Financial Instruments And Risk Management

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments And Risk Management

 Financial Instruments and Risk Management

As part of the Company’s risk management program, it uses a variety of financial instruments, primarily heating oil, jet fuel, and Brent crude collars (consisting of a purchased call option and a sold put option) and call spreads (consisting of a purchased call option and a sold call option), as cash flow hedges to mitigate commodity price risk. The Company does not hold or issue derivative financial instruments for trading purposes. As of June 30, 2013, the Company had fuel derivative contracts outstanding covering 22 million barrels of jet fuel that will be settled over the next 18 months. A deterioration of the Company’s liquidity position and its Chapter 11 filing may negatively affect the Company’s ability to hedge fuel in the future.

For the three and six months ended June 30, 2013, the Company recognized an increase of approximately $31 million and $23 million, respectively, in fuel expense on the accompanying consolidated statements of operations related to its fuel hedging agreements, including the ineffective portion of the hedges. For the three and six months ended June 30, 2012, the Company recognized an increase of approximately $9 million and a decrease of approximately $20 million, respectively, in fuel expense on the accompanying consolidated statements of operations related to its fuel hedging agreements, including the ineffective portion of the hedges.The net fair value of the Company’s fuel hedging agreements at June 30, 2013 and December 31, 2012, representing the amount the Company would receive upon termination of the agreements (net of settled contract assets), totaled $5 million and $62 million, respectively. As of June 30, 2013, the Company estimates that during the next twelve months it will reclassify from Accumulated other comprehensive loss into earnings approximately $36 million in net losses.

The impact of cash flow hedges on the Company’s Condensed Consolidated Financial Statements is depicted below (in millions):

Fair Value of Aircraft Fuel Derivative Instruments (all cash flow hedges)

Asset Derivatives as of						Liability Derivatives as of
June 30, 2013			December 31, 2012			June 30, 2013			December 31, 2012
Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Fuel derivative contracts	$	21	Fuel derivative contracts	$	65	Accrued liabilities	$	16	Accrued liabilities	$	—

Effect of Aircraft Fuel Derivative Instruments on Statements of Operations (all cash flow hedges)

Amount of Gain (Loss) Recognized in OCI on Derivative 1 as of June 30						Location of Gain (Loss) Reclassified from Accumulated OCI into Income 1	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income 1 for the six months ended June 30,						Location of Gain (Loss) Recognized in Income on Derivative 2	Amount of Gain (Loss) Recognized in Income on Derivative 2 for the six months ended June 30,
2013			2012				2013			2012				2013			2012
$	(70	)	$	(56	)	Aircraft Fuel	$	(12	)	$	25		Aircraft Fuel	$	(11	)	$	(5	)
Amount of Gain (Loss) Recognized in OCI on Derivative 1 for the quarter ended June 30,						Location of Gain (Loss) Reclassified from Accumulated OCI into Income 1	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income 1 for the quarter ended June 30,						Location of Gain (Loss) Recognized in Income on Derivative 2	Amount of Gain (Loss) Recognized in Income on Derivative 2 for the quarter ended June 30,
2013			2012				2013			2012				2013			2012
$	(56	)	$	(104	)	Aircraft Fuel	$	(13	)	$	(1	)	Aircraft Fuel	$	(18	)	$	(8	)

^1.  Effective portion of gain (loss)

^2.  Ineffective portion of gain (loss)

The Company is party to certain interest rate swap agreements that are accounted for as cash flow hedges. Ineffectiveness for these instruments is required to be measured at each reporting period.  The ineffectiveness and fair value associated with all of the Company's interest rate cash flow hedges for all periods presented was not material.

While certain of the Company's fuel derivatives are subject to enforceable master netting agreements with its counterparties, the Company does not offset its fuel derivative assets and liabilities in its Condensed Consolidated Balance Sheets. Certain of these agreements would also allow for the offsetting of fuel derivatives with interest rate derivatives. The impact of offsetting derivative instruments is depicted below (in millions):

As of June 30, 2013:

							Gross asset (liability) not offset in Balance Sheet
	Gross asset (liability)		Gross asset (liability) offset in Balance Sheet		Net recognized asset (liability) in Balance Sheet		Financial Instruments		Cash Collateral Received (Posted)		Net Amount
Fuel derivatives	$	21	$	16	$	5	$	—	$	—	$	5

As of December 31, 2012:

							Gross asset (liability) not offset in Balance Sheet
	Gross asset (liability)		Gross asset (liability) offset in Balance Sheet		Net recognized asset (liability) in Balance Sheet		Financial Instruments		Cash Collateral Received (Posted)		Net Amount
Fuel derivatives	$	65	$	—	$	65	$	—	$	—	$	65

As of June 30, 2013, the Company had posted cash collateral of an immaterial amount.

The Company is also exposed to credit losses in the event of non-performance by counterparties to these financial instruments, and although no assurances can be given, the Company does not expect any of the counterparties to fail to meet its obligations. The credit exposure related to these financial instruments is represented by the fair value of contracts with a positive fair value at the reporting date, reduced by the effects of master netting agreements. To manage credit risks, the Company selects counterparties based on credit ratings, limits its exposure to a single counterparty under defined guidelines, and monitors the market position of the program and its relative market position with each counterparty. The Company also maintains industry-standard security agreements with a number of its counterparties which may require the Company or the counterparty to post collateral if the value of selected instruments exceed specified mark-to-market thresholds or upon certain changes in credit ratings.