Spirit Airlines 2011 Annual Report Download - page 70

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southeast United States, particularly facilities adjacent to the Gulf of Mexico. Gulf Coast fuel is subject to volatility and supply disruptions,
particularly during hurricane season when refinery shutdowns have occurred, or when the threat of weather related disruptions has caused Gulf
Coast fuel prices to spike above other regional sources. During hurricane season (August through October), we use basis swaps using NYMEX
Heating Oil indexes to protect the refining price risk between the price of crude oil and the price of refined jet fuel. In addition to other fuel
derivative contracts, we have historically protected approximately 45% of our forecasted fuel requirements during hurricane season using basis
swaps. Gulf Coast Jet indexed fuel is the basis for a substantial majority of our fuel consumption. Based on our annual fuel consumption, a 10%
increase in the average price per gallon of aircraft fuel would have increased into-plane aircraft fuel cost for 2011 by approximately $ 39.2
million . To attempt to manage fuel price risk, from time to time we use jet fuel option contracts or swap agreements and basis swaps to mitigate
a portion of the crack spread between crude and jet fuel. As of December 31, 2011, we had fuel hedges using U.S. Gulf Coast jet fuel collars in
place for approximately 9% of our estimated fuel consumption for the first quarter of 2012.
The fair value of our fuel derivative contracts as of December 31, 2011 and 2010 was $0.3 million and $3.5 million net asset (liability),
respectively. We measure our financial derivative instruments at fair value. Fair value of the instruments is determined using standard option
valuation models. We measure the fair value of the derivative instruments based on either quoted market prices or values provided by the
counterparty. Changes in the related commodity derivative instrument cash flows may change by more or less than this amount based upon
further fluctuations in futures prices. Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the
counterparties to the agreements. However, we do not expect the counterparties to fail to meet their obligations. As of December 31, 2011, we
believe the credit exposure related to these fuel forward contracts was negligible.
Interest Rates . We have market risk associated with changing interest rates due to LIBOR-based lease rates on five of our aircraft. A
hypothetical 10% change in interest rates in 2011 would affect total aircraft rent expense in 2012 by less than $0.1 million.
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