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DERIVATIVE INSTRUMENTS
 12 Months Ended
Dec. 31, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS
DERIVATIVE INSTRUMENTS

Fuel Hedge Contracts

The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into call options for crude oil and swap agreements for jet fuel refining margins. 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, and the counterparty’s credit rating. 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.

In the fourth quarter, in an effort to reduce the premium expense of hedge contracts in 2012, the Company sold a portion of its existing crude oil contracts with maturities in 2012, and purchased new positions with a higher strike price for the same period. This reduced the premiums associated with the 2012 positions, and increased the average strike price of the 2012 portfolio from $92 per barrel to $100 per barrel. There was no net impact to the income statement during the period due to the contracts being marked-to-market each period.

As of December 31, 2011, the Company had fuel hedge contracts outstanding covering 421.1 million gallons of crude oil that will be settled from January 2012 to December 2014. Refer to the contractual obligations and commitments section of Item 7 for further information.

Interest Rate Swap Agreements

The Company has interest rate swap agreements with a third party designed to hedge the volatility of the underlying variable interest rate in the Company's aircraft lease agreements for six Boeing 737-800 aircraft. The agreements stipulate that the Company pay a fixed interest rate over the term of the contract and receive a floating interest rate. All significant terms of the swap agreement match the terms of the lease agreements, including interest-rate index, rate reset dates, termination dates and underlying notional values. The agreements expire from February 2020 through March 2021 to coincide with the lease termination dates.

Fair Values of Derivative Instruments

Fair values of derivative instruments on the consolidated balance sheet as of December 31 (in millions):
 
2011
 
2010
Derivative Instruments Not Designated as Hedges
 
 
 
Fuel hedge contracts
 
 
 
Fuel hedge contracts, current assets
$
46.7

 
$
61.4

Fuel hedge contracts, noncurrent assets
70.2

 
69.9

Fuel hedge contracts, current liabilities
(10.3
)
 
$
—

 
 
 
 
Derivative Instruments Designated as Hedges
 
 
 
Interest rate swaps
 
 
 
Other accrued liabilities
(5.2
)
 
(6.0
)
Other liabilities
(23.6
)
 
(2.8
)
Gains (losses) in AOCL
20.0

 
(11.2
)


The net cash received (paid) for new positions and settlements was $15.9 million, $(16.3) million, and $(60.5) million during 2011, 2010, and 2009, respectively.

The Company expects that $5.2 million to be reclassified from AOCL into earnings within the next twelve months.

Pretax effect of derivative instruments on earnings (fuel hedges) and AOCL (interest rate swaps) at December 31 (in millions):
 
2011
 
2010
 
2009
Derivative Instruments Not Designated as Hedges
 
 
 
 
 
Fuel hedge contracts
 
 
 
 
 
Gains (losses) recognized in aircraft fuel expense
$
(8.7
)
 
$
(2.0
)
 
$
28.1

 
 
 
 
 
 
Derivative Instruments Designated as Hedges
 
 
 
 
 
Interest rate swaps
 
 
 
 
 
Gains (losses) recognized in aircraft rent
(6.2
)
 
(6.1
)
 
(1.6
)

The amounts shown as recognized in earnings for cash flow hedges represent the realized gains/(losses) transferred out of AOCL to earnings during the year. The amounts shown as recognized in AOCL are prior to these transfers of realized gains/(losses) to earnings.