The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global fuel prices and foreign currencies.

The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into derivative financial instruments. During the three and nine months ended September 30, 2020, the Company's portfolio comprised of crude oil call options, which were not designated as hedges under ASC Topic 815, Derivatives and Hedging (ASC 815), for hedge accounting treatment. As a result, any changes in fair value of these derivative instruments are adjusted through other nonoperating income (expense) in the period of change.

The following table reflects the amount of realized and unrealized gains and losses recorded as nonoperating income (expense) in the Company's unaudited Consolidated Statements of Operations.


	Three months ended September 30,				Nine months ended September 30,
Fuel derivative contracts	2020		2019		2020		2019
	(in thousands)
Losses realized at settlement	$	(2,062)	$	(3,399)	$	(7,899)	$	(9,294)
Reversal of prior period unrealized amounts	3,287		4,936		2,488		8,181
Unrealized losses that will settle in future periods	(1,522)		(6,090)		(1,522)		(6,090)
Losses on fuel derivatives recorded as Nonoperating Expense	$	(297)	$	(4,553)	$	(6,933)	$	(7,203)

The Company is subject to foreign currency exchange rate risk due to revenues and expenses that are denominated in foreign currencies, with the primary exposures being to the Japanese Yen and the Australian Dollar. To manage exchange rate risk, the Company executes its international revenue and expense transactions in the same foreign currency to the extent practicable.

The Company enters into foreign currency forward contracts to further manage the effects of fluctuating exchange rates. The gain or loss is reported as a component of accumulated other comprehensive income (AOCI) and reclassified into earnings in the same period in which the related sales are recognized as passenger revenue. Foreign currency forward contracts that are not designated as cash flow hedges are recorded at fair value, and therefore any changes in fair value are recognized as other nonoperating income (expense) in the period of change.

During the three and nine months ended September 30, 2020, the Company de-designated certain hedged transactions with maturity dates through February 2022 as the Company concluded that the cash flows attributable to the hedged risk were no longer probable of occurring. As a result, the Company reclassified approximately $0.5 million and $3.9 million from AOCI to nonoperating income in the period during the three and nine months ended September 30, 2020, respectively. Future gains and losses related to these instruments will continue to be recorded in nonoperating expense. As of September 30, 2020, the Company did not have any remaining derivative instruments designated for hedge accounting.

The following tables present the gross fair value of asset and liability derivatives that are designated as hedging instruments under ASC 815 and derivatives that are not designated as hedging instruments under ASC 815, as well as the net derivative positions and location of the asset and liability balances within the Company's unaudited Consolidated Balance Sheets.

Balance Sheet
Location

Notional Amount

Final
Maturity
Date

Gross fair
value of
assets

Gross fair
value of
(liabilities)

Net
derivative
position

(in thousands)

Derivatives not designated as hedges

Foreign currency derivatives

Other accrued liabilities

4,068,800 Japanese Yen
7,553 Australian Dollars

August 2021

235

(625)

(390)

Other liabilities and deferred credits

1,430,750 Japanese Yen

February 2022

(87)

(57)

Fuel derivative contracts

Prepaid expenses and other

27,972 gallons

March 2021

—

Balance Sheet
Location

Notional Amount

Final
Maturity
Date

Gross fair
value of
assets

Gross fair
value of
(liabilities)

Net
derivative
position

(in thousands)

Derivatives designated as hedges

Foreign currency derivatives

Prepaid expenses and other

19,270,650 Japanese Yen
44,468 Australian Dollars

December 2020

3,787

(358)

3,429

Long-term prepayments and other

5,487,250 Japanese Yen
8,429 Australian Dollars

December 2021

618

(193)

425

Derivatives not designated as hedges

Foreign currency derivatives

Other accrued liabilities

694,050 Japanese Yen
2,438 Australian Dollars

March 2020

(42)

(23)

Fuel derivative contracts

Prepaid expenses and other

97,986 gallons

December 2020

5,878

—

5,878

The following table reflects the impact of cash flow hedges designated for hedge accounting treatment and their location within the Company's unaudited Consolidated Statements of Comprehensive Income.


	(Gain) loss recognized in AOCI on derivatives				(Gain) loss reclassified from AOCI into income
	Three months ended September 30,				Three months ended September 30,
	2020		2019		2020		2019
	(in thousands)
Foreign currency derivatives	$	1,262	$	(3,881)	$	418	$	(1,095)


	(Gain) loss recognized in AOCI on derivatives				(Gain) loss reclassified from AOCI into income
	Nine months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(in thousands)
Foreign currency derivatives	$	3,131	$	(3,904)	$	(7,020)	$	(4,431)

Financial derivative instruments expose the Company to possible credit loss in the event the counterparties fail to meet their obligations. To manage such credit risks, the Company (1) selects its counterparties based on past experience and credit ratings, (2) limits its exposure to any single counterparty, and (3) regularly assesses the market position and credit rating of each counterparty. Credit risk is deemed to have a minimal impact on the fair value of the derivative instruments, as cash collateral would be provided by the counterparties based on the current market exposure of the derivative.

ASC 815 requires a reporting entity to elect a policy of whether to offset rights to reclaim cash collateral or obligations to return cash collateral against derivative assets and liabilities executed with the same counterparty under a master netting agreement or present such amounts on a gross basis. The Company’s accounting policy is to present its derivative assets and liabilities on a net basis, including any collateral posted with the counterparty. The Company had no collateral posted with counterparties as of September 30, 2020 and December 31, 2019.

The Company is also subject to market risk in the event that these financial instruments become less valuable in the market. However, changes in the fair value of the derivative instruments will generally offset the change in the fair value of the hedged item, limiting the Company’s overall exposure.