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 March 31, 2014, the Company held none of these instruments and, therefore, was not required to post collateral.

The Company records financial derivative instruments at fair value, which includes an evaluation of each counterparty's credit risk. The Company's derivative contracts generally consist of United States Gulf Coast jet fuel swaps (jet fuel swaps) and United States Gulf Coast jet fuel options (jet fuel options). Both jet fuel swaps and jet fuel options are used at times to protect the refining price risk between the price of crude oil and the price of refined jet fuel, and to manage the risk of increasing fuel prices. Fair value of the instruments is determined using standard option valuation models.

For the three months ended March 31, 2014, the Company did not enter into any fuel derivative contracts. The Company did not elect hedge accounting on any derivative instruments entered into during the three months ended March 31, 2013 and, as a result, changes in the fair value of these fuel hedge contracts are recorded in aircraft fuel expense.

The following table summarizes the components of aircraft fuel expense for the three months ended March 31, 2014 and 2013:



	Three Months Ended March 31,
	2014		2013
	(in thousands)
Into-plane fuel cost	$	148,471	$	128,713
Settlement losses (gains)	—		(428		)
Unrealized mark-to-market losses (gains)	—		3,381
Aircraft fuel	$	148,471	$	131,666

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

Historically, during peak hurricane season (August through October), the Company has entered into jet fuel swap agreements to protect the refining price risk between the price of crude oil and the price of refined jet fuel. As of March 31, 2014 and December 31, 2013, the Company had no outstanding fuel derivative contracts.