and decreases the equity allocation. Actual asset allocations are reviewed regularly and periodically rebalanced as appropriate. Plan assets invested in common commingled trust funds are fair valued using the net asset values of these funds to determine fair value as allowed using the practical expedient method outlined in the accounting standards. Fair value estimates for real estate are calculated using the present value of expected future cash flows based on independent appraisals, local market conditions and current and projected operating performance. Plan assets by fund category:
(in millions) | 2024 |  | 2023 |  | Fair Value Hierarchy
Fund type: |  |  |  |  |
Equity securities | $ | 944 |  |  | $ | 895 |  |  | 2
Credit bond index fund | 1,293 |  |  | 1,061 |  |  | 2
Plan assets in common commingled trusts | $ | 2,237 |  |  | $ | 1,956 |  |  |
Real estate | 64 |  |  | 60 |  |  | (a)
Cash equivalents | 6 |  |  | 7 |  |  | 1
Total plan assets | $ | 2,307 |  |  | $ | 2,023 |  |  |
(a) In accordance with Subtopic 820-10, certain investments that are measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The following table sets forth the status of the qualified defined-benefit pension plans:
(in millions) | 2024 |  | 2023
Projected benefit obligation (PBO) |  |  |
Beginning of year | $ | 2,183 |  |  | $ | 2,079 |
Acquisition impact | 333 |  |  | — |
Service cost | 28 |  |  | 29 |
Interest cost | 113 |  |  | 108 |
Actuarial (gain)/loss | (86) |  |  | 83 |
Benefits paid | (109) |  |  | (116) |
End of year | $ | 2,462 |  |  | $ | 2,183 |
Plan assets at fair value |  |  |
Beginning of year | $ | 2,023 |  |  | $ | 1,894 |
Acquisition impact | 290 |  |  | — |
Actual return on plan assets | 72 |  |  | 245 |
Employer contributions | 31 |  |  | — |
Benefits paid | (109) |  |  | (116) |
End of year | $ | 2,307 |  |  | $ | 2,023 |
Unfunded status | $ | (155) |  |  | $ | (160) |
Percent funded | 94 | % |  | 93 | %
The accumulated benefit obligation for the combined qualified defined-benefit pension plans was $2.4 billion and $2.1 billion at December 31, 2024 and 2023. The benefit obligation and plan assets increased in 2024 primarily due to the inclusion of Hawaiian's plan. The amounts recognized in the consolidated balance sheets:
(in millions) | 2024 |  | 2023
Accrued benefit liability-long term | $ | (235) |  |  | $ | (245) |
Plan assets-long term (within Other noncurrent assets) | 80 |  |  | 85 |
Total liability recognized | $ | (155) |  |  | $ | (160) |
The amounts not yet reflected in net periodic benefit cost and included in AOCL:
(in millions) | 2024 |  | 2023
Prior service cost (credit) | $ | 7 |  |  | $ | 6 |
Net loss | 323 |  |  | 367 |
Amount recognized in AOCL (pretax) | $ | 330 |  |  | $ | 373 |
Defined benefit plans with projected benefit obligations and accumulated benefit obligations exceeding fair value of plan assets are as follows:
(in millions) | 2024 |  | 2023
Projected benefit obligation | $ | 1,716 |  |  | $ | 1,403 |
Accumulated benefit obligation | 1,654 |  |  | 1,327 |
Fair value of plan assets | 1,480 |  |  | 1,158 |
Net pension expense for the qualified defined-benefit plans included the following components:
(in millions) | 2024 |  | 2023 |  | 2022
Service cost | $ | 28 |  |  | $ | 29 |  |  | $ | 45 |
Interest cost | 113 |  |  | 108 |  |  | 65 |
Expected return on assets | (134) |  |  | (114) |  |  | (128) |
Amortization of prior service credit | — |  |  | — |  |  | (1) |
Recognized actuarial loss | 19 |  |  | 23 |  |  | 8 |
Net pension expense (benefit) | $ | 26 |  |  | $ | 46 |  |  | $ | (11) |
The Company expects to have approximately $52 million in estimated required contributions for its plans in 2025. Future benefits expected to be paid over the next ten years under the qualified defined-benefit pension plans from the assets of those plans:
(in millions) | Total
2025 | $ | 161 |
2026 | 170 |
2027 | 185 |
2028 | 195 |
2029 | 195 |
2030-2034 | 1,015 |
