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Financial Derivative Instruments | 3 Months Ended
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Mar. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
FINANCIAL DERIVATIVE INSTRUMENTS | FINANCIAL DERIVATIVE INSTRUMENTS Fuel Contracts Airline operators are inherently dependent upon energy to operate and, therefore, are impacted by changes in jet fuel prices. Furthermore, jet fuel typically represents one of the largest operating expenses for airlines. The Company has historically aimed to reduce volatility in operating expenses through its fuel hedging program. Based on higher fuel hedging premium costs over time and other factors, the Company has discontinued its fuel hedging program and has no plans to add additional derivatives to its portfolio, which currently extends through 2027. The Company has used financial derivative instruments for both short-term and long-term timeframes, and historically has used a mixture of purchased call options, collar structures (which include both a purchased call option and a sold put option), call spreads (which include a purchased call option and a sold call option), put spreads (which include a purchased put option and a sold put option), and fixed price swap agreements in its portfolio. The Company does not purchase or hold any financial derivative instruments for trading or speculative purposes. For the purpose of evaluating its net cash spend for jet fuel and for forecasting its future estimated jet fuel expense, the Company evaluates its hedge volumes strictly from an "economic" standpoint and, thus, does not consider whether the hedges have qualified or will qualify for hedge accounting. The Company defines its "economic" hedge as the net volume of fuel derivative contracts held, including the impact of positions that have been offset through sold positions, regardless of whether those contracts qualify for hedge accounting. The level at which the Company is economically hedged for a particular period is also dependent on current market prices for that period, as well as the types of derivative instruments held and the strike prices of those instruments. For example, the Company has entered into "out-of-the-money" option contracts (including "catastrophic" protection, which the Company defines as prices significantly higher than historical average levels), which may not generate intrinsic gains at settlement if market prices do not rise above the option strike price. Therefore, even though the Company may have an economic hedge in place for a particular period, that hedge may not produce any hedging gains at settlement and may even produce hedging losses depending on market prices, the types of instruments held, and the strike prices of those instruments. As of March 31, 2025, the Company had fuel derivative contracts in place through 2027. The Company is providing the following information about the Company’s volume of fuel hedged on an economic basis:
|  | Maximum fuel hedged as of |  |  |
|  | March 31, 2025 |  | Derivative underlying commodity type as of |
Period (by year) |  | (gallons in millions) (a) |  | March 31, 2025 |
Remainder of 2025 |  | 775 |  |  | Brent crude oil |
2026 |  | 945 |  |  | Brent crude oil |
2027 |  | 277 |  |  | Brent crude oil |
(a) Due to the types of derivatives utilized by the Company and different price levels of those contracts, these volumes represent the maximum economic hedge in place and may vary significantly as market prices fluctuate and if the Company's published flight schedule or capacity plans change. Upon proper qualification, the Company accounts for its fuel derivative instruments as cash flow hedges. Qualification is re-evaluated quarterly, and all periodic changes in fair value of the derivatives designated as hedges are recorded in Accumulated other comprehensive income ("AOCI") until the underlying jet fuel is consumed. See Note 4. When the Company has sold derivative positions in order to effectively "close" or offset a derivative already held as part of its fuel hedging portfolio, any subsequent changes in fair value of those positions are marked to market through the unaudited Condensed Consolidated Statement of Comprehensive Loss. Likewise, any changes in fair value of those positions that were offset by entering into the sold positions and were de-designated as hedges are concurrently marked to market through the unaudited Condensed Consolidated Statement of Comprehensive Loss. However, any changes in value related to hedges that were deferred as part of AOCI while designated as a hedge would remain until the originally forecasted transaction occurs. In a situation where it becomes probable that a fuel hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into the unaudited Condensed Consolidated Statement of Comprehensive Loss. In some situations, an entire commodity type used in hedging may cease to qualify for special hedge