Quantitative and Qualitative Disclosures About Market Risk
−Removed: As discussed in Note 3 to the unaudited Condensed Consolidated Financial Statements, the Company endeavors to acquire jet fuel at the lowest possible net cost and to reduce volatility in operating expenses through its fuel hedging program with the use of financial derivative instruments.
−Removed: As of June 30, 2024, the estimated fair value of outstanding contracts was a net asset of $220 million.
+Added: As discussed in Note 3 to the unaudited Condensed Consolidated Financial Statements, the Company endeavors to acquire jet fuel at the lowest possible net cost and to reduce volatility in operating expenses through its fuel hedging
+Added: program with the use of financial derivative instruments.
+Added: As of September 30, 2024, the estimated fair value of outstanding contracts was a net asset of $132 million.
The Company's credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are in a net asset position to the Company.
At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements.
−Removed: As of June 30, 2024, the Company had eight counterparties for which the derivatives held were an asset and none in a loss position.
+Added: As of September 30, 2024, the Company had nine counterparties for which the derivatives held were an asset and none in a loss position.
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.
However, if one or more of these counterparties were in a net liability position to the Company and were unable to meet their obligations, any open derivative contracts with the counterparty could be subject to early termination, which could result in substantial losses for the Company.
−Removed: As of June 30, 2024, 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.
−Removed: The Company also had agreements with counterparties in which cash deposits and letters of credit are required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds.
−Removed: Refer to the counterparty credit risk and collateral table provided in Note 3 to the unaudited Condensed Consolidated Financial Statements for the fair values of fuel derivatives, amounts held as collateral, and applicable collateral posting threshold amounts as of June 30, 2024, at which such postings are triggered.
−Removed: As of June 30, 2024, $30 million in cash collateral deposits were held by the Company from counterparties based on the Company's outstanding fuel derivative instrument portfolio.
−Removed: Due to the types of derivatives held as of June 30, 2024, the Company does not have cash collateral exposure.
+Added: As of September 30, 2024, 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.
+Added: 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.
+Added: Refer to the counterparty credit risk and collateral table provided in Note 3 to the unaudited Condensed Consolidated Financial Statements for the fair values of fuel derivatives, amounts held as collateral, and applicable collateral posting threshold amounts as of September 30, 2024, at which such postings are triggered.
+Added: As of September 30, 2024, $22 million in cash collateral deposits were held by the Company from counterparties based on the Company's outstanding fuel derivative instrument portfolio.
+Added: Due to the types of derivatives held as of September 30, 2024, the Company does not have cash collateral exposure.
See Note 3 to the unaudited Condensed Consolidated Financial Statements.
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The Company has found that financial derivative instruments in commodities, such as WTI crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility.
+Added: The Company is also subject to the risk that the fuel derivatives it uses to hedge against fuel price volatility do not provide adequate protection.
+Added: A portion of the fuel derivatives in the Company's hedge portfolio are based on the market price of WTI crude oil.
+Added: As mentioned above in Critical Accounting Policies and Estimates, since the Company can no longer demonstrate that derivatives based on WTI crude oil prices will result in effective hedges on a prospective basis, the change in fair value of all of the Company's derivatives based in WTI have been recorded to Other (gains) losses for third quarter 2024, and will also be marked to market in the same manner in fourth quarter 2024.
+Added: The Company currently has no WTI-based derivatives that settle beyond 2024.
+Added: In recent years, jet fuel prices have been more closely correlated with changes in the price of Brent crude oil, and therefore the Company has attempted to mitigate some of this risk by entering into more fuel hedges based on Brent crude.
Financial Market Risk
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Under these processing agreements, and based on specified conditions, increasing amounts of cash reserves could be required to be posted with the counterparty.
−Removed: There was no cash reserved for this purpose as of June 30, 2024.
+Added: There was no cash reserved for this purpose as of September 30, 2024.
A majority of the Company’s sales transactions are processed by Chase Paymentech.
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Cash reserve requirements are based on the Company’s public debt rating and a corresponding percentage of the Company’s Air traffic liability.
−Removed: As of June 30, 2024, no holdbacks were in place.
+Added: As of September 30, 2024, no holdbacks were in place.
See Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, for further information about market risk, and Note 3 to the unaudited Condensed Consolidated Financial Statements in this Form 10-Q for further information about the Company's fuel derivative instruments.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.