HEDGING ACTIVITIES

6 Months Ended

Jun. 30, 2012

HEDGING ACTIVITIES

NOTE 7—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 speculative, non-risk management 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).

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, 2012, our projected fuel requirements for the remainder of 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		20	%	$	3.41		20	%	$	2.74
Brent crude oil collars		13			2.74		13			1.93
Diesel fuel collars		9			3.18		9			2.40
Diesel fuel call options		1			3.17		N/A			N/A
Aircraft fuel collars		1			3.00		1			2.35
Aircraft fuel swaps		1			2.72		1			2.72
Total		45	%				44	%

(a) As of June 30, 2012, UAL had also hedged 15% of projected first half 2013 fuel consumption.

The following tables present information about the financial statement classification of the Company’s derivatives and related gains (losses) (in millions):

		June 30, 2012						December 31, 2011
Derivatives designated as hedges	Balance Sheet Location	UAL		United		Continental		UAL		United		Continental
Assets:
Fuel contracts due within one year	Receivables	$	3	$	2	$	1	$	77	$	48	$	29
Liabilities:
Fuel contracts due within one year	Other Current Liabilities	$	104	$	56	$	48	$	4	$	4	$	—

	Amount of Loss  Recognized in AOCI on Derivatives (Effective portion)						Gain (Loss) Reclassified from AOCI into Income (Fuel Expense)					Amount of Loss Recognized in Income (Ineffective Portion)
	Three Months Ended June 30,						Three Months Ended June 30,					Three Months Ended June 30,
Fuel contracts	2012			2011			2012			2011		2012			2011
UAL	$	(262	)	$	(231	)	$	(38	)	$	278	$	(29	)	$	(34	)
United		(148	)		(149	)		(17	)		213		(16	)		(7	)
Continental		(114	)		(82	)		(21	)		65		(13	)		(27	)

	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)					Gain (Loss) Reclassified from AOCI into Income (Fuel Expense)					Amount of Loss Recognized in Income (Ineffective Portion)
	Six Months Ended June 30,					Six Months Ended June 30,					Six Months Ended June 30,
Fuel contracts	2012			2011		2012			2011		2012			2011
UAL	$	(169	)	$	293	$	(69	)	$	432	$	(4	)	$	(31	)
United		(90	)		236		(32	)		338		(2	)		(5	)
Continental		(79	)		57		(37	)		94		(2	)		(26	)

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, 2012 (in millions):

	UAL		United		Continental
Net derivative liability with counterparties	$	101	$	54	$	47
Collateral posted by the Company with its counterparties (a)		61		27		34
Potential loss related to the failure of the Company’s counterparties to perform		—		—		—

(a) Classified as a current receivable.