accounting treatment. As an example, in certain prior periods, the Company's routine statistical analysis performed to determine which commodities qualified for special hedge accounting treatment on a prospective basis indicated that West Texas Intermediate ("WTI") crude oil-based derivatives no longer qualified for hedge accounting, and therefore the Company could no longer demonstrate that derivatives based on WTI crude oil prices would result in effective hedges on a prospective basis. As such, all WTI-based instruments were de-designated from their hedging relationships, and the changes in fair value of all of the Company's derivatives based in WTI were recorded directly to Other (gains) losses on a prospective basis. The Company's routine statistical analysis performed for the three months ended March 31, 2025, indicated that all commodities currently being utilized by the Company qualify for hedge accounting. All cash flows associated with purchasing and selling fuel derivatives are classified as Other operating cash flows in the unaudited Condensed Consolidated Statement of Cash Flows. The following table presents the location of all assets and liabilities associated with the Company’s derivative instruments within the unaudited Condensed Consolidated Balance Sheet:
|  |  |  | Asset derivatives |  |
|  | Balance Sheet |  | Fair value at |  | Fair value at |  |  |  |
(in millions) |  | location |  | 3/31/2025 |  | 12/31/2024 |  |  |  |
Derivatives designated as hedges (a) |  |  |  |  |  |  |  |  |  |
Fuel derivative contracts (gross) |  | Prepaid expenses and other current assets |  | $ | 21 |  |  | $ | 22 |  |  |  |  |
Fuel derivative contracts (gross) |  | Other assets |  | 71 |  |  | 108 |  |  |  |  |
Total derivatives designated as hedges |  | $ | 92 |  |  | $ | 130 |  |  |  |  |
(a) Represents the position of each trade before consideration of offsetting positions with each counterparty and does not include the impact of cash collateral deposits provided to or received from counterparties. See discussion of credit risk and collateral following in this Note. In addition, the Company had the following amounts associated with fuel derivative instruments and hedging activities in its unaudited Condensed Consolidated Balance Sheet:
|  | Balance Sheet |  | March 31, |  | December 31,
(in millions) |  | location |  | 2025 |  | 2024
Cash collateral deposits held from counterparties for fuel contracts - current |  | Offset against Prepaid expenses and other current assets |  | $ | — |  |  | $ | 4 |
Cash collateral deposits held from counterparties for fuel contracts - noncurrent |  | Offset against Other assets |  | — |  |  | 18 |
Receivable from third parties for fuel contracts |  | Accounts and other receivables |  | — |  |  | 1 |
All of the Company's fuel derivative instruments are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging. The types of derivative instruments the Company has determined are subject to netting requirements in the accompanying unaudited Condensed Consolidated Balance Sheet are those in which the Company pays or receives cash for transactions with the same counterparty and in the same currency via one net payment or receipt. For cash collateral held by the Company or provided to counterparties, the Company nets such amounts against the fair value of the Company's derivative portfolio by each counterparty. The Company has elected to utilize netting for its fuel derivative instruments and also classifies such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the unaudited Condensed Consolidated Balance Sheet. If the Company's fuel derivative instruments are in a net asset position with a counterparty, cash collateral amounts held are first netted against current outstanding derivative asset amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding fuel derivative instruments. The Company had the following recognized financial assets and financial liabilities resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting:
Offsetting of derivative assets |
(in millions) |
|  |  |  | (i) |  | (ii) |  | (iii) = (i) + (ii) |  | (i) |  | (ii) |  | (iii) = (i) + (ii) |
|  |  |  | March 31, 2025 |  | December 31, 2024 |
Description |  | Balance Sheet location |  | Gross amounts of recognized assets |  | Gross amounts offset in the Balance Sheet |  | Net amounts of assets presented in the Balance Sheet |  | Gross amounts of recognized assets |  | Gross amounts offset in the Balance Sheet |  | Net amounts of assets presented in the Balance Sheet |
Fuel derivative contracts |  | Prepaid expenses and other current assets |  | $ | 21 |  |  | $ | — |  |  | $ | 21 |  |  | $ | 22 |  |  | $ | (4) |  |  | $ | 18 |  |
Fuel derivative contracts |  | Other assets |  | $ | 71 |  |  | $ | — |  |  | $ | 71 |  | (a) | $ | 108 |  |  | $ | (18) |  |  | $ | 90 |  | (a)
(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the unaudited Condensed Consolidated Balance Sheet in Note 8.
