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Table of Contents
Index to Financial Statements
Recently Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board issued SFAS 141R. SFAS 141R provides guidance for recognizing and measuring
goodwill acquired in a business combination and requires disclosure of information to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R is effective for fiscal years beginning on January 1, 2009. For additional information regarding
SFAS 141R, see Note 9 of the Notes to the Consolidated Financial Statements.
Market Risks Associated with Financial Instruments
We have significant market risk exposure related to aircraft fuel prices and interest rates. Market risk is the potential negative impact of adverse changes
in these prices or rates on our Consolidated Financial Statements. To manage the volatility relating to these exposures, we periodically enter into derivative
transactions pursuant to stated policies (see Note 4 of the Notes to the Consolidated Financial Statements). We expect adjustments to the fair value of financial
instruments accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" to result in ongoing volatility in earnings
and shareowners' equity.
The following sensitivity analyses do not consider the effects of a change in demand for air travel, the economy as a whole or actions we may take to
seek to mitigate our exposure to a particular risk. For these and other reasons, the actual results of changes in these prices or rates may differ materially from
the following hypothetical results.
Aircraft Fuel Price Risk
Our results of operations may be materially impacted by changes in the price of aircraft fuel. We periodically use derivative instruments designated as
cash flow hedges, which are comprised of crude oil, heating oil and jet fuel swap, collar and call option contracts, in an effort to manage our exposure to
changes in aircraft fuel prices.
For 2007, aircraft fuel and related taxes accounted for 26% of our total operating expenses. Aircraft fuel and related taxes for 2007 increased 6%
compared to 2006 primarily due to higher average fuel prices. Fuel prices averaged $2.21 per gallon, including fuel hedge gains of $51 million, for 2007
compared to $2.10 per gallon, including fuel hedge losses of $108 million, for 2006.
As of January 31, 2008, we have hedged a portion of our projected fuel requirements, including those of our contract carriers under capacity purchase
agreements, for the three years ending December 31, 2010, using crude oil and heating oil call option and swap contracts as follows:
(in millions, unless otherwise stated)
Weighted
Average
Contract
Strike Price
per Gallon
Percentage of
Projected Fuel
Requirements
Hedged
Contract Fair
Value at
January 31,
2008(1)
Contract Fair
Value Based
Upon 10% Rise
in Futures
Prices(1)(2)
Increase in
Aircraft Fuel
Expense Due to
10% Rise in Jet
Fuel Price(3)
2008
Heating oil
Call options $ 2.43 22% $ 91 $ 157 $ 529
Swaps $ 2.44 2 2 15 47
Total 24% $ 93 $ 172 $ 576
2009
Crude oil
Call options $ 2.05 9% $ 61 $ 70 $ 723
Total 9% $ 61 $ 70 $ 723
46