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Risk Management and Financial Instruments (Notes)
9 Months Ended
Sep. 30, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract] 
Derivative Instruments and Hedging Activities Disclosure [Text Block]
NOTE 3. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

Our results of operations are impacted by changes in aircraft fuel prices, interest rates and foreign currency exchange rates. In an effort to manage our exposure to these risks, we enter into derivative instruments and monitor and adjust our portfolio of these instruments. Our hedge portfolio generally consists of (1) single and multi-structured option contracts, (2) swap contracts and (3) futures contracts.

In June 2011, we discontinued hedge accounting for our then existing fuel derivative instruments that had been designated as accounting hedges. Prior to this change in accounting designation, gains or losses on these instruments were deferred in accumulated other comprehensive loss until contract settlement. At September 30, 2011, $45 million of unrealized gains remained in accumulated other comprehensive loss related to these instruments. We will reclassify these gains to earnings on the original contract settlement dates through June 2012. Because fuel derivative instruments are no longer designated as accounting hedges, we will record market adjustments for the changes in their fair value to earnings during their remaining contract terms.

Hedge Gains (Losses)

Gains (losses) recorded on the Condensed Consolidated Financial Statements related to our hedge contracts, including those previously designated as accounting hedges, are as follows:
 
Effective Portion Recognized in Other Comprehensive Income (Loss)
 
Effective Portion Reclassified from Accumulated Other Comprehensive Loss to Earnings
 
Ineffective Portion Recognized in Other (Expense) Income
(in millions)
2011
2010
 
2011
2010
 
2011
2010
Three Months Ended September 30
 
 
 
 
 
 
 
 
Fuel hedge contracts(1)
$
(70
)
$
165

 
$
68

$
(66
)
 
$
—

$
12

Interest rate contracts(2)
(51
)
(16
)
 
—

(1
)
 
—

—

Foreign currency exchange contracts(3)
(22
)
(25
)
 
(31
)
(12
)
 
—

—

Total designated
$
(143
)
$
124

 
$
37

$
(79
)
 
$
—

$
12

Nine Months Ended September 30
 
 
 
 
 
 
 
 
Fuel hedge contracts(1)
$
(136
)
$
(61
)
 
$
202

$
(92
)
 
$
(10
)
$
(25
)
Interest rate contracts(2)
(44
)
(55
)
 
—

(1
)
 
—

—

Foreign currency exchange contracts(3)
4

(33
)
 
(53
)
(21
)
 
—

—

Total designated
$
(176
)
$
(149
)
 
$
149

$
(114
)
 
$
(10
)
$
(25
)

(1) 
Gains (losses) on fuel hedge contracts reclassified from accumulated other comprehensive loss are recorded in aircraft fuel and related taxes. For the three and nine months ended September 30, 2011, we recorded mark-to-market losses of $179 million and $99 million, respectively, related to contracts that were not designated as hedges in aircraft fuel and related taxes.
(2) 
Gains (losses) on interest rate contracts reclassified from accumulated other comprehensive loss are recorded in interest expense.
(3) 
Gains (losses) on foreign currency exchange contracts reclassified from accumulated other comprehensive loss are recorded in passenger revenue.

We perform, at least quarterly, both a prospective and retrospective assessment of the effectiveness of our derivative instruments designated as hedges, including assessing the possibility of counterparty default. If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the hedge in earnings. As a result of our effectiveness assessment at September 30, 2011, we believe our derivative instruments that continue to be designated as hedges, consisting of interest rate swap and foreign currency exchange forward contracts, will continue to be highly effective in offsetting changes in cash flow attributable to the hedged risk.

As of September 30, 2011, we recorded in accumulated other comprehensive loss $6 million of net gains on hedge contracts scheduled to settle in the next 12 months.
Hedge Position

The following table reflects the fair value asset (liability) positions of our hedge contracts:
  
(in millions, unless otherwise stated)
Notional Balance
Maturity Date
Prepaid Expenses
and Other Assets
Other Noncurrent Assets
Other Accrued Liabilities
Other Noncurrent Liabilities
Hedge Margin Receivable (Payable), net
As of September 30, 2011:
 
 
 
 
 
 
 
Designated as hedges
 
 
 
 
 
 
 
Interest rate contracts
$1,014
December 2012 -
May 2019
$
—

$
—

$
(59
)
$
(60
)
 
Foreign currency exchange contracts
137.3 billion Japanese yen; 370 million Canadian dollars
October 2011 - April 2014
11

11

(63
)
(51
)
 
Total designated
 
 
11

11

(122
)
(111
)
 
Not designated as hedges
 
 
 
 
 
 
 
Fuel hedge contracts
1.9 billion gallons - heating oil, crude oil and jet fuel
October 2011 -
December 2012
97

—

(213
)
(3
)
 
Total derivative instruments
 
 
$
108

$
11

$
(335
)
$
(114
)
$
27

As of December 31, 2010:
 
 
 
 
 
 
 
Designated as hedges
 
 
 
 
 
 
 
Fuel hedge contracts
1.5 billion gallons - crude oil
January 2011 -
February 2012
$
328

$
24

$
—

$
—

 
Interest rate contracts
$1,143
August 2011 -
May 2019
—

—

(35
)
(39
)
 
Foreign currency exchange contracts
141.1 billion Japanese yen; 233 million Canadian dollars
January 2011 -
November 2013
—

—

(60
)
(36
)
 
Total designated
 
 
328

24

(95
)
(75
)
 
Not designated as hedges
 
 
 
 
 
 
 
Fuel hedge contracts
192 million gallons - crude oil and crude oil products
January 2011 -
December 2011
27

14

(19
)
(8
)
 
Total derivative instruments
 
 
$
355

$
38

$
(114
)
$
(83
)
$
(119
)


Credit Risk

To manage credit risk associated with our aircraft fuel price, interest rate and foreign currency hedging programs, we select counterparties based on their credit ratings and limit our exposure to any one counterparty. We monitor our relative market position with each counterparty.

Our hedge contracts contain margin funding requirements, which are driven by changes in the price of the underlying hedge items and the instruments used. Our margin funding requirements may require us to post margin to counterparties or may require our counterparties to post margin to us as market prices in the underlying hedge items change. Due to the fair value position of our hedge contracts as of September 30, 2011, we paid $27 million in net hedge margin to counterparties.