NOTE 6 - HEDGING ACTIVITIES

Aircraft Fuel Hedges. The Company has a risk management strategy to hedge a portion of its price risk related to projected aircraft fuel requirements. The Company periodically enters into derivative contracts to mitigate the adverse financial impact of potential increases in the price of fuel. The Company does not enter into derivative instruments for non-risk management purposes. Prior to April 1, 2010, United's fuel hedges were not accounted for as fair value or cash flow hedges under accounting principles related to hedge accounting. Effective April 1, 2010, United designated substantially all of its outstanding fuel derivative contracts, which settle in periods subsequent to June 30, 2010, as cash flow hedges under applicable accounting standards. In addition, substantially all new fuel derivative contracts entered into subsequent to April 1, 2010 were designated as cash flow hedges.

For fuel derivative instruments designated as cash flow hedges, the Company records the effective portion of periodic changes in the fair value of the derivatives in accumulated other comprehensive income (loss) ("AOCI") until the underlying fuel is consumed and recorded in fuel expense. Hedge ineffectiveness results when the change in the fair value of the derivative instrument exceeds the change in the value of the Company's expected future cash outlay to purchase and consume fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to miscellaneous nonoperating income (expense) in the statements of consolidated operations. Nonoperating income (expense) for the three and six months ended June 30, 2011 includes $34 million and $31 million, respectively, of expense resulting from ineffectiveness caused by a decrease in fuel hedge values in excess of the decrease in aircraft fuel prices during the quarter. The impact is concentrated in the fuel hedges entered into by Continental as a result of the redesignation of Continental's fuel hedge portfolio under cash flow hedge accounting as of April 1, 2011 when the portfolio was fully integrated with United's fuel hedge portfolio. This redesignation deferred certain gains on these contracts that will be recognized as part of fuel expense as these positions settle in the future, and therefore any impact is expected to be neutral to earnings over the full term of each contract, assuming current fuel prices.

The Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets and, accordingly, records any related collateral on a gross basis.

As of June 30, 2011, our projected fuel requirements for the remainder of 2011 were hedged as follows:


	Maximum Price					Minimum Price
	% of Expected Consumption			Weighted Average Price (per gallon)		% of Expected Consumption			Weighted Average Price (per gallon)

UAL
Heating oil collars		15	%	$	3.32		15	%	$	2.65
Heating oil call options		4			2.41		N/A			N/A
Heating oil swaps		3			2.24		3			2.24
West Texas Intermediate ("WTI") crude oil call options		13			2.32		N/A			N/A
WTI crude oil swaps		11			2.17		11			2.17
Aircraft fuel call options		4			3.15		N/A			N/A
Aircraft fuel swaps		1			3.14		1			3.14

Total		51	%				30	%

As of June 30, 2011, United and Continental had hedged projected fuel requirements for the remainder of 2011 of 54% and 44%, respectively, consistent with the hedged instruments and underlyings presented in the table above for UAL. As of June 30, 2011, UAL, United and Continental had also hedged 13%, 16% and 8%, respectively, of projected first half 2012 fuel consumption.

The following tables present information about the financial statement classification of the Company's derivatives (in millions):


Derivatives designated as hedges		June 30, 2011						December 31, 2010
	Balance Sheet Location	UAL		United		Continental Successor		UAL		United		Continental Successor

Assets:
Fuel contracts due within one year	Receivables	$	194	$	141	$	53	$	375	$	277	$	98


Liabilities:
Fuel contracts due within one year	Other Current Liabilities	$	3	$	3	$	—	$	—	$	—	$	—


Fuel contracts	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)						Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Three Months Ended June 30,						Three Months Ended June 30,					Three Months Ended June 30,
	2011			2010			2011		2010			2011			2010
UAL	$	(231	)	$	(146	)	$	278	$	—		$	(34	)	$	(3	)
United		(149	)		(146	)		213		—			(7	)		(3	)
Continental (a)		(82	)		(53	)		65		(9	)		(27	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.


