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Derivatives and Risk Management
 12 Months Ended
Dec. 31, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Risk Management DERIVATIVES AND RISK MANAGEMENT

Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations. In an effort to manage our exposure to these risks, we may enter into derivative contracts and adjust our derivative portfolio as market conditions change.

Fuel Price Risk

Changes in fuel prices materially impact our results of operations. We have recently managed our fuel price risk through a hedging program intended to reduce the financial impact from changes in the price of fuel as fuel prices are subject to potential volatility. In addition, we may enter into derivatives with third parties to hedge financial risk related to Monroe’s refining margins.

In response to this volatility, during 2015 and 2016 we entered into transactions to defer settlement of a portion of our hedge portfolio and lock in the amount of hedge settlements for a portion of 2016 and 2017. These deferral transactions, excluding markets movements from the date of inception, provided approximately $300 million in cash receipts in 2015 and 2016 and required approximately $300 million in cash payments in 2016 and 2017. We also early settled $455 million of our airline segment's 2016 positions during 2016. Cash flows associated with the deferral transactions are reported as cash flows from financing activities within our Consolidated Statements of Cash Flows.

During the years ended December 31, 2017, 2016 and 2015, we recorded fuel hedge losses of $81 million, $366 million and $741 million, respectively.

Interest Rate Risk

Our exposure to market risk from adverse changes in interest rates is primarily associated with our long-term debt obligations. Market risk associated with our fixed and variable rate long-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates.

In an effort to manage our exposure to the risk associated with our variable rate long-term debt, we periodically enter into interest rate swaps. We designate interest rate contracts used to convert the interest rate exposure on a portion of our debt portfolio from a floating rate to a fixed rate as cash flow hedges, while those contracts converting our interest rate exposure from a fixed rate to a floating rate are designated as fair value hedges.

We also have exposure to market risk from adverse changes in interest rates associated with our cash and cash equivalents and benefit plan obligations. Market risk associated with our cash and cash equivalents relates to the potential decline in interest income from a decrease in interest rates. Pension, postretirement, postemployment and worker's compensation obligation risk relates to the potential increase in our future obligations and expenses from a decrease in interest rates used to discount these obligations.

Foreign Currency Exchange Rate Risk

We are subject to foreign currency exchange rate risk because we have revenue and expense denominated in foreign currencies with our primary exposures being the Japanese yen and Canadian dollar. To manage exchange rate risk, we execute both our international revenue and expense transactions in the same foreign currency to the extent practicable. From time to time, we may also enter into foreign currency option and forward contracts. These foreign currency exchange contracts are designated as cash flow hedges.

Hedge Position as of December 31, 2017
(in millions)
Volume
Final Maturity Date
Hedge Derivatives Asset
Other Noncurrent Assets
Hedge Derivatives Liability
Other Noncurrent Liabilities
Hedge Derivatives, net
Designated as hedges
 
 
 
 
 
 
 
Foreign currency exchange contracts
23,512

Japanese yen
November 2019
1

1

(13
)
(6
)
(17
)
490

Canadian dollars
May 2020
Not designated as hedges
 
 
 
 
 
 
 
Fuel hedge contracts
249

gallons - crude oil and refined products
May 2019
638

8

(694
)
(18
)
(66
)
Total derivative contracts
 
 
$
639

$
9

$
(707
)
$
(24
)
$
(83
)



Hedge Position as of December 31, 2016
(in millions)
Volume
Final Maturity Date
Hedge Derivatives Asset
Other Noncurrent Assets
Hedge Derivatives Liability
Other Noncurrent Liabilities
Hedge Derivatives, net
Designated as hedges
 
 
 
 
 
 
 
Foreign currency exchange contracts
54,853

Japanese yen
February 2019
31

3

(4
)
(3
)
27

335

Canadian dollars
January 2019
Not designated as hedges
 
 
 
 
 
 
 
Fuel hedge contracts (1)
197

gallons - crude oil and refined products
January 2018
360

—

(684
)
—

(324
)
Total derivative contracts
 
 
$
391

$
3

$
(688
)
$
(3
)
$
(297
)

(1) 
As discussed above, we early settled $455 million of our airline segment's 2016 fuel hedge positions and entered into hedges designed to offset and effectively neutralize our 2017 airline segment hedge positions. The dollar amounts shown above primarily represent the offsetting derivatives that were used to neutralize the 2016 and 2017 airline segment hedge portfolio.

Offsetting Assets and Liabilities

We have master netting arrangements with our counterparties giving us the right to offset hedge assets and liabilities. However, we have elected not to offset the fair value positions recorded on our Consolidated Balance Sheets. The following table shows the net fair value of our counterparty positions had we elected to offset.
(in millions)
Hedge Derivatives Asset
Other Noncurrent Assets
Hedge Derivatives Liability
Other Noncurrent Liabilities
Hedge Derivatives, Net
December 31, 2017
 
 
 
 
 
Net derivative contracts
$
—

$
1

$
(68
)
$
(16
)
$
(83
)
December 31, 2016
 
 
 
 
 
Net derivative contracts
$
29

$
2

$
(326
)
$
(2
)
$
(297
)


Designated Hedge Gains (Losses)

Gains (losses) related to our designated hedge contracts during the years ended December 31, 2017, 2016 and 2015 are as follows:
 
Effective Portion Reclassified from AOCI to Earnings
 
Effective Portion Recognized in Other Comprehensive (Loss) Income
(in millions)
2017
2016
2015
 
2017
2016
2015
Foreign currency exchange contracts
10

37

198

 
(43
)
(68
)
(130
)

Credit Risk

To manage credit risk associated with our fuel price, interest rate and foreign currency hedging programs, we evaluate counterparties based on several criteria including their credit ratings and limit our exposure to any one counterparty.

Our hedge contracts contain margin funding requirements. The margin funding requirements may cause us to post margin to counterparties or may cause counterparties to post margin to us as market prices in the underlying hedged items change. Due to the fair value position of our hedge contracts, we posted margin of $43 million and $38 million as of December 31, 2017 and 2016, respectively.

Our accounts receivable are generated largely from the sale of passenger airline tickets and cargo transportation services, the majority of which are processed through major credit card companies. We also have receivables from the sale of mileage credits under our SkyMiles program to participating airlines and non-airline businesses such as credit card companies, hotels and car rental agencies. The credit risk associated with our receivables is minimal.

Self-Insurance Risk

We self-insure a portion of our losses from claims related to workers' compensation, environmental issues, property damage, medical insurance for employees and general liability. Losses are accrued based on an estimate of the aggregate liability for claims incurred, using independent actuarial reviews based on standard industry practices and our historical experience.