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Delta Paid $5.78 a Gallon in May

Captain Fulough

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Airlines and hedging. A necessary evil but not always good.

Earnings Preview: Delta Air Lines
7:38 AM ET, 07/23/2012 - Associated Press
ATLANTA -- Delta Air Lines Inc. gets a chance to explain why falling oil prices have hurt its finances when it reports second-quarter results on Wednesday.

WHAT TO WATCH FOR: Delta has made big bets on the price of oil. The idea is to offset the risk of a sudden rise in the price of jet fuel, which is an airline's biggest expense. However, those bets can go either way _ falling oil prices can turn the airline's financial hedge into a money-loser. Delta has already said that happened during the quarter that ended June 30.

"The rapid decline in fuel prices resulted in a significant change in value for our open fuel hedges, which run through 2013," Delta wrote in an investor update on June 27. Delta said it expects to lose $155 million on fuel hedges that settled during the quarter. It also said it expects another $800 million paper loss for fuel hedges that were worth less than it paid for them at the end of the quarter, but hadn't settled yet.

It paid the equivalent of $5.78 per gallon of jet fuel in May, including $2.41 per gallon worth of bad fuel price bets. In a note soon after the May results were released, Wolfe Trahan analyst Hunter Keay called that price "astonishing."

WHY IT MATTERS: Other big airlines make oil price bets, too. But Delta's efforts to control its fuel prices have been especially noteworthy. It bought a refinery near Philadelphia and this month began a $90 million project to maximize its jet fuel production.

Delta "is almost certainly working to reverse these hedge positions, but likely at a high cost," Keay wrote. If Delta can't unwind the hedges, or if oil prices don't rise, Delta will be in "an unenviable competitive position," Keay wrote.

Delta has declined to talk about its hedging strategy.

It did catch a break, though, on the last day of the quarter, when oil prices leaped 9.3 percent in a single day, to $84.96. That will translate into a bigger fuel bill, but a smaller hedging loss as of the end of the quarter. Oil prices have kept climbing, with crude closing on Friday at $91.44 per barrel on the New York Mercantile Exchange.

WHAT'S EXPECTED: Analysts surveyed by FactSet are expecting earnings of 68 cents per share, although they typically exclude one-time items such as fuel hedging losses. Revenue is expected to be $9.68 billion. Delta has estimated that it will have an operating margin of zero to negative 2 percent. Not counting the fuel hedge losses for future quarters and other special items, its operating margin would have been 8 percent to 10 percent, Delta said.

LAST YEAR'S QUARTER: It earned $198 million, or 23 cents per share. Revenue rose 12 percent to $9.15 billion. It would have earned 43 cents per share if not for one-time items.
 

Whataburger

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"Delta has declined to talk about its hedging strategy."

See that elephant in the room, don't talk about it.
 

dicko

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They'll do better running the Refinery. A simpler operation that they have experience with.

:eek:
 

General Lee

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I think I read that potential $800 million paper loss could happen, but that is if Brent crude falls more, and it actually has come up. The last day of the quarter it came up 9.3% in one day. So, if oil does rise again, not as bad. At least the airline made $2.5 billion last year in ancillary revenue. Too bad SWA doesn't charge for bags (even though AirTran does)....


Bye Bye---General Lee
 
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SWA Bubba

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My God! Their hedges are shot! Their culture is lost! They took a concessionary contact! They fly to crappy cities I don't want to go to! They're hanging on by a thread--I'm not sure how much longer they can stay in business!

Just kidding--trying out my General Lee impression. What do you guys think?

Bubba
 

Ky.BrownBourbn

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Dead on (and I have him blocked but for some reason everyone has to quote him so I see it anyway) but you left out mentioning LBB! He has to mention LBB, always!
KBB
 

ATLplt

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How could Lubbock actually be that bad? It's a college town for fukc's sake! I'd imagine good times can be had without looking too hard.
 
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Whataburger

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. At least the airline made $2.5 billion last year in ancillary revenue. Too bad SWA doesn't charge for bags (even though AirTran does)....


Bye Bye---General Lee

DAL = Last place in customer service.

SWA actually takes pride in attempting to make customers happy. We don't need to charge for bags at this time, so we don't. Someday maybe.
 

fletch717

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DAL = Last place in customer service.

SWA actually takes pride in attempting to make customers happy. We don't need to charge for bags at this time, so we don't. Someday maybe.


SWA doesn't charge for bags because their homemade res system can't do it. The same reason they can't do red eyes, or international. SWA turned it in to a marketing strategy while losing hundreds of millions of dollars in ancillary revenue.
 

BILL LUMBERG

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Crazy how this post attracts SWA trolls like flies to $hit.....

Give it a rest.....

Where's Wave at? He Got his Herb Turd Funnel stuck somewhere?
 

SWA Bubba

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SWA doesn't charge for bags because their homemade res system can't do it. The same reason they can't do red eyes, or international. SWA turned it in to a marketing strategy while losing hundreds of millions of dollars in ancillary revenue.

Wow, I can't wait to fly with you.

You know, I bet we could charge for bags if we wanted--somehow we found a way to charge for UMs and pets when we decided to do so, with our "homemade" res system. It also supports red-eyes, seeing as how we do them now (charters for the most part); the only reason we haven't done much them before is due to our specific business model. When we fly longer east-west routes (think Hawaii), then red-eyes will become more prevalent. The only thing you said that was true was that it won't support international, because we haven't needed it in 40-plus years.

We don't charge for bags because it's a marketing strategy, not an excuse. Our CEO believes we bring in more money this way by attracting the customers who don't want to get nickled-and-dimed with fees. Some flyers don't care while some care a lot. The other airlines quote money they've made with their fees; GK quotes money he believes we're making by not having them. Since nearly everythiing else you said in your quote was complete crap, I'm going to go out on a limb and say that you're NOT smarter than Gary Kelly when it comes to running an airline, and that it's probably good for all concerned that your negativity only extends to the poor schmuck that has to fly with you.

