Delta's 70% Hedged at $3.22 per Gallon

[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!

 

[G4G5]

Airlines can't catch a break these days no matter how hard they try. Case in point -- United Airlines has announced it could lose as much as $544 million because of falling oil prices. Say what?
United has fallen victim to its own efforts to manage what's been a devastating rise in fuel costs. The airline, like just about everyone else in the business, has been buying jet fuel using a tactic called hedging. Ben Brockwell of the Oil Price Information Service calls it "an insurance policy against prices rising."
So long as prices are rising, it works. But if prices start falling, it can quickly become a fiscal disaster, as many airlines are discovering.
Here's a very simplified explanation of how fuel hedging works, using a hypothetical scenario: Let's say oil is selling for $130 and the price is expected to rise. An airline signs a deal with a supplier to buy, say, three months worth of fuel at $110 a barrel. That's called a fuel hedge. The price of oil rises to $140 a barrel, but since the airline is locked in at $110, it can sit back and laugh as its competitors pay more for fuel. Smart move.
But let's turn that scenario on its head and say the airline hedges at $110 but the price drops to $92. Oops. Now the airline is paying more for fuel than it costs on the open market, placing it at a competitive disadvantage. The balance sheet craters.
That's what's happened at United. The company has 51 percent of its 2008 fuel hedged at $111. Per-barrel prices closed under $98 yesterday. It's third-quarter ledger will include $72 million in hedging losses, although the airline warns it could lose another $472 million depending upon what happens with fuel costs. The airline's 2009 fuel hedges are based on a per-barrel price of $118.
Hedging is a big roll of the dice and no one's played the game better than Southwest Airlines. It has consistently hedged more fuel than its competitors, and with far more success. As of this summer, Southwest has 70 percent of its 2008 fuel hedged at $51 a barrel. Compare that with American Airlines, which has 34 percent hedged at $82 a barrel, and Northwest with its hedge at $108. Industry analysts estimate that since 1998 Southwest has paid $3.5 billion less for fuel than its competitors. That's equal to 83 percent of its profits over the last nine years. It's a big part of the reason the airline continues reporting profits while the rest of the industry bleeds red ink to the tune of $5.2 billion this year.
So why doesn't every carrier hedge as much as possible? Airlines entering into hedge contracts must pay a deposit or commission, which is set by the seller depending on perceived risk. This can be a significant outlay of cash, money that some execs gamble would be better spent on new airplanes or debt repayment. An airline has to believe that savings from hedging will exceed the costs of the contract. And, as this last month proves, no one can really predict which way the oil market will go. United Airlines is learning that the hard way.

 

[Monster Buck]

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.

Every SWA guy and gal I know is pretty cool. You seem to be an exception to that.

 

[Bavarian Chef]

I really don't think a serious debate should involve the words crack and spread, especially if they are used in conjunction with each other.

My .02 ...

 

[Old School]

Rough Numbers at Delta from WSJ:
each $1 per barrel = 3 cents per gallon
each 1 cent per gallon = 25 million per year

 

[jhill]

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 think I read it cost $35 per barrel to refine jet A. So your at about $100 IF my info is correct.

 

[Schwanker]

Just like DALPA's SLI proposal, they are trying to confuse the issue with CAL/UAL/crack spread... Basically, DAL is hedged to pay significantly higher than current market rates for jet fuel.

At least NWA will be bringing a profitable piece to this puzzle despite the whole fleet on verge of being grounded according to DAL types.

Schwanker

 

[PeanuckleCRJ]

Just like DALPA's SLI proposal, they are trying to confuse the issue with CAL/UAL/crack spread... Basically, DAL is hedged to pay significantly higher than current market rates for jet fuel.

At least NWA will be bringing a profitable piece to this puzzle despite the whole fleet on verge of being grounded according to DAL types.

Schwanker

You are officially the General Lee of the red tails.

 

[Schwanker]

You are officially the General Lee of the red tails.

OUCH! Now that hurts!!! If you retract that insult, I'll gladly start to play nice with my soon to be DAL brothers!

Schwanker

 

[Tejas-Jet]

I always end my bedtime prayers with...

"...and Lord, please, never, ever, never, never, ever ,ever let SWA make the decision to fly to ATL...Amen"

I once rode J/S on Delta ( great folks BTW) and sat in line for TO for almost 45 minutes...then flew the short hop to CLT.

And I know how it is having once flown for a hub-and-spoke legacy. But I'm now used to the "load it up and lets get going" culture....wasting my time by waiting in line just doesn't do it for me...

...but thats me...others might like that sort of thing...not that there's anything wrong with that.

 

[Scope out RJ's]

Every SWA guy and gal I know is pretty cool. You seem to be an exception to that.

He's just another rj puke who went out and did a pft job at swa. Just another swa skirt!:laugh: