How are you going to spin this on us GL?

[N1atEcon]

Just wait for the refinery, right.
Delta Air Lines, which Tuesday morning announced that busted fuel hedges had resulted in a $155 million second-quarter loss, became the first in what could be a series of major carriers to take pain from an unexpected plunge in crude prices.

WTI crude futures have fallen more than 27 percent since their February high, taking the market by surprise and rendering airline hedges - originally intended to ease the economic pain of higher fuel prices - largely ineffective.
At Delta (DAL), the gyrations in crude not only created a loss related to fuel hedges that settled during the June quarter, which ends Saturday, but also contributed to what the company estimates will be an $800 million charge for its open hedging positions, which run through 2013.

 

[RT8VA]

I dont know very many professions where people from other companies get so excited about troubles at competitors. The funny thing is all of us have friends at all of these airlines and yet still the cheers and hopes that some one else will fail are pitiful.

 

[SXMp2c]

where is my LIKE button?

 

[Ky.BrownBourbn]

I can hear it now ...

"Ha! You morons, don't you understand, buying a refinery is like printing money!"

KBB

 

[redflyer65]

I think there will be more than one airline with hedging losses, but you have to hedge for the possiblity of 130 dollar oil as well.

Those without hedges have been hit pretty hard. The pendulum swings.

 

[K-Mart]

Well there is a difference in a fuel hedge loss and an operational loss. Different pots of money but a fuel hedge loss can be used by Delta management as a HUGE tax writeoff so they will be ok. Kinda like when I sold my 750K Hogg county snob house last year and lost a 150K on it but I used it as a tax writeoff to buy another 900K snob house. Its all in the writeoff. It also helps to have a wife that makes 400K a year too but I digress. Have a fantastic day! You really are terrific!

How did I do??

 

[ultrarunner]

What's to spin? It is what it is...

 

[N1atEcon]

I dont know very many professions where people from other companies get so excited about troubles at competitors. The funny thing is all of us have friends at all of these airlines and yet still the cheers and hopes that some one else will fail are pitiful.

Obviously you do not understand the fun natured teasing that goes on between most forum memebers and GL/ General LEE.

 

[General Lee]

Just wait for the refinery, right.
Delta Air Lines, which Tuesday morning announced that busted fuel hedges had resulted in a $155 million second-quarter loss, became the first in what could be a series of major carriers to take pain from an unexpected plunge in crude prices.

WTI crude futures have fallen more than 27 percent since their February high, taking the market by surprise and rendering airline hedges - originally intended to ease the economic pain of higher fuel prices - largely ineffective.
At Delta (DAL), the gyrations in crude not only created a loss related to fuel hedges that settled during the June quarter, which ends Saturday, but also contributed to what the company estimates will be an $800 million charge for its open hedging positions, which run through 2013.

OK, what? Spin what? Looks like the drop in oil hurt anyone who hedged. I guess DL hedged a certain amount at a higher dollar amount, and got burned. If you want some spin, the good thing would be I don't think Delta hedged as MUCH as previous years, probably learning from a couple of past years doing that. So, I guess they could have lost more money. Hedging is a gamble, and most analysts thought this Summer could go to $5 a gallon for car gas, Isreal fighting Iran, etc. A lot of things could have made it worse, but that didn't materialize I guess.

I know USAir did not hedge at all, so they probably made out well. I think the third quarter numbers (operational numbers) could be a lot better, but we'll have to see. Thanks for caring so much about Delta.


Bye Bye---General Lee

 

[redflyer65]

Was Song hedged as well? Hopefully they didn't lose money in this tough quarter.

 

[RT8VA]

Obviously you do not understand the fun natured teasing that goes on between most forum memebers and GL/ General LEE.

I get it but I don't see a lot of good nature here is all.

 

[N1atEcon]

I get it but I don't see a lot of good nature here is all.

Then you need to do a search on GL/hedges. You will see a lot of gloating over the years when SWA had to show a (BIG $$$$) loss for some bad heating oil positions.
Also GL plus some experts have a differing view on operating a refinery than me and my Dad.

 

[maxblast72]

Delta uses about 1 billion gallons per quarter. $150 million loss for Q2 correlates to Delta paying about 15 cents more than they would have with no hedging. Tables from the latest SWA 10-K show SWA eating about 10 cents per gallon with WTI at $90/barrel and 15 cents per gallon at $75 WTI (for Q2) and about $5 million in premium costs.

