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. As of June 30, 2013, the Company had $0.8 million posted as collateral for these instruments, presented as a reduction of other current liabilities on the accompanying balance sheet.

The Company records financial derivative instruments at fair value, which includes an evaluation of each counterparty's 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 entered into during the three and six months ended June 30, 2013 and 2012 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 six months ended June 30, 2013 and 2012:



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013			2012
	(in thousands)
Into-plane fuel cost	$	129,375	$	116,622	$	258,088		$	227,539
Settlement losses (gains)	113		2,488		(315		)	37
Unrealized mark-to-market losses (gains)	5,763		1,123		9,144			1,382
Aircraft fuel	$	135,251	$	120,233	$	266,917		$	228,958

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

As of June 30, 2013 and December 31, 2012, the Company had fuel hedges using jet fuel swaps and collars using crude oil and refined products as the underlying commodities. As of June 30, 2013, the Company had agreements in place to protect the refining price risk between the price of crude oil and the price of refined jet fuel for approximately 71% of its anticipated refined fuel consumption during peak hurricane season (August through October) and agreements to protect an additional 17% of the anticipated jet fuel consumption for the third quarter of 2013. As of June 30, 2013, the Company had agreements in place to protect 7.7 million gallons or approximately 8.7% of its anticipated jet fuel consumption for the remainder of 2013 at a weighted-average ceiling and floor price of $2.95 and $2.68 per gallon, respectively. As of December 31, 2012, the Company had agreements in place to protect 7.8 million gallons or approximately 4.6% of its 2013 anticipated jet fuel consumption at a weighted-average ceiling and floor price of $3.09 and $2.84 per gallon, respectively.