Financial Instruments And Risk Management

9 Months Ended

Sep. 30, 2011

Financial Instruments And Risk Managements [Abstract]

Financial Instruments And Risk Management

6. Financial Instruments and Risk Management

As part of the Company's risk management program, the Company from time to time uses a variety of financial instruments, primarily costless collar contracts, to reduce its exposure to fluctuations in the price of jet fuel. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company is exposed to credit losses in the event of nonperformance by counterparties to these financial instruments. The Company periodically reviews and seeks to mitigate exposure to the counterparty's financial deterioration and nonperformance by monitoring the absolute exposure levels, the counterparty's credit rating, and the counterparty's historical performance relating to hedge transactions. The credit exposure related to these financial instruments is limited to the fair value of contracts in a net receivable position at the reporting date. The Company also maintains security agreements that require the Company to post collateral if the value of selected instruments falls below specified mark-to-market thresholds.

The Company records financial derivative instruments at fair value, which includes an evaluation of the counterparty's credit risk. Fair value of the instruments is determined using standard option valuation models. Management chose not to elect hedge accounting on any of the derivative instruments purchased in 2010 and during the nine-month period ended September 30, 2011 and, as a result, changes in the fair value of these fuel hedge contracts are recorded each period in aircraft fuel expense.

The following table summarizes the components of aircraft fuel expense for the three and nine months ended September 30, 2011 and 2010 (in millions):

	Three months  ended September 30,					Nine months ended September 30,
	2011		2010			2011			2010
Into-plane fuel cost	$	103.7	$	65.7		$	296.3		$	179.2
Changes in value and settlements of fuel hedge contracts		1.3		(2.1	)		(3.1	)		(1.0	)
Aircraft fuel expense	$	105.0	$	63.6		$	293.2		$	178.2

During the three months ended September 30, 2011, $1.3 million of net fuel derivative losses were recognized consisting of realized gains of $0.2 million offset by unrealized losses of $1.5 million. During the three months ended September 30, 2010, $2.1 million of net fuel derivative gains were recognized consisting of realized losses of $0.4 million offset by unrealized gains of $2.5 million. During the nine months ended September 30, 2011, $3.1 million of net fuel derivative gains were recognized consisting of realized gains of $7.5 million offset by unrealized losses of $4.4 million. During the nine months ended September 30, 2010, $1.0 million of net fuel derivative gains were recognized consisting of realized gains of $0.1 million and unrealized gains of $0.9 million.

As of September 30, 2011, the Company had fuel hedges using US Gulf Coast jet fuel collars in place for approximately 38 and 18 percent of our estimated fuel consumption for the fourth quarter 2011 and first quarter 2012, respectively. Additionally, during hurricane season (August through October), the Company uses basis swaps using NYMEX Heating Oil indexes, to protect the refining price risk between the price of crude oil and the price of refined jet fuel. As of September 30, 2011 the Company had approximately 23 percent of our fourth quarter forecasted fuel requirements protected using these basis swaps.