DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

NOTE 4. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

Fuel Hedge Contracts

The Company’s operations are dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company has historically entered into call options for crude oil. As of December 31, 2023, the Company had outstanding fuel hedge contracts covering approximately 324 million gallons of crude oil that will be settled between January 2024 and March 2025. The hedge program was suspended in the fourth quarter of 2023.

Interest Rate Swap Agreements

The Company is exposed to market risk from adverse changes in variable interest rates on long-term debt. To manage this risk, the Company periodically enters into interest rate swap agreements. As of December 31, 2023, the Company had interest rate swap agreements with third parties designed to hedge the volatility of the underlying variable interest rates on $253 million of debt. All of the interest rate swap agreements stipulate that the Company pay a fixed interest rate and receive a floating interest rate over the term of the underlying contracts. All significant terms of the swap agreements match the terms of the underlying hedged items and have been designated as qualifying hedging instruments, which are accounted for as cash flow hedges.

As qualifying cash flow hedges, the interest rate swaps are recognized at fair value on the balance sheet, and changes in the fair value are recognized in accumulated other comprehensive loss. The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is recognized in interest expense, if material.

Fair Values of Derivative Instruments

Fair values of derivative instruments on the consolidated balance sheet (in millions):


	2023		2022
Fuel hedge contracts (not designated as hedges)
Other current assets	$	10	$	33
Other assets	1		11
Interest rate swaps (designated as hedges)
Other current assets	6		8
Other noncurrent assets	2		7


(Losses)/gains in accumulated other comprehensive loss (AOCL)	(7)		23

The net cash paid for fuel hedge positions was $29 million during 2023, compared to net cash received of $130 million during 2022 and net cash received of $38 million during 2021.

Pretax effect of derivative instruments on earnings and AOCL (in millions):


	2023		2022		2021
Fuel hedge contracts (not designated as hedges)
(Losses)/gains recognized in Aircraft fuel	$	(62)	$	93	$	104
Interest rate swaps (designated as hedges)

(Losses)/gains recognized in other comprehensive income (OCI)	(7)		23		17

Gains related to interest rate swaps on variable rate debt of $8 million were recognized in interest expense during 2023. The amounts shown as recognized in OCI are prior to the losses recognized in aircraft rent during the period. The Company expects to reclassify from OCI $6 million in interest income within the next twelve months.