NOTE 13 — HEDGING ACTIVITIES

Fuel Derivatives

As of December 31, 2011, our projected fuel requirements for 2012 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 (a)
Heating oil collars		11	%	$	3.13		11	%	$	2.52
Heating oil call options		7			3.22		N/A			N/A
Brent crude oil collars		6			2.74		6			1.91
Diesel fuel collars		4			3.12		4			2.35
Aircraft fuel swaps		1			2.90		1			2.90
WTI crude oil call options		1			2.37		N/A			N/A
WTI crude oil swaps		1			2.25		1			2.25

Total		31	%				23	%

(a)	Represents a hedge of approximately 47% of UAL's expected first quarter consumption with decreasing hedge coverage later throughout 2012.

Aircraft fuel is the Company's single largest operating expense. In addition, aircraft fuel is a globally traded commodity with significant price volatility. Aircraft fuel prices fluctuate based on market expectations of supply and demand, among other factors. Increases in fuel prices may adversely impact the Company's financial performance, operating cash flows and financial position as greater amounts of cash may be required to obtain aircraft fuel for operations. To protect against increases in the prices of aircraft fuel, the Company routinely hedges a portion of its future fuel requirements. The Company uses fixed price swaps, purchased call options, collars or other commonly used financial hedge instruments based on aircraft fuel or closely related commodities, such as heating oil, diesel fuel and crude oil. The Company strives to maintain fuel hedging levels and exposure such that the Company's fuel cost is not disproportionate to the fuel costs of its major competitors. The Company does not enter into derivative instruments for non-risk management purposes.

Prior to April 1, 2010, United's instruments classified as economic hedges were not designated as cash flow or fair value hedges under accounting principles related to hedge accounting. All changes in the fair value of economic hedges were recorded in income, with the offset to either current assets or liabilities in each reporting period. Economic fuel hedge gains and losses were classified as part of aircraft fuel expense, and fuel hedge gains and losses from instruments that are not deemed economic hedges were classified as part of nonoperating income (expense).

Effective April 1, 2010, United designated substantially all of its outstanding fuel derivative contracts as cash flow hedges under applicable accounting standards. In addition, substantially all new fuel derivative contracts entered into subsequent to April 1, 2010 by United were designated as cash flow hedges. Continental applied cash flow hedge accounting for all periods presented in these financial statements.

Accounting pronouncements pertaining to derivative instruments and hedging are complex with stringent requirements, including documentation of hedging strategy, statistical analysis to qualify a commodity for hedge accounting both on a historical and a prospective basis, and strict contemporaneous documentation that is required at the time each hedge is designated as a cash flow hedge. As required, the Company assesses the effectiveness of each of its individual hedges on a quarterly basis. The Company also examines the effectiveness of its entire hedging program on a quarterly basis utilizing statistical analysis. This analysis involves utilizing regression and other statistical analyses that compare changes in the price of aircraft fuel to changes in the prices of the commodities used for hedging purposes.

Upon proper qualification, the Company accounts for its fuel derivative instruments as cash flow hedges. All derivatives designated as hedges that meet certain requirements are granted special hedge accounting treatment. Generally, utilizing the special hedge accounting, all periodic changes in fair value of the derivatives designated as hedges that are considered to be effective are recorded in accumulated other comprehensive income (loss) ("AOCI") until the underlying fuel is consumed and recorded in fuel expense. The Company is exposed to the risk that its hedges may not be effective in offsetting changes in the cost of fuel and that its hedges may not continue to qualify for special hedge accounting. 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 classified as other nonoperating income (expense).

If the Company terminates a derivative prior to its contractual settlement date, then the cumulative gain or loss recognized in AOCI at the termination date remains in AOCI until the forecasted transaction occurs. In a situation where it becomes probable that a hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into earnings. All cash flows associated with purchasing and settling derivatives are classified as operating cash flows in the statements of cash flow.

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. The table below presents the fair value amounts of fuel derivative assets and liabilities and the location of amounts recognized in the Company's financial statements. As of December 31, 2011 and December 31, 2010, all of the Company's fuel derivatives were designated as cash flow hedges.

At December 31, the Company's derivatives were reported in its consolidated balance sheets as follows (in millions):


			December 31, 2011						December 31, 2010
Derivatives designated as cash flow hedges	Balance Sheet Location		UAL		United		Continental		UAL		United		Continental
Assets:
Fuel contracts due within one year		Receivables	$	77	$	48	$	29	$	375	$	277	$	98


Liabilities:
Fuel contracts due within one year		Other current liabilities	$	4	$	4	$	—	$	—	$	—	$	—

The following tables present the fuel hedge gains (losses) recognized during the periods presented and their classification in the financial statements (in millions):


Fuel derivatives designated as cash flow hedges	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)
	2011			2010			2011		2010			2011			2010
UAL	$	163		$	170		$	503	$	(70	)	$	(59	)	$	10
United		172			101			417		(84	)		(21	)		8
Continental— Successor		(9	)		69			86		14			(38	)		2
Continental— Predecessor		N/A			(4	)		N/A		(23	)		N/A			(2	)


Derivatives not designated as cash flow hedges	Aircraft Fuel Gain (Loss)							Nonoperating Income (Expense)						Total Gain (Loss)
	2011		2010			2009		2011		2010		2009		2011		2010			2009
Fuel:
UAL/United	$	—	$	(35	)	$	104	$	—	$	—	$	31	$	—	$	(35	)	$	135

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 December 31, (in millions):


	2011						2010
	UAL		United		Continental		UAL		United		Continental
Net derivative assets with counterparties	$	73	$	44	$	29	$	375	$	277	$	98
Collateral held by the Company (a)		—		—		—		63		63		—

Potential loss related to the failure of the Company's counterparties to perform	$	73	$	44	$	29		312	$	214	$	98

(a)	Classified as an other current liability.

The Company considers counterparty credit risk in determining its exposure and the fair value of its financial instruments. The Company considers credit risk to have a minimal impact on fair value because cash collateral is provided by the Company's hedging counterparties periodically based on current market exposure and the credit-worthiness of the counterparties.

Hedging Activities

NOTE 13—HEDGING ACTIVITIES

Fuel Derivatives

As of December 31, 2011, our projected fuel requirements for 2012 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 (a)
Heating oil collars		11	%	$	3.13		11	%	$	2.52
Heating oil call options		7			3.22		N/A			N/A
Brent crude oil collars		6			2.74		6			1.91
Diesel fuel collars		4			3.12		4			2.35
Aircraft fuel swaps		1			2.90		1			2.90
WTI crude oil call options		1			2.37		N/A			N/A
WTI crude oil swaps		1			2.25		1			2.25

Total		31	%				23	%

(a)	Represents a hedge of approximately 47% of UAL's expected first quarter consumption with decreasing hedge coverage later throughout 2012.