Fuel Hedging

[bob@las-AA]

low fuel prices have existed for airlines in the past.... they have often been accompanied by very sluggish economic conditions.

The difference that existed for US airlines was that oil prices were low while domestic demand and pricing was fairly strong - at least stronger than the losses from bad fuel hedges.

and there have also been times in the history of the industry when one carrier or another had a significant slight cost advantage for jet fuel relative to other carriers; for WN it was when most of the rest of the industry was in BK or teetering on the edge of it while for AA it was in the last year when other carriers had bad hedges.

IN the next year, there will be no significant difference in what each carrier pays for jet fuel - at least relative to their ability to generate revenue.
In contrast, there is now and will be significant differences in the revenue that each carrier is able to generate. Global economic conditions are not affecting each carrier similarly because each carrier has not responded to them similarly.

This could be one of the most defining winters in the industry in quite some time.

I'm not convinced that having a refinery would effectively lower a carrier's overall fuel cost. It may add to the individual availability and with some accounting magic give the appearance of a fuel cost advantage.

 

[WorldTraveler]

You don't have to be convinced but the results were very clear before DL started losing money on fuel hedges and DL's own financial statements show it.


Of course it is all manipulation and magic if it doesn't show the result which is what you want.... when the refinery is turning a $60 million profit on a standalone basis, it simply is not the failure that many predicted.

and it is foolish to continue to try to argue a point which has clearly been proven - unless you want to start arguing a dozen other financial metrics that AA or any other carrier uses are also no longer valid.

you can't pick and choose what you want to believe just because you don't like the storyline.

 

[CMH_GSE]

http://money.cnn.com/2015/08/18/investing/oil-prices-15-kotok/

Looking more and more like Kotok was right on the money.


https://ca.news.yahoo.com/oil-prices-drop-seventh-session-oversupply-115801852.html

http://www.theweek.co.uk/oil-price/60838/oil-price-is-still-sliding-what-does-it-mean-for-petrol/page/0/27

 

[CMH_GSE]

Now down to $27 per barrel and dropping...

http://www.reuters.com/article/us-global-oil-idUSKCN0UY04U

 

[autofixer]

The "All-in-cost" for Iranian oil is reportedly $16 per barrel.  That may be where the market price is headed.