Oil Refinery (Notes)

12 Months Ended

Dec. 31, 2012

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

OIL REFINERY

Jet fuel costs have continued to increase in recent years, making fuel expense our single largest expense.Because global demand for jet fuel and related products is increasing at the same time that jet fuel refining capacity is decreasing in the U.S. (particularly in the Northeast), the refining margin reflected in the prices we pay for jet fuel has increased. We purchased an oil refinery as part of our strategy to mitigate the increasing cost of the refining margin we are paying. Production at the refinery commenced in September 2012.

Acquisition

In June 2012, our wholly-owned subsidiaries, Monroe Energy, LLC and MIPC, LLC (collectively, “Monroe”), acquired the Trainer refinery and related assets located near Philadelphia, Pennsylvania from Phillips 66, which had shut down operations at the refinery. Monroe invested $180 million to acquire the refinery. Monroe received a $30 million grant from the Commonwealth of Pennsylvania. The acquisition includes pipelines and terminal assets that will allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U.S., including our New York hubs at LaGuardia and JFK.

We accounted for the refinery acquisition as a business combination. The refinery, pipelines and terminal assets acquired were recorded at $180 million in property and equipment, net based on their respective fair values on the closing date of the transaction.

Refinery Operations and Strategic Agreements

The facility is capable of refining 185,000 barrels of crude oil per day. BP is the primary supplier of crude oil used by the refinery under a three year agreement. We are also exploring other sources of crude oil supply, such as bringing supply to the refinery by rail from the Bakken oil field in North Dakota. We have increased the refinery's jet fuel capacity through capital improvements. The refinery's remaining production consists of gasoline, diesel and refined products ("non-jet fuel products"). Under a multi-year agreement, we are exchanging a significant portion of the non-jet fuel products with Phillips 66 for jet fuel to be used in our airline operations. Substantially all of the remaining production of non-jet fuel products is being sold to BP under a long-term buy/sell agreement effectively exchanging those non-jet fuel products for jet fuel. Our agreement with Phillips 66 requires us to deliver specified quantities of non-jet fuel products and they are required to deliver jet fuel to us. If we or Phillips 66 do not have the specified quantity and type of product available, the delivering party is required to procure any such shortage to fulfill its obligation under the agreement. Substantially all of the refinery's expected production of non-jet fuel products is included in these agreements.

Accounting for Buy/Sell Agreements

To the extent that we receive jet fuel for the non-jet fuel products exchanged under these agreements, we account for these transactions as non-monetary exchanges. We account for non-monetary transactions where product is exchanged with the same counterparty, including buy/sell arrangements, by measuring the carrying amount of the non-jet fuel products transferred. We have recorded these exchange transactions at the carrying amount of the non-jet fuel products transferred within Aircraft fuel and related taxes on the Consolidated Statement of Operations. The gross fair value of the products exchanged under these agreements during the year ended December 31, 2012 was $1.1 billion.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources to our segments and in assessing performance. Our chief operating decision maker is considered to be our executive leadership team. Our executive leadership team regularly reviews discrete information for our two operating segments, which are determined by the products and services provided: our airline segment and our refinery segment.

Our airline segment provides scheduled air transportation for passengers and cargo throughout the United States and around the world and other ancillary airline services, including maintenance and repair services for third parties. Our refinery segment provides jet fuel to the airline segment from its own production and through jet fuel obtained through the agreements with Phillips 66 and BP. The costs included in the refinery segment are primarily for the benefit of the airline segment. As a result, our segments are not designed to measure operating income or loss directly related to the products and services included in each segment on a stand-alone basis.

Segment results are prepared based on our internal accounting methods described below, with reconciliations to consolidated amounts in accordance with accounting principles generally accepted in the United States:

	Year Ended December 31, 2012
(in millions)	Airline		Refinery			Intersegment Sales/ Other				Consolidated
Operating revenue:	$	36,670	$	1,347						$	36,670
Sales to airline segment						$	(213	)	(1)
Exchanged products						(1,121		)	(2)
Sales of by-products to third parties						(13		)	(3)
Operating income (loss)	2,238		(63		)	—				2,175
Interest expense, net	812		—			—				812
Depreciation and amortization expense	1,561		4			—				1,565
Total assets, end of period	43,386		1,164			—				44,550
Capital expenditures	1,637		331			—				1,968

⁽¹⁾  Represents transfers, valued on a market price basis, from the refinery to the airline segment for use in airline operations. We determine market price by reference to the market index for the primary delivery location for jet fuel from the refinery, which is New York harbor.

⁽²⁾  Represents value of products exchanged under our buy/sell agreements, as discussed above, determined on a market price basis.

⁽³⁾  Represents sales of refinery by-products to third parties. Such products are generally sold at or near cost; accordingly, margin on such sales is de minimis. By-products are produced as a result of the refining of crude oil into gasoline, diesel and jet fuel.