My guess is most airlines except USAirways absorb an actual loss for contracts already settled and an accounting loss for future hedge portfolios when they report earnings next month.

 

[BILL LUMBERG]

Was Song hedged as well? Hopefully they didn't lose money in this tough quarter.

Give us a call when you turn a profit again Red.....

 

[General Lee]

Then you need to do a search on GL/hedges. You will see a lot of gloating over the years when SWA had to show a (BIG $$$$) loss for some bad heating oil positions.
Also GL plus some experts have a differing view on operating a refinery than me and my Dad.

You and your dad still don't think the refinery deal was a good one? Oh, that's right, oil will only go down in value now, and never go back up....

Even your dad would have hedged oil a few months ago when analysts were thinking gas would go $5 a gallon and Isreal was threatening Iran. Everyone hedged a bit except USAir, and we all know USAir can be "interesting" when it comes to their lack of hedges. Sometimes they win, sometimes they don't, just like those who hedge. Say hi to your dad for me!


Bye Bye---General Lee

 

[Andy]

You and your dad still don't think the refinery deal was a good one? Oh, that's right, oil will only go down in value now, and never go back up....

Even your dad would have hedged oil a few months ago when analysts were thinking gas would go $5 a gallon and Isreal was threatening Iran. Everyone hedged a bit except USAir, and we all know USAir can be "interesting" when it comes to their lack of hedges. Sometimes they win, sometimes they don't, just like those who hedge. Say hi to your dad for me!


Bye Bye---General Lee

Buying a refinery has nothing to do with the price of oil. It's a crack spread hedge.
The Trainer, PA refinery was IMHO a poor choice due to the fact that it can only process light sweet. Unless the refinery undergoes major modifications, it can't process heavy sour.
In addition, Delta plans to optimize Trainer's production to maximize jet fuel production - which is likely not the most profitable (or more correctly the least unprofitable) way to run the Trainer refinery.


As for losing money on hedges, I agree that every airline that hedged has lost money on them. However, it would have been very risky to be naked hedges. USAirways is the only winner in this regard; every other airline is going to have large writedowns on their hedges.

 

[Diesel-9]

Delta just made a deal to buy crude from the Bakken reserve. I read where 30 % of a barrel of oil gets refined into jet fuel. The other refined products can be sold/exchanged for other fuel etc... Think this will be a smart business decision soon. Projected to up and running in the spring of next year I think. The conservative estimate is it will save $300,000,000 annually in crack spread cost. Will pay for itself in its first year.

 

[redflyer65]

You better hope all that 'savings' covers the cost of transporting that product from N. Dakota allll the way to Philadelphia. That's a long way to transport Bakken Shale for a chance at a profit.

This refinery is in the wrong location, that's why it's taken a loss year over year by people that actually know how to operate in this business. Gonna be interesting to watch.

 

[Andy]

Delta just made a deal to buy crude from the Bakken reserve. I read where 30 % of a barrel of oil gets refined into jet fuel. The other refined products can be sold/exchanged for other fuel etc... Think this will be a smart business decision soon. Projected to up and running in the spring of next year I think. The conservative estimate is it will save $300,000,000 annually in crack spread cost. Will pay for itself in its first year.

NFW. Crack spread has declined by ~$8/bbl since April.
That $300M annual 'savings' (NOT a conservative estimate) was based on much higher crack spread. And that was 'guesstimated' by DAL's CEO Richard Anderson in April; not exactly an unbiased source of guesstimates. See link below.
Trainer has a max capacity of 185,000 bbl/day; 67,525,000 bbl/yr.
An $8 crack spread decline equates to a reduction in annual savings of $540,200,000/yr.

April's crack spread was near a 5 year high.

http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html

 

[SWA Bubba]

NFW. Crack spread has declined by ~$8/bbl since April.
That $300M annual 'savings' (NOT a conservative estimate) was based on much higher crack spread. And that was 'guesstimated' by DAL's CEO Richard Anderson in April; not exactly an unbiased source of guesstimates. See link below.
Trainer has a max capacity of 185,000 bbl/day; 67,525,000 bbl/yr.
An $8 crack spread decline equates to a reduction in annual savings of $540,200,000/yr.

April's crack spread was near a 5 year high.

http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html

Maybe I'm thinking about something else, but in my mind, a large crack spread is NOT a good thing.

Bubba