DERIVATIVES

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 contracts and adjust our derivative portfolio as market conditions change.

Aircraft Fuel Price Risk

Our results of operations are materially impacted by changes in aircraft fuel prices. We actively manage our fuel price risk through a hedging program intended to reduce the financial impact on us from changes in the price of jet fuel. The objective of the fuel hedging program is to generate a positive cash position to defray the cost of jet fuel purchases. This fuel hedging program utilizes several different contract and commodity types. The economic effectiveness of this hedge portfolio is frequently tested against our financial targets. The hedge portfolio is rebalanced from time to time according to market conditions, which may result in locking in gains or losses on hedge contracts prior to their settlement dates.

Effective June 2011, we stopped designating substantially all of our new fuel derivative contracts as accounting hedges and discontinued hedge accounting for our then existing fuel derivative contracts that previously had been designated as accounting hedges. As a result, we record market adjustments for changes in fair value to earnings in aircraft fuel and related taxes. Prior to this change in accounting designation, gains or losses on these contracts were deferred in accumulated other comprehensive income ("AOCI") until contract settlement. We will reclassify to earnings all amounts relating to our fuel derivative contracts in AOCI on the original contract settlement dates.

The following table shows the impact of fuel hedge gains (losses) for both designated and undesignated contracts on aircraft fuel and related taxes:



	Three Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2012		2011			2012			2011
Market adjustments for changes in fair value	$	414	$	(179	)	$	(121	)	$	(99	)
Effective portion reclassified from AOCI to earnings	—		68			15			202
Gain (loss) recorded in aircraft fuel and related taxes	$	414	$	(111	)	$	(106	)	$	103

During the September 2012 quarter, we recorded gains of $414 million due to changes in the fair value of our fuel hedges. The gains partially offset mark-to-market ("MTM") losses recorded during the June 2012 quarter on these fuel hedges. These MTM adjustments are based on market prices as of the end of the reporting period for contracts settling in future periods. The following tables reflect the estimated fair value asset (liability) positions, notional balances and maturity dates of our hedge contracts:

Hedge Position as of September 30, 2012



(in millions)	Notional Balance			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 (cash flow hedges)	$	762	U.S. dollars	May 2019	$	—	$	—	$	(23	)	$	(53	)	$	(76	)
Interest rate contracts (fair value hedges)	$	469	U.S. dollars	August 2022	6		—		—			—			6
Foreign currency exchange contracts	93,960		Japanese yen	August 2015	1		2		(30		)	(6		)	(33		)
	456		Canadian dollars
Not designated as hedges
Fuel hedge contracts	2,666		gallons - heating oil, crude oil, jet fuel and diesel	December 2013	549		86		(283		)	(100		)	252
Total derivative contracts					$	556	$	88	$	(336	)	$	(159	)	$	149

Hedge Position as of December 31, 2011



(in millions)	Notional Balance			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 (cash flow hedges)	$	989	U.S. dollars	May 2019	$	—	$	—	$	(27	)	$	(57	)	$	(84	)
Interest rate contracts (fair value hedges)	$	500	U.S. dollars	August 2022	—		—		—			(7		)	(7		)
Foreign currency exchange contracts	126,993		Japanese yen	April 2014	7		5		(58		)	(43		)	(89		)
	313		Canadian dollars
Not designated as hedges
Fuel hedge contracts	1,225		gallons - heating oil, crude oil, jet fuel and diesel	December 2012	570		—		(500		)	—			70
Total derivative contracts					$	577	$	5	$	(585	)	$	(107	)	$	(110	)

Hedge Gains (Losses)

Gains (losses) related to our designated hedge contracts, including those previously designated as accounting hedges, are as follows:



	Effective Portion Reclassified from AOCI to Earnings						Effective Portion Recognized in Other Comprehensive Income
(in millions)	2012			2011			2012			2011
Three Months Ended September 30
Fuel hedge contracts	$	—		$	68		$	—		$	(70	)
Interest rate contracts	(5		)	—			5			(51		)
Foreign currency exchange contracts	(8		)	(31		)	(27		)	(22		)
Total designated	$	(13	)	$	37		$	(22	)	$	(143	)
Nine Months Ended September 30
Fuel hedge contracts	$	15		$	202		$	(15	)	$	(136	)
Interest rate contracts	(5		)	—			8			(44		)
Foreign currency exchange contracts	(21		)	(53		)	56			4
Total designated	$	(11	)	$	149		$	49		$	(176	)

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.

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 $10 million and $30 million as of September 30, 2012 and December 31, 2011, respectively. These amounts are recorded in prepaid expenses and other.