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 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 financial deterioration and nonperformance of any counterparty by monitoring the absolute exposure levels, the counterparty credit ratings, and the historical performance of the counterparties 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 credit risk. Fair value of the instruments is determined using standard option valuation models.

The Company chose not to elect hedge accounting on any derivative instruments during the nine months ended September 30, 2012 and 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, 2012 and 2011:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in millions)
Into-plane fuel cost	$	123.5		$	103.7		$	351.1		$	296.3
Realized losses (gains)	(0.6		)	(0.2		)	(0.5		)	(7.5		)
Unrealized losses (gains)	(0.9		)	1.5			0.4			4.4
Aircraft fuel expense	$	122.0		$	105.0		$	351.0		$	293.2

Changes in the fair value of such derivative contracts were recorded within aircraft fuel expense in the accompanying statements of operations. These amounts include both realized gains and losses and mark-to-market adjustments of the fair value of unsettled derivative instruments at the end of each period.

As of September 30, 2012 and December 31, 2011, the Company had fuel hedges using NYMEX WTI and U.S. Gulf Coast jet fuel collars, respectively, as the underlying commodity. As of September 30, 2012, the Company had agreements in place to protect 90 thousand barrels or approximately 10% of its estimated fuel consumption for the fourth quarter of 2012 at a weighted-average ceiling and floor price of $94.00 and $87.35 per barrel, respectively. As of December 31, 2011, the Company had agreements in place to protect 13.5 million gallons or approximately 9% of its estimated fuel consumption for the twelve months ending December 31, 2012 at a weighted-average ceiling and floor price of $2.99 and $2.81 per gallon respectively. Additionally, during peak hurricane season (August through October), the Company enters into basis swap agreements 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, 2012, the Company had approximately 24% of its forecast fourth quarter 2012 fuel consumption protected from refining risk using these basis swaps.