Merger

[a320av8r]

Now is the time to make it happen.
NWA and DAL are about to go into CH11, FlyI is about to go CH7, capacity will come out one way or another. Boeing strike should slow down new aircraft deliveries for a short while.
Fuel goes up and down- the refineries will come back on-line (too much money involved to not come back very quickly), and prices will come back down.
We may actually be in a good position for once!

 

[legacy-to-LCC]

Unfortunately there are weak carriers on life support that don't have any fuel hedging in place. It's only a matter of time before the breath is completely taken out of them, and oil at or near 70 bucks a barrel will certainely speed their demise.

[post="295734"][/post]​

does anybody know (or how to find) a list or summary of what airlines are hedged and which airlines are not?
the competitive landscape may indeed be changing?!?!?!

 

[RowUnderDCA]

I think that NW's dc-9s will start coming out of the system and not replaced one for one by regional jets.

Ok.. how about an industry that is

AMR plus DL minus classic 73s and some 76s

UA plus CO with a deal to transition to all boeing and shrinking the airbus fleet.

NW and US/HP minus dc-9s and 73's slowly increasing narrow body airbuses.

 

[hp_fa]

The combined entity will be able to handle the challenges of high oil much better than if each company were to try individually.  Oil prices will not stop the merger from occuring. 

IMO the merger will go through.  The challenge is to see if Parker can quickly rid himself of the operational hurricane known as Crellin.  I'm still trying to figure out the logic behind that astute move.  Good luck to you all.

mr

[post="295819"][/post]​

I respectfully submit that U can't go anywhere alone now. As far as I know there are no potential equity investors out there and no way to exit Chapter 11. The $15,000,000.00 from HP may not be paid since the investers would kill the deal and even if paid, would not make any noticible change in finances.

Also, what fuel hedging HP has in place is applicale only to HP's sized fleet. U has no hedging and is far more subject to the spot market for it's needs.

 

[EricLv2Fish]

does anybody know (or how to find) a list or summary of what airlines are hedged and which airlines are not?
the competitive landscape may indeed be changing?!?!?!

[post="295851"][/post]​

Not sure if there is any one source on which airlines are hedged and how much. Hedging is like gambling. If you believe fuel prices are going to go up in the future then you can lock in today's fuel price for an extended period of time. How the period of time is determined I'm not sure. If your prediction comes true then you save money. If fuel prices go down then well....it stinks to be the person who recommended the fuel hedging. HOW MUCH fuel hedging an airline can do is determined on how good their credit is. I would venture to say that United, Delta and probably NWA have no fuel hedging in place, we already know that US Airways doesn't. We (AWA) has some (I think 50% till the end of the year). SWA has even more...I think around 80% till sometime in the new year. It's a great advantage if you predict the future correctly. How the other airlines are stacked I don't have a clue.

 

[EricLv2Fish]

does anybody know (or how to find) a list or summary of what airlines are hedged and which airlines are not?
the competitive landscape may indeed be changing?!?!?!

[post="295851"][/post]​

Ran across this article that gives additional information on hedging. Curious to note that AWA's stragey on hedging isn't trying to predict the future price of oil...AWA takes a more conservative level headed approach...read on:


For airlines, 'hedging' on commodity pricing can be a risky strategy
Friday, September 02, 2005

By Dan Fitzpatrick, Pittsburgh Post-Gazette



America West Airlines rolled the dice last year when it agreed to pay a then-high $48 to $58 per barrel for half of its 2005 oil supply.

But with the price of crude now above $70 and the aftershocks of Hurricane Katrina applying more pressure on supplies, America West's gamble is looking more and more like a brilliant gambit, as the Tempe, Ariz.-based carrier and US Airways merger partner continues to make money while saving millions on fuel.

