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, each counterparty's 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 each 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 derivative instruments entered into during 2012, 2011, and 2010 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 years ended December 31, 2012, 2011 and 2010:



	Year Ended December 31,
	2012		2011			2010
	(in thousands)
Into-plane fuel cost	$	471,542	$	392,278		$	251,754
Settlement losses (gains)	175		(7,436		)	(1,483		)
Unrealized mark-to-market losses (gains)	46		3,204			(2,065		)
Aircraft fuel	$	471,763	$	388,046		$	248,206

All realized gains and losses are reflected in the statements of cash flows in cash flow from operating activities.

As of December 31, 2012 and 2011, the Company had fuel hedges using U.S. Gulf Coast jet fuel collars as the underlying commodity. As of December 31, 2012, the Company had agreements in place to protect 7.8 million gallons or approximately 5% of its 2013 anticipated fuel consumption at a weighted-average ceiling and floor price of $3.09 and $2.84 per gallon, respectively. As of December 31, 2011, the Company had agreements in place to protect 13.5 million gallons or approximately 9% of its 2012 anticipated fuel consumption at a weighted-average ceiling and floor price of $2.99 and $2.81 per gallon, respectively.