Offsetting of derivative liabilities |
(in millions) |
|  |  |  | (i) |  | (ii) |  | (iii) = (i) + (ii) |  | (i) |  | (ii) |  | (iii) = (i) + (ii) |
|  |  |  | March 31, 2025 |  | December 31, 2024 |
Description |  | Balance Sheet location |  | Gross amounts of recognized liabilities |  | Gross amounts offset in the Balance Sheet |  | Net amounts of liabilities presented in the Balance Sheet |  | Gross amounts of recognized liabilities |  | Gross amounts offset in the Balance Sheet |  | Net amounts of liabilities presented in the Balance Sheet |
Fuel derivative contracts |  | Prepaid expenses and other current assets |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 4 |  |  | $ | (4) |  |  | $ | — |  |
Fuel derivative contracts |  | Other assets |  | $ | — |  |  | $ | — |  |  | $ | — |  | (a) | $ | 18 |  |  | $ | (18) |  |  | $ | — |  | (a)
(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the unaudited Condensed Consolidated Balance Sheet in Note 8. The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2025 and 2024:
Location and amount recognized in income on cash flow hedging relationships
|  | Three months ended March 31, 2025 |  | Three months ended March 31, 2024
(in millions) |  | Fuel and oil |  |  |  | Other operating expenses |  | Fuel and oil |  |  |  | Other operating expenses
Total |  | $ | 38 |  |  |  |  | $ | 1 |  |  | $ | 22 |  |  |  |  | $ | 2 |
Loss on cash flow hedging relationships |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |
Amount of loss reclassified from AOCI into income |  | 38 |  |  |  |  | — |  |  | 22 |  |  |  |  | — |
Other: |  |  |  |  |  |  |  |  |  |  |  |
Amount of loss reclassified from AOCI into income |  | — |  |  |  |  | 1 |  |  | — |  |  |  |  | 2 |
Derivatives designated and qualified in cash flow hedging relationships |  |  |
| (Gain) loss recognized in AOCI on derivatives, net of tax
| Three months ended
| March 31,
(in millions) | 2025 |  | 2024
Fuel derivative contracts | $ | 29 |  |  | $ | (1) |
Derivatives not designated as hedges
| (Gain) loss recognized in income on derivatives |  |
| Three months ended |  | Location of (gain) loss recognized in income on derivatives
| March 31, |
(in millions) | 2025 |  | 2024 |
Fuel derivative contracts | $ | — |  |  | $ | 1 |  |  | Other (gains) losses, net
The Company also recorded expense associated with premiums paid for fuel derivative contracts that settled/expired during the three months ended March 31, 2025 and 2024. Gains and/or losses associated with fuel derivatives that qualify for hedge accounting are ultimately recorded to Fuel and oil expense. Gains and/or losses associated with fuel derivatives that do not qualify for hedge accounting are recorded to Other (gains) losses, net. The following table presents the impact of premiums paid for fuel derivative contracts and their location within the unaudited Condensed Consolidated Statement of Comprehensive Loss during the period the contract settles:
| Premium expense recognized in income on derivatives |  |
| Three months ended |  | Location of premium expense recognized in income on derivatives
| March 31, |
(in millions) | 2025 |  | 2024 |
Fuel derivative contracts designated as hedges | $ | 37 |  |  | $ | 39 |  |  | Fuel and oil
The fair values of the derivative instruments, depending on the type of instrument, were determined by the use of present value methods or option value models with assumptions about commodity prices based on those observed in underlying markets or provided by third parties. Included in the Company’s cumulative unrealized losses from fuel hedges as of March 31, 2025, recorded in AOCI, were approximately $95 million in unrealized losses, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to March 31, 2025. Interest Rate Swaps The Company is at times party to certain interest rate swap agreements that are accounted for as cash flow hedges, but had none in place as of March 31, 2025, or as of December 31, 2024. The Company also did not have any interest rate swap agreements designated as fair value hedges, as defined, during the periods presented. Credit Risk and Collateral Credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are an asset to the Company as of the reporting date. At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company has not experienced any significant credit loss as a result of counterparty nonperformance in the past. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty. As of March 31, 2025, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty's credit rating. The Company also had agreements with counterparties in which cash deposits and letters of credit may be required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds. In certain cases, the Company has the ability to substitute among these different forms of collateral at its discretion. As of March 31, 2025, the Company had no cash collateral provided to or held from derivative counterparties. The following table provides the fair values of fuel derivatives and applicable collateral posting threshold amounts as of March 31, 2025, at which such postings are triggered:
| Counterparty (CP) |  |
(in millions) | A |  | B |  |  |  | C |  | D |  | E |  | F |  | G |  | H |  | I |  | Total
Fair value of fuel derivatives | $ | 22 |  |  | $ | 12 |  |  |  |  | $ | 13 |  |  | $ | 7 |  |  | $ | 9 |  |  | $ | 8 |  |  | $ | 8 |  |  | $ | 10 |  |  | $ | 3 |  |  | $ | 92 |
Option to substitute LC for cash | N/A |  | N/A |  |  |  | (a) |  | (a) |  | (a) |  | N/A |  | (a) |  | N/A |  | (a) |  |
If credit rating is investment grade, fair value of fuel derivative level at which: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash is provided to CP | >(100) |  | >(50) |  |  |  | >(75) |  | >(125) |  | >(40) |  | >(65) |  | >(100) |  | >(100) |  | (b) (d) |  |
Cash is received from CP | >0(b) |  | >150(b) |  |  |  | >250(b) |  | >125(b) |  | >100(b) |  | >70(b) |  | >100(b) |  | >100(b) |  | (b) (d) |  |
If credit rating is non-investment grade, fair value of fuel derivative level at which: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash is received from CP | (c) |  | (c) |  |  |  | (c) |  | (c) |  | (c) |  | (c) |  | (c) |  | (c) |  | (c) |  |
(a) The Company has the option to substitute letters of credit for 100 percent of cash collateral requirement. (b) Thresholds may vary based on changes in credit ratings within investment grade. (c) Cash collateral is provided at 100 percent of fair value of fuel derivative contracts. (d) Cash collateral is not required based on the current credit rating.

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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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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