Can you believe this idiot! UAL can't hedge as effectively as others because of their hubs proximity to the gulf! YGBSM!
Please furlough me soon or just shoot me.
Dear Fellow Employee,
Today, we provided investors with updated guidance on our expected fourth quarter performance in revenue and fuel.
We also provided additional information about a modification to our agreement with Chase, our largest credit card processor, that suspends the requirement for United to post cash reserves should our cash balance fall below certain levels. This revised agreement instead enables us to use our unencumbered assets as collateral. This change provides the company with greater flexibility, and we will still have more than $2 billion in unencumbered hard assets.
As to revenue, several carriers, including Delta, US Airways and Continental have recently lowered their guidance for the fourth quarter, reflecting weakening market conditions. We also adjusted our revenue growth expectations to reflect the current market. Today, we announced that we expect consolidated passenger unit revenue (PRASM) to increase between 2.5 percent and 4.5 percent year-over-year for the quarter. These numbers are in line with what other carriers have announced.
We also announced what our expected fuel price will be for the quarter and the accounting impact of our fuel hedging program.
In the fourth quarter, we expect to pay on average $2.81 per gallon for mainline jet fuel, rather than the $3.01 we expected to pay previously; and this includes the cash losses on our hedge contracts entered into when fuel was much higher in price. This cash fuel price is what investors will focus on.
Clearly fuel prices coming down is good news for us, and for the industry. Every dollar that fuel declines equates to about $60 million in fuel savings per year for United, excluding hedge impacts. It is important to note, as the price of fuel declines, we benefit on the unhedged portion of our fuel purchases.
Over the course of this year, when fuel prices were escalating, we systematically added hedges to protect us from further fuel price increases. With the recent fuel price decline, we are required to post collateral today to cover potential fuel hedge losses that may occur when our contracts settle.
Unlike most of our peers, we do not currently benefit from cash flow hedge accounting which would not require us to book expenses for hedges in place that have not settled.
To qualify for cash flow hedge accounting, the product hedged must correlate closely to actual fuel cost. Fuel hedging is predominately based on West Texas Intermediate Crude Oil (“WTI”).
United’s hubs are not in close proximity to the Gulf Coast region, so our true cost of fuel includes a charge for transportation cost to our hubs in the Midwest. This makes it more difficult to qualify for cash flow hedge accounting compared to peers that have hubs in Texas and Georgia. The large non-cash accounting charges we expect to book this quarter is one of the main reasons we expect our accounting hedge losses this quarter will be larger than those of some other carriers.
As we’ve said, lower fuel prices benefit our company and all of us. In this volatile environment, we are taking the right steps to ensure that we have the flexibility to achieve our business plan, respond to the current market, and ultimately return United to profitability.
Kathryn Mikells
Please furlough me soon or just shoot me.
Dear Fellow Employee,
Today, we provided investors with updated guidance on our expected fourth quarter performance in revenue and fuel.
We also provided additional information about a modification to our agreement with Chase, our largest credit card processor, that suspends the requirement for United to post cash reserves should our cash balance fall below certain levels. This revised agreement instead enables us to use our unencumbered assets as collateral. This change provides the company with greater flexibility, and we will still have more than $2 billion in unencumbered hard assets.
As to revenue, several carriers, including Delta, US Airways and Continental have recently lowered their guidance for the fourth quarter, reflecting weakening market conditions. We also adjusted our revenue growth expectations to reflect the current market. Today, we announced that we expect consolidated passenger unit revenue (PRASM) to increase between 2.5 percent and 4.5 percent year-over-year for the quarter. These numbers are in line with what other carriers have announced.
We also announced what our expected fuel price will be for the quarter and the accounting impact of our fuel hedging program.
In the fourth quarter, we expect to pay on average $2.81 per gallon for mainline jet fuel, rather than the $3.01 we expected to pay previously; and this includes the cash losses on our hedge contracts entered into when fuel was much higher in price. This cash fuel price is what investors will focus on.
Clearly fuel prices coming down is good news for us, and for the industry. Every dollar that fuel declines equates to about $60 million in fuel savings per year for United, excluding hedge impacts. It is important to note, as the price of fuel declines, we benefit on the unhedged portion of our fuel purchases.
Over the course of this year, when fuel prices were escalating, we systematically added hedges to protect us from further fuel price increases. With the recent fuel price decline, we are required to post collateral today to cover potential fuel hedge losses that may occur when our contracts settle.
Unlike most of our peers, we do not currently benefit from cash flow hedge accounting which would not require us to book expenses for hedges in place that have not settled.
To qualify for cash flow hedge accounting, the product hedged must correlate closely to actual fuel cost. Fuel hedging is predominately based on West Texas Intermediate Crude Oil (“WTI”).
United’s hubs are not in close proximity to the Gulf Coast region, so our true cost of fuel includes a charge for transportation cost to our hubs in the Midwest. This makes it more difficult to qualify for cash flow hedge accounting compared to peers that have hubs in Texas and Georgia. The large non-cash accounting charges we expect to book this quarter is one of the main reasons we expect our accounting hedge losses this quarter will be larger than those of some other carriers.
As we’ve said, lower fuel prices benefit our company and all of us. In this volatile environment, we are taking the right steps to ensure that we have the flexibility to achieve our business plan, respond to the current market, and ultimately return United to profitability.
Kathryn Mikells
