Delta Airlines 2015 Annual Report Download - page 54

TableofContents
ITEM7A.QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK
Wehavemarketriskexposurerelatedtoaircraftfuelprices,interestratesandforeigncurrencyexchangerates.Marketriskisthepotentialnegativeimpactof
adversechangesinthesepricesorratesonourConsolidatedFinancialStatements.Inanefforttomanageourexposuretotheserisks,weenterintoderivative
contractsandmayadjustourderivativeportfolioasmarketconditionschange.Weexpectadjustmentstothefairvalueoffinancialinstrumentstoresultinongoing
volatilityinearningsandstockholders'equity.
Thefollowingsensitivityanalysisdoes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
Changesinaircraftfuelpricesmateriallyimpactourresultsofoperations.Weactivelymanageourfuelpriceriskthroughahedgingprogramintendedtoreduce
thefinancialimpactfromchangesinthepriceofjetfuel.Weutilizedifferentcontractandcommoditytypesinthisprogramandfrequentlytesttheireconomic
effectivenessagainstourfinancialtargets.Wecloselymonitorthehedgeportfolioandrebalancetheportfoliobasedonmarketconditions,whichmayresultin
lockingingainsorlossesonhedgecontractspriortotheirsettlementdates.
Ourfuelhedgeportfolioconsistsofoptions,swapsandfutures.Thehedgecontractsincludecrudeoil,dieselfuelandjetfuel,asthesecommoditiesarehighly
correlatedwiththepriceofjetfuelthatweconsume.Ourfuelhedgecontractscontainmarginfundingrequirements.Themarginfundingrequirementsmaycause
ustopostmargintocounterpartiesormaycausecounterpartiestopostmargintousasmarketpricesintheunderlyinghedgeditemschange.Iffuelpriceschange
significantlyfromthelevelsexistingatthetimeweenterintofuelhedgecontracts,wemayberequiredtopostasignificantamountofmargin.Wemayadjustour
hedgeportfoliofromtimetotimeinresponsetomarginpostingrequirements.
FortheyearendedDecember31,2015,aircraftfuelandrelatedtaxes,includingourregionalcarriers,accountedfor$7.6billion,or23.0%,ofourtotal
operatingexpense.Werecognized$741millionoffuelhedgelossesduringtheyearendedDecember31,2015,duetounfavorableMTMadjustments.
DuringtheDecember2015quarter,weenteredintohedgesdesignedtooffsetandeffectivelyterminateourexistinghedgepositionsfortheMarch2016
quarter.InJanuary2016,wecontinuedthisprocessforsubstantiallyallofourpositionswithcontractsettlementdatesthroughDecember31,2016.Asaresult,we
havebothneutralizedourhedgeportfolioandlockedincashpaymentsofapproximately$725millionin2016.
Thefollowingtableshowstheprojectedcashimpacttofuelcostassuming20%and40%increasesordecreasesinfuelpricesfortheperiodfromFebruary1,
2016toDecember31,2016.Asaresultofeffectivelyterminatingourhedgepositionsasdiscussedabove,theimpactofourhedgeportfolioduetochangesinfuel
pricesduring2016isnotsignificant.
(inmillions,exceptforpercentages) (Increase)Decrease(1)
+40% $ (1,630)
+20% (820)
-20% 820
-40% 1,630
(1) Projectionsbaseduponthe(increase)decreasetounhedgedfuelcostascomparedtothejetfuelpricepergallonof$1.01,excludingtransportationcostsandtaxes,atJanuary31,2016and
estimatedfuelconsumptionof3.7billiongallonsfortheperiodfromFebruary1,2016toDecember31,2016.
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