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!

 

[RCA]

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

11,730 Posts later, most have not embraced your message
Any chance you could find another
venue to express your superiority complex.

 

[crj567]

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

I would probably be tired and bored as well, if I were you, General...... Just put the sippy-cup you have been swilling Kool-Aid from back in the pantry, now..... Play time is over-you need some nite-nite time, now.
When SWA comes in and completely kicks your butt, and when the Eurpoean routes that DAL has invested so much in fail, just get back to me...... Tough times ahead for everyone, but especially for those who don't remember the lessons of the first DAL near-BK (as you like to call it.) In the early 90s, DAL totally over-extended into Europe, and when the boys across the pond had a recession, (by today's standard a mere sniffle-compared to the current crash-cart situation) DAL ate it hard.
So here's to you-Gen. You keep right on believeing that crap, but you really should be worried. DAL has played this game before, and was lucky to survive. Back then, SWA was not a threat-but with AirTran weakened or out of business , you will really have some problems to deal with, and much worse than who has more flight to CAK.

Good Luck-you will need it!

 

[Turtlesfly]

so since nobody has answered the original question with any information . . .

if they hedged at $3.22 jet fuel per gallon - there are 42 gallons in a barrel - so they hedged at $135.24.

Whoops.

 

[regionalcap]

so since nobody has answered the original question with any information . . .

if they hedged at $3.22 jet fuel per gallon - there are 42 gallons in a barrel - so they hedged at $135.24.

Whoops.

No. Seems like I remember reading it was about $111 a barrel.

 

[Turtlesfly]

well then the original poster was wrong. I just multiplied his number by 42.

 

[General Lee]

I would probably be tired and bored as well, if I were you, General...... Just put the sippy-cup you have been swilling Kool-Aid from back in the pantry, now..... Play time is over-you need some nite-nite time, now.
When SWA comes in and completely kicks your butt, and when the Eurpoean routes that DAL has invested so much in fail, just get back to me...... Tough times ahead for everyone, but especially for those who don't remember the lessons of the first DAL near-BK (as you like to call it.) In the early 90s, DAL totally over-extended into Europe, and when the boys across the pond had a recession, (by today's standard a mere sniffle-compared to the current crash-cart situation) DAL ate it hard.
So here's to you-Gen. You keep right on believeing that crap, but you really should be worried. DAL has played this game before, and was lucky to survive. Back then, SWA was not a threat-but with AirTran weakened or out of business , you will really have some problems to deal with, and much worse than who has more flight to CAK.

Good Luck-you will need it!

OH-KAAAAAY? Anyways, who is this guy? Herb Kelleher's son? We have a Major Corndog here. Yikes. Anyways.......Did you hear how SWA was doing lately?


Reuters
Volatile fuel puts Southwest, Continental into loss
Thursday October 16, 11:05 am ET
By Kyle Peterson and Bill Rigby
CHICAGO/NEW YORK (Reuters) - Volatile fuel prices caused losses at Continental Airlines (NYSE:CAL - News) and its low-cost rival Southwest Airlines (NYSE:LUV - News) in the third quarter as airlines struggled to adjust to wild swings in the cost of oil.

Continental blamed its loss on a spike in fuel prices that accompanied the run-up in crude oil to a record high in July. Expensive fuel also plagued Continental's rivals AMR Corp (NYSE:AMR - News), parent of American Airlines, and Delta Air Lines (NYSE:DAL - News), which reported losses on Wednesday.
Southwest was cut by the other side of that sword, writing down $247 million in mark-to-market losses on the value of its fuel hedge program after a stunning 50 percent drop in oil prices since July 11, when crude hit its record high above $148.
"I can assure you that falling energy prices is a great thing for Southwest Airlines," Southwest Chief Executive Gary Kelly told reporters.
The shares of both airlines rose more than 3 percent in premarket trading.

But he added that it may be time to "dehedge a bit," because "nobody knows where the bottom is."
Southwest, whose fuel hedges are the envy of the industry, was somewhat insulated from the more expensive fuel costs but reported charges of $247 million related to adjustments on a portion of the future period of its hedge portfolio.
Despite the drop in fuel prices, which lessened the value of its hedge portfolio, Southwest said its fuel hedge remains "in the money," meaning it has locked in prices that are below current market prices.
The airline industry has cheered the recent drop in oil prices, but carriers worry that ongoing economic weakness could lead to a decline in travel demand. So far, however, airlines have blunted any impact from weaker demand by sweeping capacity cuts that have reduced costs and bolstered fares.

