United Airlines 2011 Annual Report Download - page 65

Table of Contents
arrangements; the costs and availability of financing; its ability to maintain adequate liquidity; its ability to execute its operational plans; its ability to control
its costs, including realizing benefits from its resource optimization efforts, cost reduction initiatives and fleet replacement programs; its ability to utilize its net
operating losses; its ability to attract and retain customers; demand for transportation in the markets in which it operates; an outbreak of a disease that affects
travel demand or travel behavior; demand for travel and the impact that global economic conditions have on customer travel patterns; excessive taxation and
the inability to offset future taxable income; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market
conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); its ability to cost-effectively hedge against increases in the
price of aircraft fuel; any potential realized or unrealized gains or losses related to fuel or currency hedging programs; the effects of any hostilities, act of war
or terrorist attack; the ability of other air carriers with whom the Company has alliances or partnerships to provide the services contemplated by the respective
arrangements with such carriers; the costs and availability of aviation and other insurance; the costs associated with security measures and practices;
industry consolidation or changes in airline alliances; competitive pressures on pricing and demand; its capacity decisions and the capacity decisions of its
competitors; U.S. or foreign governmental legislation, regulation and other actions (including open skies agreements and environmental regulations); labor
costs; its ability to maintain satisfactory labor relations and the results of the collective bargaining agreement process with its union groups; any disruptions to
operations due to any potential actions by its labor groups; weather conditions; the possibility that expected Merger synergies will not be realized or will not be
realized within the expected time period; and other risks and uncertainties set forth under Item 1A, , of this report, as well as other risks and
uncertainties set forth from time to time in the reports the Company files with the SEC.
 
 Our net income (loss) is affected by fluctuations in interest rates (e.g. interest expense on variable-rate debt and interest income earned on
short-term investments). The Company’s policy is to manage interest rate risk through a combination of fixed and variable rate debt and by entering into swap
agreements, depending upon market conditions. The following table summarizes information related to the Company’s interest rate market risk at
December 31 (in millions):
 
     

Carrying value of variable rate debt at December 31 $3,280 $2,109 $1,171 $3,758 $2,400 $1,358
Impact of 100 basis point increase on projected interest expense for the
following year 31 20 11 37 24 13

Carrying value of fixed rate debt at December 31 8,402 3,636 4,357 10,087 4,626 5,043
Fair value of fixed rate debt at December 31 8,996 3,717 4,420 11,292 5,026 5,284
Impact of 100 basis point increase in market rates on fair value (272) (110) (159) (369) (159) (206)
A change in market interest rates would also impact interest income earned on our cash, cash equivalents and short-term investments. Assuming our cash,
cash equivalents and short-term investments remain at their average 2011 levels, a 100 basis point increase in interest rates would result in a corresponding
increase in UAL, United and Continental interest income of approximately $63 million, $37 million and $26 million, respectively, during 2012.
Commodity Price Risk (Aircraft Fuel). Our results of operations and liquidity are significantly impacted by changes in the price of aircraft fuel.
64