Leases

12 Months Ended

Dec. 31, 2019

Leases

As discussed in Note 1 to our consolidated financial statements, we adopted ASU 2016-02, Leases (Topic 842) of the Codification, as of January 1, 2019. The new standard requires leases with durations greater than twelve months to be recognized on the balance sheet. Our 2018 and 2017 financial statements have been recast to reflect the retrospective application of the new standard.

Operating lease assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. When available, we use the rate implicit in the lease to discount lease payments to present value. For leases that do not provide a readily determinable implicit rate, we estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees. For facility leases, we account for the lease and non-lease components as a single lease component.

The table below presents the lease-related assets and liabilities recorded on our consolidated balance sheets as of December 31, 2019 and 2018 (in millions):



		As of December 31,
		2019			2018
Assets	Classification on Balance Sheet
Operating lease assets	Operating lease assets	$	912		$	1,056
Finance lease assets	Property and equipment, net	171			181
Total lease assets		$	1,083		$	1,237

Liabilities	Classification on Balance Sheet
Current:
Operating lease liabilities	Current operating lease liabilities	$	128		$	133
Finance lease liabilities	Current maturities of long-term debt and finance lease obligations	31			18
Long-term:
Operating lease liabilities	Long-term operating lease liabilities	690			798
Finance lease liabilities	Long-term debt and finance lease obligations	58			89
Total lease liabilities		$	907		$	1,038

		As of December 31,
		2019			2018
Weighted average remaining lease term (in years)
Operating leases		11			11
Finance leases		3			4
Weighted average discount rate
Operating leases		5.95		%	5.95		%
Finance leases		4.75		%	4.73		%

Flight Equipment Leases

We operated a fleet of 259 aircraft as of December 31, 2019. Of our fleet, 41 aircraft were under operating leases and six aircraft were under finance leases. Our aircraft leases generally have long durations with remaining terms of one month to six years.

The majority of aircraft operating leases can be renewed at rates based on fair market value at the end of the lease term for one or two years. None of our aircraft operating leases have variable rent payments. We have purchase options for 41 of our aircraft leases at the end of their lease terms. These purchase options are at fair market value and have a one-time option during the term at fixed amounts that were expected to approximate the fair market value at lease inception.

Facility Leases

Our facility leases are primarily for space at the airports we serve. These leases are classified as operating leases and reflect our use of passenger terminal service facilities consisting of ticket counters, gate space, operations support area, and baggage service offices. We generally lease space directly or indirectly from the local airport authority on varying terms dependent on prevailing practices at each airport. The remaining terms of our airport leases vary from eight months to 15 years. Our leases at certain airports contain provisions for periodic adjustments of rental rates based on the operating costs of the airports or the frequency of use of the facilities. Because of the variable nature of the rates, these leases are not recorded as operating lease assets and operating lease liabilities on our consolidated balance sheets.

We also have leases for our corporate offices, training center, and various hangars and airport support facilities at our focus cities.

Other Ground and Property Equipment

We lease certain IT assets, ground support equipment, and various other pieces of equipment. The lease terms of our ground support equipment are less than 12 months, while the amount of other equipment we have is not significant.

Lease Costs

The table below presents certain information related to our lease costs during the years ended December 31, 2019, 2018, and 2017 (in millions):



	2019			2018			2017
Operating lease cost	$	180		$	185		$	180
Short-term lease cost	2			2			2
Finance lease cost:
Amortization of assets	9			10			10
Interest on lease liabilities	3			3			4
Variable lease cost	391			379			358
Sublease income	(19		)	(15		)	(14		)
Total net lease cost	$	566		$	564		$	540

Other Information

The table below presents supplemental cash flow information related to leases during the years ended December 31, 2019, 2018, and 2017 (in millions):



	2019		2018		2017
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	136	$	151	$	150
Operating cash flows for finance leases	5		5		6
Financing cash flows for finance leases	17		17		16

Lease Commitments

The table below presents scheduled future minimum lease payments for operating and finance leases recorded on our consolidated balance sheets, as of December 31, 2019 (in millions):



	As of December 31, 2019
	Operating Leases			Finance Leases
2020	$	128		$	35
2021	122			39
2022	114			9
2023	104			9
2024	95			5
Thereafter	565			—
Total minimum lease payments	1,128			97
Less: amount of lease payment representing interest	(310		)	(8		)
Present value of future minimum lease payment	818			89
Less: current obligations under leases	(128		)	(31		)
Long-term lease obligations	$	690		$	58

We did not have any lease commitments that have not yet commenced as of December 31, 2019.