CONTINENTAL LOSS
Continental, the No. 4 U.S. carrier, reported a third-quarter net loss of $236 million, or $2.14 per share, compared with a profit of $241 million, or $2.15 per share, in the year-earlier quarter.
Excluding some one-time items, it reported a loss of $1.32 per share. That was narrower than the $1.55 per share loss Wall Street was expecting, according to Reuters Estimates.
The Houston-based carrier blamed its loss partly on operational disruptions caused by Hurricane Ike. The storm weakened the airline's operating results by about $50 million.
Continental's revenue rose 9 percent to $4.2 billion. The company said it ended the quarter with $2.9 billion in unrestricted cash, cash equivalents and short-term investments.
"During the quarter, the high cost of fuel continues to be a challenge, outpacing strong revenue gains," Continental Chief Financial Officer Zane Rowe said in a statement.
Continental also said on Thursday it would push back the delivery of some Boeing Co (NYSE:BA - News) planes as the airline's capacity dips. It said it would now take two wide-body 777s in 2010 rather than 2009 and agreed to push back delivery of 16 single-aisle 737s to start in 2011, rather than the original schedule of 2009 and 2010.
Continental also said Boeing would provide backstop financing for the 14 planes it is scheduled to deliver to Continental next year.
The delivery deferrals and possibility of providing financing is bad for Boeing, which would prefer to deliver planes as soon as possible and minimize its involvement in financing customers' purchases.
The Chicago-based plane maker is already struggling with a slowdown in new orders, and a five-week strike that has idled its Seattle-area plants.

SOUTHWEST HEDGES CAUSE LOSS
Southwest, the world's leading discount carrier, reported a quarterly net loss of $120 million, or 16 cents per share, compared with a profit of $162 million, or 22 cents per share, a year earlier.
Excluding one-time items, Southwest earned $69 million, or 9 cents per share, beating the average Wall Street estimate of 7 cents per share, according to Reuters Estimates.
The airline said its revenue was $2.9 billion, a gain of 11.7 percent. The company ended the quarter with $3.4 billion in cash and short term investments.
Southwest said that because of the strike at Boeing, it will likely not take delivery of three remaining planes originally scheduled for this year. The carrier said it now expects to take delivery of 13 Boeing 737-700 aircraft next year. (Editing by Maureen Bavdek)


Bye Bye--General Lee

 

[flynryan15]

BA[/URL] - News) planes as the airline's capacity dips. It said it would now take two wide-body 777s in 2010 rather than 2009 and agreed to push back delivery of 16 single-aisle 737s to start in 2011, rather than the original schedule of 2009 and 2010.

Talk about a knee jerk reaction and bad decision! Cal is already struggling for wide body lift while flying 757's across the pond with rows of blocked seats. Not to mention lack of wide bodies for long haul expansion let Emirates set up shop in the fortress hub on a route with full planes and high fares.

This is yet another MGT smoke screen to Pig Roast the pilots while in section 6 negotiations!!!

:uzi: Magoo

 

[Bob_Sacamano]

Haven't you been saying that since before 9/11? You're starting to bore me now.

We will be the largest and best airline in the World soon.

Bye Bye--General Lee

 

[Bob_Sacamano]

LUV is doing just fine. Of course, there are always lots of ways to improve a business, I don't think any sane, informed person would say that Southwest is in trouble. Unless of course, we're talking about super-duper Delta. Why, they're the bestest airline ever! Isn't that right, Dad?

Anyways.......Did you hear how SWA was doing lately?

 

[Secret Squirrel]

so since nobody has answered the original question with any information . . .

if they hedged at $3.22 jet fuel per gallon - there are 42 gallons in a barrel - so they hedged at $135.24.

Whoops.

I do not think there is an exact answer to this question. 42 gallons of oil is correct as to a barrel of oil But only 30-70% of oil will be converted to gasoline depending on what method is used and what type of oil is used. Some oil is more easily converted (sweet crude from oil and texas) and other is not so easy. Some of the remaining is made into asphalt and other such items. I remember reading once that a barrel of oil sweet crude makes about 20 gallons of car gas. It would probably produce more Jet A. FWIW

 

[cybourg10]

You can not just multiply the price per gallon times 42 to get the actual price per barrel, it does not work that way.

 

[PeanuckleCRJ]

You can not just multiply the price per gallon times 42 to get the actual price per barrel, it does not work that way.

Correct.... the prices dont include the crack spread and such. Apparently the crack spread for jet fuel has gone up almost as much as oil has come down.

 

[General Lee]

Haven't you been saying that since before 9/11? You're starting to bore me now.

Sorry, we will be the biggest thanks to fleet numbers. And, you will still go to LBB, and I won't. Talk about boring..... (unless you love watching the Tech girls dance at the local club----1 2 3 rule---ah yeah---party!!)


Bye Bye Bobby---General Lee

 

[General Lee]

LUV is doing just fine. Of course, there are always lots of ways to improve a business, I don't think any sane, informed person would say that Southwest is in trouble. Unless of course, we're talking about super-duper Delta. Why, they're the bestest airline ever! Isn't that right, Dad?

Anyways.......Did you hear how SWA was doing lately?

Let's hope they don't come after you for pay cuts! With oil coming down, your hedge advantage is coming down, and maybe you will have to charge for a second bag soon. You might have to get rid of those dumb comercials too.


Bye Bye--General Lee

 

[G4G5]

Roughly 75 percent of jet fuel price is determined by the price of crude oil, while the remaining 25 percent is dictated by heating oil and jet fuel crack spreads. The crack spread is how much a refiner is making when refining crude oil into various products with each product having its own crack spread.
The crack spread is the difference between the product (jet fuel) and crude oil. Like in winter, the crack spread go up because of increasing demand for heating oil while the crack spread on gasoline goes up during the summer driving season. The average crack spread on jet fuel moved from around USD 7 in 2000 to USD 18 in 2007 but with peaks at uncertain periods of over USD 40!