Fuel contracts	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)					Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Six Months Ended June 30,					Six Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010			2011			2010
UAL	$	293	$	(146	)	$	432	$	—		$	(31	)	$	(3	)
United		236		(146	)		338		—			(5	)		(3	)
Continental (a)		57		(37	)		94		(6	)		(26	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.

Derivative Credit Risk and Fair Value

The Company is exposed to credit losses in the event of nonperformance by counterparties to its derivative instruments. While the Company records derivative instruments on a gross basis, the Company monitors its net derivative position with each counterparty to monitor credit risk. Based on the fair value of our fuel derivative instruments, our counterparties may require us to post collateral when the price of the underlying commodity decreases, and we may require our counterparties to provide us with collateral when the price of the underlying commodity increases. The following table presents information related to the Company's derivative credit risk as of June 30, 2011 (in millions):


	UAL			United			Continental
Net derivative asset with counterparties	$	191		$	138		$	53
Collateral held by the Company (a)		(31	)		(31	)		—
Collateral posted by the Company		—			—			—
Potential loss related to the failure of the Company's counterparties to perform (b)		160			107			53

(a)	Classified as an other current liability.

(b)	Based on fair value at June 30, 2011 and collateral held.

Hedging Activities

NOTE 6 - HEDGING ACTIVITIES

Aircraft Fuel Hedges. The Company has a risk management strategy to hedge a portion of its price risk related to projected aircraft fuel requirements. The Company periodically enters into derivative contracts to mitigate the adverse financial impact of potential increases in the price of fuel. The Company does not enter into derivative instruments for non-risk management purposes. Prior to April 1, 2010, United's fuel hedges were not accounted for as fair value or cash flow hedges under accounting principles related to hedge accounting. Effective April 1, 2010, United designated substantially all of its outstanding fuel derivative contracts, which settle in periods subsequent to June 30, 2010, as cash flow hedges under applicable accounting standards. In addition, substantially all new fuel derivative contracts entered into subsequent to April 1, 2010 were designated as cash flow hedges.

For fuel derivative instruments designated as cash flow hedges, the Company records the effective portion of periodic changes in the fair value of the derivatives in accumulated other comprehensive income (loss) ("AOCI") until the underlying fuel is consumed and recorded in fuel expense. Hedge ineffectiveness results when the change in the fair value of the derivative instrument exceeds the change in the value of the Company's expected future cash outlay to purchase and consume fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to miscellaneous nonoperating income (expense) in the statements of consolidated operations. Nonoperating income (expense) for the three and six months ended June 30, 2011 includes $34 million and $31 million, respectively, of expense resulting from ineffectiveness caused by a decrease in fuel hedge values in excess of the decrease in aircraft fuel prices during the quarter. The impact is concentrated in the fuel hedges entered into by Continental as a result of the redesignation of Continental's fuel hedge portfolio under cash flow hedge accounting as of April 1, 2011 when the portfolio was fully integrated with United's fuel hedge portfolio. This redesignation deferred certain gains on these contracts that will be recognized as part of fuel expense as these positions settle in the future, and therefore any impact is expected to be neutral to earnings over the full term of each contract, assuming current fuel prices.

The Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets and, accordingly, records any related collateral on a gross basis.

As of June 30, 2011, our projected fuel requirements for the remainder of 2011 were hedged as follows:


	Maximum Price					Minimum Price
	% of Expected Consumption			Weighted Average Price (per gallon)		% of Expected Consumption			Weighted Average Price (per gallon)

UAL
Heating oil collars		15	%	$	3.32		15	%	$	2.65
Heating oil call options		4			2.41		N/A			N/A
Heating oil swaps		3			2.24		3			2.24
West Texas Intermediate ("WTI") crude oil call options		13			2.32		N/A			N/A
WTI crude oil swaps		11			2.17		11			2.17
Aircraft fuel call options		4			3.15		N/A			N/A
Aircraft fuel swaps		1			3.14		1			3.14

Total		51	%				30	%

As of June 30, 2011, United and Continental had hedged projected fuel requirements for the remainder of 2011 of 54% and 44%, respectively, consistent with the hedged instruments and underlyings presented in the table above for UAL. As of June 30, 2011, UAL, United and Continental had also hedged 13%, 16% and 8%, respectively, of projected first half 2012 fuel consumption.