On the other hand, you don't HAVE to come over to this side of the partition if you hate Southwest so much--General Lee assures us that Delta will be hiring like gangbusters soon, and that you'll upgrade faster and make more money over there. Plus, you'll get the opportunity to fly your beloved 717 again. Win-win for everyone!

Good luck, Fletch!

Bubba
 
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SWA Bubba

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How could Lubbock actually be that bad? It's a college town fukc's sake! I'd imagine good times can be had without looking too hard.

It's not that bad at all. As you correctly noted, it's a college town, and there's a couple of college bars down the street from our crew hotel. And you know what they say about Texas girls! :pimp:

Bubba
 

tzskipper

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I think I read that potential $800 million paper loss could happen, but that is if Brent crude falls more, and it actually has come up. The last day of the quarter it came up 9.3% in one day. So, if oil does rise again, not as bad. At least the airline made $2.5 billion last year in ancillary revenue. Too bad SWA doesn't charge for bags (even though AirTran does)....


Bye Bye---General Lee

Apparently they don't need to... More fees in 2001 than LCC or ALK? Sneaky little devils...

http://www.travelweekly.com/Travel-News/Airline-News/Airlines-collect-$22-6-billion-in-ancillary-revenue-in-2011/
 

General Lee

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DAL = Last place in customer service.

SWA actually takes pride in attempting to make customers happy. We don't need to charge for bags at this time, so we don't. Someday maybe.


Last place? Really? How about you guys treating your Airtran brothers like Dirt? That means YOU are in last place, in the LUV department. Try to defend that.

So, go to LBB and eat a bad quesadilla and fill the toilet. Sounds great. And it's a college town. Are any of you in College? Are you the guys that hang out at College bars and hit on girls your daughter's age? I thought so. Oh wait, you're Waveflyer, and you're actually 26 years old.... Red seems like he might be 56.



Bye Bye---General Lee
 
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fletch717

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Wow, I can't wait to fly with you.

You know, I bet we could charge for bags if we wanted--somehow we found a way to charge for UMs and pets when we decided to do so, with our "homemade" res system. It also supports red-eyes, seeing as how we do them now (charters for the most part); the only reason we haven't done much them before is due to our specific business model. When we fly longer east-west routes (think Hawaii), then red-eyes will become more prevalent. The only thing you said that was true was that it won't support international, because we haven't needed it in 40-plus years.

We don't charge for bags because it's a marketing strategy, not an excuse. Our CEO believes we bring in more money this way by attracting the customers who don't want to get nickled-and-dimed with fees. Some flyers don't care while some care a lot. The other airlines quote money they've made with their fees; GK quotes money he believes we're making by not having them. Since nearly everythiing else you said in your quote was complete crap, I'm going to go out on a limb and say that you're NOT smarter than Gary Kelly when it comes to running an airline, and that it's probably good for all concerned that your negativity only extends to the poor schmuck that has to fly with you.

On the other hand, you don't HAVE to come over to this side of the partition if you hate Southwest so much--General Lee assures us that Delta will be hiring like gangbusters soon, and that you'll upgrade faster and make more money over there. Plus, you'll get the opportunity to fly your beloved 717 again. Win-win for everyone!

Good luck, Fletch!

Bubba

Actually, you can't. Example someone wants to fly lax to rsw, your system cannot launch a flight at 11 pm and have it land in bwi the next day then connect to rsw. I'm not being negative it's a fact. One of the reasons you can't fly international is your res system, international requires assigned seating. Ask your own peeps. I know the cool aid is thick in DAL but you guys act like a bunch brainwashed north Korean army privates. When you trip and fall do you jump up and say " I meant to do that "?
 

puddlejumper101

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Actually, you can't. Example someone wants to fly lax to rsw, your system cannot launch a flight at 11 pm and have it land in bwi the next day then connect to rsw. I'm not being negative it's a fact. One of the reasons you can't fly international is your res system, international requires assigned seating. Ask your own peeps. I know the cool aid is thick in DAL but you guys act like a bunch brainwashed north Korean army privates. When you trip and fall do you jump up and say " I meant to do that "?


fletch, please tell me you fly 717s for someone other that Airtran. If you do then can you please beg Delta for a job? Last I checked you will be a part of this "bunch of North Korean army privates". Last I checked the only difference between your company and mine is 2015.
 

fletch717

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fletch, please tell me you fly 717s for someone other that Airtran. If you do then can you please beg Delta for a job? Last I checked you will be a part of this "bunch of North Korean army privates". Last I checked the only difference between your company and mine is 2015.

Since I'm working on airline 4, I'm immune to the brainwashing class. But go ahead drink it in puddle. What I said is true about the res system, its a fact say anything negative about SWA and they act like it can't possibly be true.
 
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puddlejumper101

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Since I'm working on airline 4, I'm immune to the brainwashing class. But go ahead drink it in puddle. What I said is true about the res system, its a fact say anything negative about SWA and they act like it can't possibly be true.


believe me, there is plenty of negativity out on the line here at SWA. While there might be negativity, most of us also know who is paying the bills. The mentality of "burn the house that feeds me" is not something you see here. If you call that brain washing then let it be. You aren't the only one here that has worked for 4 airlines.

I think what happened with the RES system is ridiculous too. I hope heads rolled over that whole fiasco. I also belive SWA is positioning itself very nicely for what's to come. Just look at what happened this last quater. Bottom line, SWA can do whatever it wants, if it continues to be well managed then we all win...including the 10% that are never happy.
 
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