US Airways 2006 Annual Report Download - page 77

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economy nor do they consider additional actions we may take to mitigate its exposure to these changes. Actual results of changes in
prices or rates may differ materially from the following hypothetical results.
Commodity Price Risk
Prices and availability of all petroleum products are subject to political, economic and market factors that are generally outside of
our control. Accordingly, the price and availability of aviation fuel, as well as other petroleum products, can be unpredictable. Prices may
be affected by many factors, including:
• the impact of global political instability on crude production;
• unexpected changes to the availability of petroleum products due to disruptions in distribution systems or refineries as evidenced
in the third quarter of 2005 when Hurricane Katrina and Hurricane Rita caused widespread disruption to oil production, refinery
operations and pipeline capacity along certain portions of the U.S. Gulf Coast. As a result of these disruptions, the price of jet
fuel increased significantly and the availability of jet fuel supplies was diminished;
• unpredicted increases to oil demand due to weather or the pace of economic growth;
• inventory levels of crude, refined products and natural gas; and
• other factors, such as the relative fluctuation between the U.S. dollar and other major currencies and influence of speculative
positions on the futures exchanges.
Because our operations are dependent upon aviation fuel, significant increases in aviation fuel costs materially and adversely affect
our liquidity, results of operations and financial condition. Our forecasted fuel consumption is approximately 1.59 billion gallons per year
and a one cent per gallon increase in fuel price results in a $16 million annual increase in expense, excluding the impact of hedge
transactions.
As of December 31, 2006, we had entered into hedging transactions using costless collars, which establish an upper and lower limit
on heating oil futures prices. These transactions are in place with respect to approximately 29% of our 2007 fuel requirements.
The use of such hedging transactions in our fuel hedging program could result in us not fully benefiting from certain declines in
heating oil futures prices below the put option price of the costless collar. Further, these instruments do not provide protection from the
increases unless heating oil prices exceed the call option price of the costless collar. Although heating oil prices are generally highly
correlated with those of jet fuel, the prices of jet fuel may change more or less then heating oil, resulting in a change in fuel expense that
is not perfectly offset by the hedge transactions. We estimate that a 10% increase in price levels of heating oil on December 31, 2006
would increase the fair value of the costless collar hedge transactions by approximately $47 million. We estimate that a 10% decrease in
heating oil futures prices would decrease the fair value of the costless collar transactions by approximately $69 million.
As of February 15, 2007, approximately 35% of our 2007 projected fuel requirements are hedged.
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