The following tables present information about the financial statement classification of the Company's derivatives (in millions):


Derivatives designated as hedges		June 30, 2011						December 31, 2010
	Balance Sheet Location	UAL		United		Continental Successor		UAL		United		Continental Successor

Assets:
Fuel contracts due within one year	Receivables	$	194	$	141	$	53	$	375	$	277	$	98


Liabilities:
Fuel contracts due within one year	Other Current Liabilities	$	3	$	3	$	—	$	—	$	—	$	—


Fuel contracts	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)						Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Three Months Ended June 30,						Three Months Ended June 30,					Three Months Ended June 30,
	2011			2010			2011		2010			2011			2010
UAL	$	(231	)	$	(146	)	$	278	$	—		$	(34	)	$	(3	)
United		(149	)		(146	)		213		—			(7	)		(3	)
Continental (a)		(82	)		(53	)		65		(9	)		(27	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.


Fuel contracts	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)					Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Six Months Ended June 30,					Six Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010			2011			2010
UAL	$	293	$	(146	)	$	432	$	—		$	(31	)	$	(3	)
United		236		(146	)		338		—			(5	)		(3	)
Continental (a)		57		(37	)		94		(6	)		(26	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.

Derivative Credit Risk and Fair Value

The Company is exposed to credit losses in the event of nonperformance by counterparties to its derivative instruments. While the Company records derivative instruments on a gross basis, the Company monitors its net derivative position with each counterparty to monitor credit risk. Based on the fair value of our fuel derivative instruments, our counterparties may require us to post collateral when the price of the underlying commodity decreases, and we may require our counterparties to provide us with collateral when the price of the underlying commodity increases. The following table presents information related to the Company's derivative credit risk as of June 30, 2011 (in millions):


	UAL			United			Continental
Net derivative asset with counterparties	$	191		$	138		$	53
Collateral held by the Company (a)		(31	)		(31	)		—
Collateral posted by the Company		—			—			—
Potential loss related to the failure of the Company's counterparties to perform (b)		160			107			53

(a)	Classified as an other current liability.

(b)	Based on fair value at June 30, 2011 and collateral held.

Hedging Activities

NOTE 6 - HEDGING ACTIVITIES

Aircraft Fuel Hedges. The Company has a risk management strategy to hedge a portion of its price risk related to projected aircraft fuel requirements. The Company periodically enters into derivative contracts to mitigate the adverse financial impact of potential increases in the price of fuel. The Company does not enter into derivative instruments for non-risk management purposes. Prior to April 1, 2010, United's fuel hedges were not accounted for as fair value or cash flow hedges under accounting principles related to hedge accounting. Effective April 1, 2010, United designated substantially all of its outstanding fuel derivative contracts, which settle in periods subsequent to June 30, 2010, as cash flow hedges under applicable accounting standards. In addition, substantially all new fuel derivative contracts entered into subsequent to April 1, 2010 were designated as cash flow hedges.

