Jet Fuel Prices Pressure Industry

[USA320Pilot]

Jet fuel prices pressure industry

Fuel prices on the spot market have soared 20% since October

WASHINGTON (USA TODAY) - The highest sustained jet fuel prices since 1990 are threatening both the airlines' nascent earnings recovery and the low airfares that consumers increasingly favor.

See Story

Respectfully,

USA320Pilot

 

[ClueByFour]

Currently, crude is going for around $36/barrel. According to Southwest's 10-Q filing, they have hedged roughly 83% of their anticipated 2004 fuel consumption at something like $23/barrel. Or less than $0.75/gallon for jet fuel.

By comparison, in the latest 10-Q from U, only 30% of the 2004 fuel requirements have been hedged, and a price is not given.

Now, I'm not a Haaaavard MBA grad, but it strikes me that hedges might be a better use of a couple of million a month rather than, say, parking planes and fighting a losing legal battle with the IAM. But what do I know?

 

[ITRADE]

Currently, crude is going for around $36/barrel. According to Southwest's 10-Q filing, they have hedged roughly 83% of their anticipated 2004 fuel consumption at something like $23/barrel. Or less than $0.75/gallon for jet fuel.

By comparison, in the latest 10-Q from U, only 30% of the 2004 fuel requirements have been hedged, and a price is not given.

Now, I'm not a Haaaavard MBA grad, but it strikes me that hedges might be a better use of a couple of million a month rather than, say, parking planes and fighting a losing legal battle with the IAM. But what do I know?

Because hedging is a gamble.

You could hedge 50% of your fuel at $30 a gallon, discover that there is a huge reserve of oil discovered in Alberta, watch fuel crater to $22 a gallon, and be stuck paying $30 a gallon because you're locked in.

 

[ClueByFour]

Because hedging is a gamble.

You could hedge 50% of your fuel at $30 a gallon, discover that there is a huge reserve of oil discovered in Alberta, watch fuel crater to $22 a gallon, and be stuck paying $30 a gallon because you're locked in.

Seems like some folks are much better gamblers than others, eh?

Strategic forecasting, while more of an art than science, is something at the folks at CCY seem to lack in droves (witness how poorly the "plan" has fared in less than 12 months).

It might be an interesting excercise to look thru the airlines SEC docs for the past few years, and see who "gambles" well. I'm betting that U has "gambled" with less skill than most, and that's including getting bounced from the table during Chapter 11.

 

[ITRADE]

Delta was about 50% hedged for Q3 2003.

AA was hedged about 28% for Q3 - Q4 2003 and not at all hedged for 2004.

These were from Q3 2003 10-Qs.

 

[TomBascom]

Jet fuel prices pressure industry

Fuel prices on the spot market have soared 20% since October

WASHINGTON (USA TODAY) - The highest sustained jet fuel prices since 1990 are threatening both the airlines' nascent earnings recovery and the low airfares that consumers increasingly favor.

See Story

Respectfully,

USA320Pilot

High fuel costs threatening low fares?

I doubt it. More likely the legacy airlines will just be caught in the middle and bleed red ink even faster. SWA and the ilk will raise their fares if need be but nobody will notice.

 

[phillyguy]

Isn't there a cash cost to hedge? If so, perhaps U did want to sacrafice any of its limited cash on hand to hedge.