Delta's 70% Hedged at $3.22 per Gallon

[Old School]

Delta announced today that they are 70% hedged at $3.22 per gallon for the fourth quarter of 2008. Anybody know what that equates to per barrel?

 

[cybourg10]

From what I have seen lately on the paperwork that equates to somewhere between $90-100 a barrel but there are many factors that go into jet fuel prices other than cost per barrel.

 

[~~~^~~~]

Old School,

You need to also look at the refining costs, the so called "crack spread." Jet fuel has not come down like other crude oil products.

However, based on this chart, your concerns are well placed. Delta is underwater on their hedges:

http://www.iata.org/whatwedo/economics/fuel_monitor/price_analysis.htm

Delta is not necessarily hedging the market as an investor, per se'. They are trying to get an accurate predictor for costs, so they can build their pricing and revenue models for business going forward. This is not to infer that they will not bend to competitive pressures and they have stated their uncertainty about 2009. But for the next six months they have to have a game plan.

 

[Old School]

Nice reply. See, it is possible to have an intelligent conversation on this site. Thanks.

 

[clickclickboom]

their fourth qtr will read like this:

Delta reported a $335,000,000 profit today as they nearly took over the world however due to special one time charges showed a net loss of 3 million and a special one time writeoff of $250,000,000 due to ( insert your own term here, merger, bankrupcy, fuel hedge loss etc etc)

 

[SpauldingSmails]

Delta is not necessarily hedging the market as an investor, per se'. They are trying to get an accurate predictor for costs, so they can build their pricing and revenue models for business going forward. This is not to infer that they will not bend to competitive pressures and they have stated their uncertainty about 2009. But for the next six months they have to have a game plan.

... and hence the real reason that commodities are traded in a futures market; so that end users can plan ahead by way of purchasing in advance at a given price. Sometimes you come out ahead, sometimes behind, but at least you can plan.

 

[~~~^~~~]

yep, exactly.

 

[Raskal]

their fourth qtr will read like this:

Delta reported a $335,000,000 profit today as they nearly took over the world however due to special one time charges showed a net loss of 3 million and a special one time writeoff of $250,000,000 due to ( insert your own term here, merger, bankrupcy, fuel hedge loss etc etc)

Well played!

 

[Old School]

The one time special item had to do with Pink Lemonade costs...

 

[GuppyWN]

Well if they are stating prices in unusual terms, ie. price per gallon instead of barrel, it can't be good.

Gup

 

[crj567]

General Lee is curiously silent on this one..... Getting out the lube, champ?

-Looks like your "inspired management" is pulling another genius move with the tactic of trying to run AirTran out of business....

-How long do you think it would take for some Texas-based airline to come in and hand you your butt?

-Hmmm-Be careful what you wish for.

 

[General Lee]

General Lee is curiously silent on this one..... Getting out the lube, champ?

-Looks like your "inspired management" is pulling another genius move with the tactic of trying to run AirTran out of business....

-How long do you think it would take for some Texas-based airline to come in and hand you your butt?

-Hmmm-Be careful what you wish for.

Quiet on this one you say? Not really. The beginning of the quarter was tough on all airlines, and some airlines hedged at higher oil costs than are out there today. It's a gamble. I think CAL hedged a bunch at $140 a barrel, and UAL did a bunch at $120 a barrel.

As far as tackling Airtran, we will continue to do so, and we will do our best to hurt them financially, without killing them and allowing Southwest in. That is the key, and even if Southwest somehow got in to ATL, they would NEVER be able to fly to the same amount of cities that we cover (with DCI and INTL). We now cover 70% of the passengers at the World's busiest airport. There are only so many gates, and we have most of them. ATL is building an additional INTL terminal, and we will occupy most of it---flying all over, bringing connections in. We compete with Southwest at SLC, and they really haven't added any new city pairs as of late (maybe DEN a year ago?), and their growth is flat. We added Paris, and we will add Tokyo and probably Amsterdam soon. Those planes will bring even more people into SLC and onward on our connections. We will be the largest and best airline in the World soon. You are starting to tire me and bore me. Bye now.


Bye Bye--General Lee

 

[LearLove]

$3.22/gallon?? - I think I can get a better price at my local FBO.

 

[123]

Old School,

You need to also look at the refining costs, the so called "crack spread." Jet fuel has not come down like other crude oil products.

However, based on this chart, your concerns are well placed. Delta is underwater on their hedges:

http://www.iata.org/whatwedo/economics/fuel_monitor/price_analysis.htm

Delta is not necessarily hedging the market as an investor, per se'. They are trying to get an accurate predictor for costs, so they can build their pricing and revenue models for business going forward. This is not to infer that they will not bend to competitive pressures and they have stated their uncertainty about 2009. But for the next six months they have to have a game plan.

Just to throw some facts out there:

Actually, according to the deptartment of Energy, the average spot price for Kerosene type jet fuel has come down from an avg around $3.40/gallon in Apr 2008 to last Thursdays avg spot price of $2.45/gal.

You are correct that DAL is not hedging fuel as an investor, or more correctly as a speculator. Any "good" business that uses a large amount of commoditys such as fuel must hedge in order to reduce risk and limit exposure to price flucuations (same rule applies to foreign currency exchange rates). It shouldn't be viewed as a profit center.

Take care

 

[olympus593]

Just to throw some facts out there:

Actually, according to the deptartment of Energy, the average spot price for Kerosene type jet fuel has come down from an avg around $3.40/gallon in Apr 2008 to last Thursdays avg spot price of $2.45/gal.

You are correct that DAL is not hedging fuel as an investor, or more correctly as a speculator. Any "good" business that uses a large amount of commoditys such as fuel must hedge in order to reduce risk and limit exposure to price flucuations (same rule applies to foreign currency exchange rates). It shouldn't be viewed as a profit center.

Take care

Edge at 3.40 vs spot price at 2.45 it won't be viewed as a profit center that for sure!