Other qualified plans Hawaiian also sponsors four defined-benefit postretirement medical and life insurance plans and a separate plan to administer its pilots' disability benefits. Net benefit cost was not material in 2024. Plan assets are invested in a common collective trust fund, consisting of a balanced profile fund and a conservative profile fund that primarily invest in mutual funds and exchange-traded funds. Asset allocation targets follow Hawaiian's pension plan as outlined above. At December 31, 2024, the combined fair value of plan assets was $48 million, which was estimated using the net asset value per share and is not required to be presented in the fair value hierarchy. The combined PBO was $159 million, resulting in a net liability of $111 million presented in the consolidated balance sheets as a noncurrent liability. The changes in the PBO and fair value of plan assets were not material in 2024. In 2024, the discount rates used to determine benefit obligations ranged between 5.61% and 5.70%. Future benefits expected to be paid over the next five years are $9 million, $10 million, $11 million, $11 million, and $12 million, and $72 million for the years 2030 through 2034. Nonqualified defined-benefit pension plan Alaska also maintains an unfunded, noncontributory defined-benefit plan for certain elected officers. This plan uses a December 31 measurement date. The assumptions used to determine benefit obligations and the net periodic benefit cost for the nonqualified defined-benefit pension plan are similar to those used to calculate the qualified defined-benefit pension plan. The plan's unfunded status, PBO, and accumulated benefit obligation are immaterial. The net pension expense in prior year and expected future expense is also immaterial. Nonqualified post-retirement medical benefits The Company allows certain retirees to continue their medical, dental and vision benefits by paying all or a portion of the active employee plan premium until eligible for Medicare, currently age 65. This results in a subsidy to retirees, because the premiums received by the Company are less than the actual cost of the retirees’ claims. The accumulated post-retirement benefit obligation for this subsidy is unfunded. The accumulated post-retirement benefit obligation was $93 million and $98 million at December 31, 2024 and 2023. The net periodic benefit cost was not material in 2024 or 2023. Defined-contribution plans The twelve defined-contribution plans are deferred compensation plans under section 401(k) of the Internal Revenue Code. All of these plans require Company contributions. Total expense for the defined-contribution plans was $256 million, $203 million and $160 million in 2024, 2023, and 2022. The Company also has a noncontributory, unfunded defined-contribution plan for certain elected officers of the Company who are ineligible for the nonqualified defined-benefit pension plan. Amounts recorded as liabilities under the plan are not material to the consolidated balance sheets at December 31, 2024 and 2023. Alaska pilot long-term disability benefits Alaska maintains a long-term disability plan for its pilots. The long-term disability plan does not have a service requirement. Therefore, the liability is calculated based on estimated future benefit payments associated with pilots that were assumed to be disabled on a long-term basis as of December 31, 2024 and does not include any assumptions for future disability. The liability includes the discounted expected future benefit payments and medical costs. The total liability was $86 million and $72 million, which was recorded net of a prefunded trust account of $13 million and $10 million, and included in long-term other liabilities in the consolidated balance sheets as of December 31, 2024 and December 31, 2023. Employee incentive-pay plans The Company has employee incentive plans that pay employees based on certain financial and operational metrics. These metrics are set and approved annually by the Compensation and Leadership Development Committee of the Board of Directors. The aggregate expense under these plans in 2024, 2023 and 2022 was $358 million, $200 million and $257 million. The incentive plans are summarized below. •Performance-Based Pay (PBP) is a program that rewards the majority of Alaska and Horizon employees. The program is based on various metrics that adjust periodically, including those related to Air Group profitability, safety, guest experience, and sustainability. The program also includes the potential for additional payout if Air Group profitability finishes among the highest in the industry. •The Operational Performance Rewards Program (OPR) entitles the majority of Alaska and Horizon employees to quarterly payouts of up to $450 per person if certain operational and safety objectives are met.

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