Same goes for Southwest Airlines, which purchased 85 percent of its oil this year at $26 per barrel -- more than $40 below the current spot price. The oil-buying strategy, devised before the 9/11 attacks, allowed the Dallas low-fare carrier to save $196 million in 2005's second quarter -- its 57th profitable quarter in a row.

"They took a gamble and it paid off," said Patrick Furey, senior commodity manager at Ariba Inc., a California-based business software and services firm with offices Downtown.

These days, the difference between making and losing money in the airline industry comes down to "hedging," the risky strategy that involves the purchase of a commodity -- typically fuel and oil -- in advance, under a contract guaranteeing a certain price no matter what the market does. Some contracts are purchased years in advance.

But not everyone has the stomach for the oil futures market. It requires a lot of cash up front and a guess as to the future direction of prices.

There also is the risk of an expensive failure.

"Southwest looks great now, but two to three years from now, that may flip on them" if they lock in prices and guess wrong, said Furey, who oversees a staff of 40 monitoring commodity markets around the world.

Many cash-strapped airlines, including the twice-bankrupt US Airways, have no hedges on fuel contracts this year because they can not afford the upfront expense, often in the tens of millions for an expense that costs them hundreds of millions. Delta Air Lines, trying to stave off bankruptcy, sold its contracts last year to raise much-needed cash.

Former US Airways chief executive officer Stephen Wolf once summed up the dilemma of fuel hedging by telling analysts in the 1990s that the right guess on prices can turn a CEO into a "hero" -- Southwest CEO Gary Kelly was responsible for the carrier's long-term hedging strategy -- or, if he or she guesses wrong, a "goat.''

For that reason, hedging on any sort of commodity is more the exception than the rule, Ariba's Furey said.

Many companies that depend on the oil and natural gas supplies disrupted by Katrina are not well protected from the price swings, Furey said. Even the plants that use oil- and natural gas-type chemicals -- such as the plastic resin polyethylene used in the making of plastic garbage bags -- have not been willing to make the expensive bets.

"You would really be surprised," Furey said. "There is not a whole lot of hedging that goes on in those markets."

For the few companies brave enough to try the oil-futures market, the risk rises with the price of crude as it gets more and more difficult for big hedgers to lock in low prices ahead of time. Southwest, for example, is now able to buy only a quarter of its fuel for $35 in the year 2009.

But America West, the US Airways merger partner that was able to lock up 57 percent of its fuel this year at prices ranging from $48 to $58, claims that its hedging is part of a long-term strategy, in place since 1996, to buy "insurance" against huge price swings.

In other words, the airline does not view the strategy as a risk, but a cost of doing business.

"We don't try to out-think the market," said America West spokesman Carlo Bertolini. "When you do that, you become a speculator and that's not what we are trying to do."



--------------------------------------------------------------------------------
(Dan Fitzpatrick can be reached at [email protected] or 412-263-1752.)

 

[tug_slug]

Ran across this article that gives additional information on hedging. Curious to note that AWA's stragey on hedging isn't trying to predict the future price of oil...AWA takes a more conservative level headed approach.
(Dan Fitzpatrick can be reached at [email protected] or 412-263-1752.)

[post="296524"][/post]​

Here's an older article I posted awhile back. It may not answer all your questions but it IMO it gives a better understanding of AWA's mind set concerning fuel and the merger.

I found this paragraph somewhat interesting;

"When America West and the much bigger US Airways announced their merger in May, the companies said they would create a business healthy enough to make money even with oil at $50 per barrel. Two months later with prices $10 higher, America West said the new US Airways "can be a survivor" and potentially make money if the industry sheds capacity"

Tug

Article

 

[BoeingBoy]

does anybody know (or how to find) a list or summary of what airlines are hedged and which airlines are not?
the competitive landscape may indeed be changing?!?!?!

[post="295851"][/post]​

ATA put out some info yesterday that contains a chart of hedging by airlines for 2005. Only 3 are hedged for more than 50% of this years usage - WN, HP, AS.

See page 3 of the pdf file

Jim