For fuel derivative instruments designated as cash flow hedges, the Company records the effective portion of periodic changes in the fair value of the derivatives in accumulated other comprehensive income (loss) ("AOCI") until the underlying fuel is consumed and recorded in fuel expense. Hedge ineffectiveness results when the change in the fair value of the derivative instrument exceeds the change in the value of the Company's expected future cash outlay to purchase and consume fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to miscellaneous nonoperating income (expense) in the statements of consolidated operations. Nonoperating income (expense) for the three and six months ended June 30, 2011 includes $34 million and $31 million, respectively, of expense resulting from ineffectiveness caused by a decrease in fuel hedge values in excess of the decrease in aircraft fuel prices during the quarter. The impact is concentrated in the fuel hedges entered into by Continental as a result of the redesignation of Continental's fuel hedge portfolio under cash flow hedge accounting as of April 1, 2011 when the portfolio was fully integrated with United's fuel hedge portfolio. This redesignation deferred certain gains on these contracts that will be recognized as part of fuel expense as these positions settle in the future, and therefore any impact is expected to be neutral to earnings over the full term of each contract, assuming current fuel prices.

The Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets and, accordingly, records any related collateral on a gross basis.

As of June 30, 2011, our projected fuel requirements for the remainder of 2011 were hedged as follows:


	Maximum Price					Minimum Price
	% of Expected Consumption			Weighted Average Price (per gallon)		% of Expected Consumption			Weighted Average Price (per gallon)

UAL
Heating oil collars		15	%	$	3.32		15	%	$	2.65
Heating oil call options		4			2.41		N/A			N/A
Heating oil swaps		3			2.24		3			2.24
West Texas Intermediate ("WTI") crude oil call options		13			2.32		N/A			N/A
WTI crude oil swaps		11			2.17		11			2.17
Aircraft fuel call options		4			3.15		N/A			N/A
Aircraft fuel swaps		1			3.14		1			3.14

Total		51	%				30	%

As of June 30, 2011, United and Continental had hedged projected fuel requirements for the remainder of 2011 of 54% and 44%, respectively, consistent with the hedged instruments and underlyings presented in the table above for UAL. As of June 30, 2011, UAL, United and Continental had also hedged 13%, 16% and 8%, respectively, of projected first half 2012 fuel consumption.

The following tables present information about the financial statement classification of the Company's derivatives (in millions):


Derivatives designated as hedges		June 30, 2011						December 31, 2010
	Balance Sheet Location	UAL		United		Continental Successor		UAL		United		Continental Successor

Assets:
Fuel contracts due within one year	Receivables	$	194	$	141	$	53	$	375	$	277	$	98


Liabilities:
Fuel contracts due within one year	Other Current Liabilities	$	3	$	3	$	—	$	—	$	—	$	—


Fuel contracts	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)						Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Three Months Ended June 30,						Three Months Ended June 30,					Three Months Ended June 30,
	2011			2010			2011		2010			2011			2010
UAL	$	(231	)	$	(146	)	$	278	$	—		$	(34	)	$	(3	)
United		(149	)		(146	)		213		—			(7	)		(3	)
Continental (a)		(82	)		(53	)		65		(9	)		(27	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.


Fuel contracts	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)					Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Six Months Ended June 30,					Six Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010			2011			2010
UAL	$	293	$	(146	)	$	432	$	—		$	(31	)	$	(3	)
United		236		(146	)		338		—			(5	)		(3	)
Continental (a)		57		(37	)		94		(6	)		(26	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.

Derivative Credit Risk and Fair Value

The Company is exposed to credit losses in the event of nonperformance by counterparties to its derivative instruments. While the Company records derivative instruments on a gross basis, the Company monitors its net derivative position with each counterparty to monitor credit risk. Based on the fair value of our fuel derivative instruments, our counterparties may require us to post collateral when the price of the underlying commodity decreases, and we may require our counterparties to provide us with collateral when the price of the underlying commodity increases. The following table presents information related to the Company's derivative credit risk as of June 30, 2011 (in millions):


	UAL			United			Continental
Net derivative asset with counterparties	$	191		$	138		$	53
Collateral held by the Company (a)		(31	)		(31	)		—
Collateral posted by the Company		—			—			—
Potential loss related to the failure of the Company's counterparties to perform (b)		160			107			53

(a)	Classified as an other current liability.

(b)	Based on fair value at June 30, 2011 and collateral held.