Derivatives and Risk Management (Notes)

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

DERIVATIVES AND RISK MANAGEMENT

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 may 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.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 of fuel derivative contracts to earnings in aircraft fuel and related taxes. Prior to this change in accounting designation, gains or losses on these contracts were deferred in AOCI until contract settlement. We reclassify to earnings all amounts from market adjustments for changes in fair value relating to our fuel derivative contracts in AOCI on the contract settlement dates.

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

	Year Ended December 31,
(in millions)	2012			2011			2010
Market adjustments for changes in fair value	$	81		$	(187	)	$	2
Effective portion reclassified from AOCI to earnings	(15		)	(233		)	87
Losses (gains) recorded in aircraft fuel and related taxes	$	66		$	(420	)	$	89

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 derivative contracts comprised of interest rate swaps and call option agreements. We designate our interest rate contracts used to convert our 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, 2012

(in millions)	Notional Balance			Final Maturity Date	Prepaid Expenses and Other Assets		Other Noncurrent Assets		Other Accrued Liabilities			Other Noncurrent Liabilities			Hedge Derivatives, net
Designated as hedges
Interest rate contracts (cash flow hedges)	$	740	U.S. dollars	May 2019	$	—	$	—	$	(22	)	$	(48	)	$	(70	)
Interest rate contracts (fair value hedges)	$	469	U.S. dollars	August 2022	—		6		(2		)	—			4
Foreign currency exchange contracts	119,277		Japanese yen	December 2015	62		63		(1		)	(1		)	123
	430		Canadian dollars
Not designated as hedges
Fuel hedge contracts	1,792		gallons - heating oil, crude oil and jet fuel	December 2013	511		—		(262		)	—			249
Total derivative contracts					$	573	$	69	$	(287	)	$	(49	)	$	306

Hedge Position as of December 31, 2011

(in millions)	Notional Balance			Final Maturity Date	Prepaid Expenses and Other Assets		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 (Loss)
	Year Ended December 31,
(in millions)	2012			2011			2010			2012			2011			2010
Fuel hedge contracts	$	15		$	233		$	(87	)	$	(15	)	$	(166	)	$	153
Interest rate contracts	(5		)	—			(5		)	14			(8		)	(28		)
Foreign currency exchange contracts	(25		)	(61		)	(31		)	212			7			(73		)
Total designated	$	(15	)	$	172		$	(123	)	$	211		$	(167	)	$	52

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 received net margin of $62 million and posted net margin of $30 million as of December 31, 2012 and 2011, respectively. Margin received is recorded in accounts payable and margin posted is recorded in prepaid expenses and other.

Our accounts receivable are generated largely from the sale of passenger airline tickets and cargo transportation services. The majority of these sales are processed through major credit card companies, resulting in accounts receivable that may be subject to certain holdbacks by the credit card processors. 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. A portion of our projected workers' compensation liability is secured with restricted cash collateral.