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Derivatives and Risk Management | 3 Months Ended
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Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Risk Management | DERIVATIVES AND RISK MANAGEMENT Changes in fuel prices, interest rates and foreign currency exchange rates impact our results of operations. In an effort to manage our exposure to these risks, we enter into derivative contracts and adjust our derivative portfolio as market conditions change. We recognize derivative contracts at fair value on our balance sheet. Fuel Price Risk Our derivative contracts to hedge the financial risk from changing fuel prices are primarily related to Monroe’s refining margins. Interest Rate Risk Our exposure to market risk from adverse changes in interest rates is primarily associated with our long-term debt obligations. Market risk associated with our fixed and variable rate long-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates. Foreign Currency Exchange Risk We are subject to foreign currency exchange rate risk because we have revenue and expense denominated in foreign currencies with our primary exposures being the Japanese yen and the Euro. To manage exchange rate risk, we execute both our international revenue and expense transactions in the same foreign currency to the extent practicable. From time to time, we may also enter into foreign currency option and forward contracts. Our Japanese yen foreign currency exchange contracts are designated as cash flow hedges with gains or losses on the derivatives recorded in passenger revenue in the income statement in the same period in which the hedged transaction affects earnings. Hedge Position as of March 31, 2019
(in millions) | Volume |  | Final Maturity Date | Prepaid Expenses and Other | Other Noncurrent Assets | Other Accrued Liabilities | Other Noncurrent Liabilities | Hedge Derivatives, net
Designated as hedges |  |  |  |  |  |  |  |
Interest rate contracts (fair value hedges) | 1,883 |  | U.S. dollars | April 2028 | $ | 1 |  | $ | 28 |  | $ | (2 | ) | $ | (3 | ) | $ | 24 |
Foreign currency exchange contracts | 4,328 |  | Japanese yen | November 2019 | 1 |  | — |  | — |  | — |  | 1 |
Not designated as hedges |  |  |  |  |  |  |  |
Foreign currency exchange contracts | 397 |  | Euros | December 2020 | 10 |  | — |  | — |  | (3 | ) | 7 |
Fuel hedge contracts | 195 |  | gallons - crude oil and refined products | December 2019 | 51 |  | — |  | (44 | ) | — |  | 7 |
Total derivative contracts |  |  | $ | 63 |  | $ | 28 |  | $ | (46 | ) | $ | (6 | ) | $ | 39 |
Hedge Position as of December 31, 2018
(in millions) | Volume |  | Final Maturity Date | Prepaid Expenses and Other | Other Noncurrent Assets | Other Accrued Liabilities | Other Noncurrent Liabilities | Hedge Derivatives, net
Designated as hedges |  |  |  |  |  |  |  |
Interest rate contracts (fair value hedges) | 1,893 |  | U.S. dollars | April 2028 | $ | — |  | $ | 8 |  | $ | (7 | ) | $ | — |  | $ | 1 |
Foreign currency exchange contracts | 6,934 |  | Japanese yen | November 2019 | 1 |  | — |  | — |  | — |  | 1 |
Not designated as hedges |  |  |  |  |  |  |  |
Foreign currency exchange contracts | 397 |  | Euros | December 2020 | 13 |  | — |  | — |  | (17 | ) | (4 | )
Fuel hedge contracts | 219 |  | gallons - crude oil and refined products | December 2019 | 30 |  | — |  | (15 | ) | — |  | 15 |
Total derivative contracts |  |  | $ | 44 |  | $ | 8 |  | $ | (22 | ) | $ | (17 | ) | $ | 13 |
Balance Sheet Location of Hedged Item in Fair Value Hedges
| Carrying Amount of Hedge Instruments |  | Cumulative Amount of Fair Value Hedge Adjustments
(in millions) | March 31, 2019 | December 31, 2018 |  | March 31, 2019 | December 31, 2018
Current maturities of long-term debt and finance leases | $ | (16 | ) | $ | (11 | ) |  | $ | 1 |  | $ | 7 |
Long-term debt and finance leases | $ | (1,878 | ) | $ | (1,870 | ) |  | $ | (25 | ) | $ | (8 | )
Offsetting Assets and Liabilities We have master netting arrangements with our counterparties giving us the right to offset hedge assets and liabilities. However, we have elected not to offset the fair value positions recorded on our balance sheets. The following table shows the net fair value positions by counterparty had we elected to offset.
(in millions) | Prepaid Expenses and Other | Other Noncurrent Assets | Other Accrued Liabilities | Other Noncurrent Liabilities | Hedge Derivatives, net
March 31, 2019 |  |  |  |  |
Net derivative contracts | $ | 21 |  | $ | 28 |  | $ | (5 | ) | $ | (5 | ) | $ | 39 |
December 31, 2018 |  |  |  |  |
Net derivative contracts | $ | 35 |  | $ | — |  | $ | (13 | ) | $ | (9 | ) | $ | 13 |
Designated Hedge Gains (Losses) Gains (losses) related to our foreign currency exchange contracts are as follows:
| Gains/(Losses) Reclassified from AOCI to Earnings(1) |  | Gains/(Losses) Recognized in Other Comprehensive Income
(in millions) | 2019 | 2018 |  | 2019 | 2018
Three Months Ended March 31, |  |  |  |  |
Foreign currency exchange contracts | $ | — |  | $ | (4 | ) |  | $ | 1 |  | $ | 1 |
(1) | Earnings on our foreign currency exchange contracts are recorded in passenger revenue in the income statement.
Not Designated Hedge Gains (Losses) Gains (losses) related to our cross currency swap and fuel contracts are as follows:
|  | Location of Gain (Loss) Recognized in Income |  | Amount of Gain (Loss) Recognized in Income
(in millions) |  |  |  | 2019 | 2018
Three Months Ended March 31, |  |  |  |  |
Foreign currency exchange contracts |  | Unrealized gain on investments, net |  | $ | 11 |  | $ | (16 | )
Fuel hedge contracts |  | Aircraft fuel and related taxes |  | (54 | ) | 2 |
Total |  |  |  | $ | (43 | ) | $ | (14 | )
Credit Risk To manage credit risk associated with our fuel price, interest rate and foreign currency hedging programs, we evaluate counterparties based on several criteria including their credit ratings.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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