## ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 

The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes to the price of fuel and interest rates as discussed below. The sensitivity analyses presented do not consider the effects such adverse changes may have on the overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes. Variable-rate leases are not considered market sensitive financial instruments and, therefore, are not included in the interest rate sensitivity analysis below. Actual results may differ. See Notes 1, 2 and 13 to our consolidated financial statements for accounting policies and additional information. 

## Aircraft fuel 

Our results of operations are affected by changes in the price and availability of aircraft fuel. Market risk is estimated as a hypothetical 10% increase in the December 31, 2013 cost per gallon of fuel. Based on projected 2014 fuel consumption, such an increase would result in an increase to aircraft fuel expense of approximately $202 million in 2014. This is compared to an estimated $190 million for 2013 measured as of December 31, 2012. As of December 31, 2013, we had hedged approximately 9% of our projected 2014 fuel requirements. All hedge contracts existing at December 31, 2013 settle by December 31, 2014. 

The financial derivative instrument agreements we have with our counterparties may require us to fund all, or a portion of, outstanding loss positions related to these contracts prior to their scheduled maturities. 

The amount of collateral posted, if any, is periodically adjusted based on the fair value of the hedge contracts. 

## Interest 

Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from variable-rate debt instruments and on interest income generated from our cash and investment balances. The interest rate is fixed for $1.46 billion of our debt and capital lease obligations, with the remaining $1.12 billion having floating interest rates. If interest rates were, on average, 100 basis points higher in 2014 than they were during 2013, our interest expense would increase by approximately $12 million. This is determined by considering the impact of the hypothetical change in interest rates on our variable rate debt. 

If interest rates average 10% lower in 2014 than they did during 2013, our interest income from cash and investment balances would remain relatively constant, similar to the relative constant level of interest income for 2013 measured as of December 31, 2012. These amounts are determined by considering the impact of the hypothetical interest rates on our cash equivalents and investment securities balances at December 31, 2013 and 2012. 

## Fixed Rate Debt 

On December 31, 2013, our $230 million aggregate principal amount of convertible debt had a total estimated fair value of $431 million, based on quoted market prices. If there were a 10% increase in stock prices, the fair value of this debt would have been $470 million as of December 31, 2013. 

