United Airlines 2012 Annual Report Download - page 15

Table of Contents
part of a collar, such hedge contracts may limit the Company’s ability to benefit from lower fuel costs in the future. If fuel prices decline significantly from the
levels existing at the time we enter into a hedge contract, we may be required to post collateral (margin) with our hedge counterparties beyond certain thresholds.
Also, lower fuel prices may result in increased industry capacity and lower fares in general. There can be no assurance that the Company’s hedging
arrangements will provide any particular level of protection against rises in fuel prices or that its counterparties will be able to perform under the Company’s
hedging arrangements. Additionally, deterioration in the Company’s financial condition could negatively affect its ability to enter into new hedge contracts in
the future and may potentially require the Company to post increased amounts of collateral under its fuel hedging agreements.
In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and regulations promulgated by the Commodity
Futures Trading Commission (“CFTC”) introduce new requirements for centralized clearing for over-the-counter derivatives. This may include the
Company’s fuel hedge contracts. The UAL Board of Directors has approved the Company’s election of the CFTC’s end-user exception, which permits the
Company as a non-financial end user of derivatives to hedge commercial risk and be exempt from the CFTC mandatory clearing requirements. However,
depending on the final regulations adopted by the CFTC and other regulators, several of the Company’s hedge counterparties may be subject to requirements
which may raise their costs. Those increased costs may in turn be passed to the Company, resulting in increased transaction costs to execute hedge contracts
and lower credit thresholds to post collateral (margin).
See Note 13 to the financial statements included in Item 8 of this report for additional information on the Company’s hedging programs.
Economic and industry conditions constantly change and unfavorable global economic conditions may have a material adverse effect on the
Company’s business and results of operations.
The Company’s business and results of operations are significantly impacted by general economic and industry conditions. The airline industry is highly
cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and global economies. Robust demand for our air transportation services
depends largely on favorable economic conditions, including the strength of the domestic and foreign economies, low unemployment levels, strong consumer
confidence levels and the availability of consumer and business credit.
Air transportation is often a discretionary purchase that leisure travelers may limit or eliminate during difficult economic times. In addition, during periods of
unfavorable economic conditions, business travelers usually reduce the volume of their travel, either due to cost-saving initiatives or as a result of decreased
business activity requiring travel. During such periods, the Company’s business and results of operations may be adversely affected due to significant
declines in industry passenger demand, particularly with respect to the Company’s business and premium cabin travelers, and a reduction in fare levels.
Stagnant or worsening global economic conditions either in the United States or in other geographic regions, and any future volatility in U.S. and global
financial and credit markets may have a material adverse effect on the Company’s revenues, results of operations and liquidity. If such economic conditions
were to disrupt capital markets in the future, the Company may be unable to obtain financing on acceptable terms (or at all) to refinance certain maturing debt
and to satisfy future capital commitments.
The Company is subject to economic and political instability and other risks of doing business globally.
The Company is a global business with operations outside of the United States from which it derives approximately 40% of its operating revenues, as
measured and reported to the DOT. The Company’s operations in Asia, Europe, Latin America, Africa and the Middle East are a vital part of its worldwide
airline network. Volatile economic, political and market conditions in these international regions may have a negative impact on the Company’s operating
results and its ability to achieve its business objectives. In addition, significant or volatile changes in exchange rates between the U.S. dollar and other
currencies, and the imposition of exchange controls or other currency restrictions, may have a material adverse impact upon the Company’s liquidity,
revenues, costs and operating results.
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