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Derivatives and Risk Management
 6 Months Ended
Jun. 30, 2019
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 enter into derivative contracts and adjust our derivative portfolio as market conditions change. We recognize derivative contracts at fair value on our balance sheet.

Fuel Price Risk

Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s refining margins.

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.

Foreign Currency Exchange Risk

We are subject to foreign currency exchange rate risk because we have revenue and expense denominated in foreign currencies. 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. 

Hedge Position as of June 30, 2019
(in millions)
Volume
 
Final Maturity Date
Prepaid Expenses and Other
Other Noncurrent Assets
Other Accrued Liabilities
Other Noncurrent Liabilities
Hedge Derivatives, net
Designated as hedges
 
 
 
 
 
 
 
 
Interest rate contracts (fair value hedges)
1,883

U.S. dollars
April 2028
$
8

$
59

$
(5
)
$
—

$
62

Not designated as hedges
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
397

Euros
December 2020
13

—

—

(10
)
3

Fuel hedge contracts
180

gallons - crude oil and refined products
December 2019
46

—

(50
)
—

(4
)
Total derivative contracts
 
 
$
67

$
59

$
(55
)
$
(10
)
$
61


Hedge Position as of December 31, 2018
(in millions)
Volume
 
Final Maturity Date
Prepaid Expenses and Other
Other Noncurrent Assets
Other Accrued Liabilities
Other Noncurrent Liabilities
Hedge Derivatives, net
Designated as hedges
 
 
 
 
 
 
 
 
Interest rate contracts (fair value hedges)
1,893

U.S. dollars
April 2028
$
—

$
8

$
(7
)
$
—

$
1

Foreign currency exchange contracts
6,934

Japanese yen
November 2019
1

—

—

—

1

Not designated as hedges
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
397

Euros
December 2020
13

—

—

(17
)
(4
)
Fuel hedge contracts
219

gallons - crude oil and refined products
December 2019
30

—

(15
)
—

15

Total derivative contracts
 
 
$
44

$
8

$
(22
)
$
(17
)
$
13



Balance Sheet Location of Hedged Item in Fair Value Hedges
 
Carrying Amount of Hedge Instruments
 
Cumulative Amount of Fair Value Hedge Adjustments
(in millions)
June 30, 2019
December 31, 2018
 
June 30, 2019
December 31, 2018
Current maturities of long-term debt and finance leases
$
(21
)
$
(11
)
 
$
(4
)
$
7

Long-term debt and finance leases
$
(1,912
)
$
(1,870
)
 
$
(59
)
$
(8
)


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 balance sheets. The following table shows the net fair value positions by counterparty had we elected to offset.
(in millions)
Prepaid Expenses and Other
Other Noncurrent Assets
Other Accrued Liabilities
Other Noncurrent Liabilities
Hedge Derivatives, net
June 30, 2019
 
 
 
 
 
Net derivative contracts
$
34

$
59

$
(22
)
$
(10
)
$
61

December 31, 2018
 
 
 
 
 
Net derivative contracts
$
35

$
—

$
(13
)
$
(9
)
$
13



Designated Hedge Gains (Losses)

Gains (losses) related to our foreign currency exchange contracts designated as hedges are as follows:
 
Gain (Loss) Reclassified from AOCI to Earnings(1)
 
Gain (Loss) Recognized in Other Comprehensive Income
(in millions)
2019
2018
 
2019
2018
Three Months Ended June 30,
 
 
 
 
 
Foreign currency exchange contracts
$
—

$
(2
)
 
$
(1
)
$
9

Six Months Ended June 30,
 
 
 
 
 
Foreign currency exchange contracts
$
1

$
3

 
$
—

$
—



(1) 
Earnings on our designated foreign currency exchange contracts are recorded in passenger revenue in the income statement.

Not Designated Hedge Gains (Losses)

Gains (losses) related to our foreign currency exchange and fuel contracts are as follows:
 
 
Location of Gain (Loss) Recognized in Income
 
Amount of Gain (Loss) Recognized in Income
(in millions)
 
 
 
2019
2018
Three Months Ended June 30,
 
 
 
 
 
Foreign currency exchange contracts
 
Unrealized gain/(loss) on investments, net
 
$
(3
)
$
22

Fuel hedge contracts
 
Aircraft fuel and related taxes
 
19

(94
)
Total
 
 
 
$
16

$
(72
)
Six Months Ended June 30,
 
 
 
 
 
Foreign currency exchange contracts
 
Unrealized gain/(loss) on investments, net
 
$
7

$
6

Fuel hedge contracts
 
Aircraft fuel and related taxes
 
(36
)
(92
)
Total
 
 
 
$
(29
)
$
(86
)


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.