Southwest Airlines 2014 Annual Report Download - page 65

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As a result of applying hedge accounting in prior periods, a portion of the amounts in
Accumulated other comprehensive income (loss) (“AOCI”) are considered “frozen,” and these
amounts will be recognized in earnings in future periods when the underlying fuel derivative contracts
settle. The following table displays the Company’s estimated fair value of remaining fuel derivative
contracts (not considering the impact of the cash collateral provided to or received from counterparties
(See Note 10 to the Consolidated Financial Statements for further information), as well as the amount
of deferred gains/losses in AOCI at December 31, 2014, and the expected future periods in which these
items are expected to settle and/or be recognized in earnings (in millions):
Year
Fair value of fuel
derivative contracts
at December 31, 2014
Amount of losses deferred
in AOCI at December 31,
2014 (net of tax)
2015 $ (242) $ (219)
2016 (472) (347)
2017 (287) (157)
2018 — (17)
Total $ (1,001) $ (740)
Based on forward market prices and the amounts in the above table (and excluding any other
subsequent changes to the fuel hedge portfolio), the Company’s jet fuel costs per gallon could exceed
market (i.e., unhedged) prices during some of these future periods. This is based primarily on expected
future cash settlements associated with fuel derivatives, but excludes any impact associated with the
ineffectiveness of fuel hedges or fuel derivatives that are marked to market because they do not qualify
for hedge accounting. See Note 10 to the Consolidated Financial Statements for further information.
Assuming no changes to the Company’s current fuel derivative portfolio, but including all previous
hedge activity for fuel derivatives that have not yet settled, and considering only the expected net cash
payments related to hedges that will settle, the Company is providing a sensitivity table for first quarter
2015, and full year 2015, jet fuel prices at different crude oil assumptions as of January 16, 2015, and
for expected premium costs associated with settling contracts each period, respectively.
Estimated economic jet fuel price per gallon,
including taxes
Average Brent Crude Oil
price per barrel 1Q 2015 (2) Full Year 2015 (2)
$30 $1.15 - $1.20 $1.15 - $1.25
$40 $1.50 - $1.55 $1.45 - $1.55
Current Market (1) $1.85 - $1.90 $1.95 - $2.05
$60 $2.15 - $2.20 $2.10 - $2.20
$70 $2.45 - $2.50 $2.40 - $2.50
Estimated Fuel Hedge Premium Expense (3) $25 - $30 million $120 - $130 million
(1) Brent crude oil average market prices as of January 16, 2015, were approximately $51 and $55 per barrel for
first quarter 2015 and full year 2015, respectively.
(2) The economic fuel price per gallon sensitivities provided assume the relationship between Brent crude oil and
refined products based on market prices as of January 16, 2015.
(3) Fuel hedge premium expense is recognized as a component of Other (gains) losses, net.
Maintenance materials and repairs expense for 2014 decreased by $102 million, or 9.4 percent,
compared with 2013. On a per ASM basis, Maintenance materials and repairs expense for 2014
57