US Airways Stock In Freefall

[28L_or_10R?]

On the plus side oil is taking a beating.

Speculators have left the building. Even locusts leave when they've eaten all the vegetation.

 

[BoeingBoy]

I thought he said it about put us in the grave in'08, or sometime, that's why they didn't do it now.

Every airline (except fee for departure carriers) took a beating on fuel in 2008 - the unhedged when oil was spiking to $140+/bbl and the hedged when the price collapsed to $40-/bbl. WN had the money to close out their outstanding hedges in late 2008 then began hedging again in early 2009 when the price of oil was low - it cost them a significant sum to get out but they saved a bundle after getting back in. US couldn't afford to get out of outstanding hedges (at a crude price as high as k$140/bbl) so took a beating in 2009 as those positions settled but stopped adding hedges after the fall of 2008.

Jim

 

[toganoflex]

I thought he said it about put us in the grave in'08, or sometime, that's why they didn't do it now.

I guess I should have prefaced that with "since the oil spike n crash"

 

[Pi brat]

Every airline (except fee for departure carriers) took a beating on fuel in 2008 - the unhedged when oil was spiking to $140+/bbl and the hedged when the price collapsed to $40-/bbl. WN had the money to close out their outstanding hedges in late 2008 then began hedging again in early 2009 when the price of oil was low - it cost them a significant sum to get out but they saved a bundle after getting back in. US couldn't afford to get out of outstanding hedges (at a crude price as high as k$140/bbl) so took a beating in 2009 as those positions settled but stopped adding hedges after the fall of 2008.

Jim

Thanks Jim. What do you think of the positions of the US majors after yesterday? I've always thought hedging was about like going to Vegas. What worried me about US was that it's major competitors were and if oil had shot to 120-140 again they would have had a major advantage being so far out. At least for now it looks like Doug and the boys bet right.

Just trying to give credit where credit is due.

 

[WorldTraveler]

US execs are probably right in that oil is now so high and the overall global economy is so weak that pushing the price of fuel higher will result in damage to the global economy - which will send the price back down based on decreased demand.
I have a feeling a lot of conventional wisdom about hedging is being revisited based on the fact that US is paying very similar amounts for fuel now as other carriers that hedged. WN's fuel costs - who had hedges larger than anyone - as a percentage of demand - were no better than other carriers.
Hedges only really pay off when there is little to no expectation on one side of high fuel prices but someone else bets there will be.... that is no longer the case.
.
Carriers are realizing that they should hedge some fuel as an insurance- but with floors low enough to prevent having to pay as they did several years ago.... in other words, really catastrophic insurance w/ a high deductible instead of expecting to be protected from every price hike.
.
Carriers are also realizing that replacing some of their fleet w/ newer more fuel efficient models is a safer financial bet and there is little risk of that investment paying off.

 

[Pi brat]

US execs are probably right in that oil is now so high and the overall global economy is so weak that pushing the price of fuel higher will result in damage to the global economy - which will send the price back down based on decreased demand.
I have a feeling a lot of conventional wisdom about hedging is being revisited based on the fact that US is paying very similar amounts for fuel now as other carriers that hedged. WN's fuel costs - who had hedges larger than anyone - as a percentage of demand - were no better than other carriers.
Hedges only really pay off when there is little to no expectation on one side of high fuel prices but someone else bets there will be.... that is no longer the case.
.
Carriers are realizing that they should hedge some fuel as an insurance- but with floors low enough to prevent having to pay as they did several years ago.... in other words, really catastrophic insurance w/ a high deductible instead of expecting to be protected from every price hike.
.
Carriers are also realizing that replacing some of their fleet w/ newer more fuel efficient models is a safer financial bet and there is little risk of that investment paying off.

Agreed, plus Doug had another, better, and for the pilots, a solid hedge-low labor costs.

 

[BoeingBoy]

In a purely economic sense, Parker was/is right about "natural" hedges against oil price increases without actually hedging. Global economic improvements (and largely just the U.S. economy as the largest user of oil) mean oil prices go up due to demand but revenue (and hopefully profit) increases as more people fly. Conversely, if the economy worsens oil prices decline but fewer people fly.

However, that omits traders' sentiment which can be affected by events in the Middle East, predictions of future economic events (whether they come true or not), etc. So oil prices fluctuate due to factors other than those that would provide that "natural" hedge.

As far as hedging being gambling, it depends on how the hedging is done, the cost of hedging, and the desired results of hedging. AS is at one end of the spectrum - they hedge 50% of their future needs to get a handle on future fuel expense. They don't care that much what price they hedge at, they just want to know what price they'll pay next year or the year after for half their fuel. It makes planning a lot easier. If you saw the same chart on hedging that I did, you saw that they were about the most successful - hedges at about $50/bbl. this year, next year and in 2013 for about 40% of their anticipated need.

On the other hand, US and some other legacies were at the other end of the spectrum - using short term futures contracts as the hedging mechanism hoping to generate short term futures profits to offset some of the fuel cost. Consequently, when crude spiked to $140+/bbl us what hedging for the next quarter at $140+/bbl. That is gambling, or at least assuming that whatever oil prices are doing today is what it'll continue doing next month and next quarter. All one has to do is look at the last 30-40 years of oil prices to see that it, like most things, never traces a straight line either up or down.

Jim

 

[SS255]

Well, folks.....the US's credit rating was downgraded by S&P from AAA to AA+. China's lambasting us for irresponsible spending, as they should, considering they own most of our debt. If China calls our debt, we are in deep doo-doo. Monday should be an interesting day on Wall Street!

 

[usa1]

Don't worry .. they'll print some more money and then stimulate the ecomomey by giving government employees another raise ... Maybe they'll hire another 10,000 TSA agents or increase unemployment benefits to 7 years, you know those people really need the money and will spend it as soon as they get it. !!!! No worries ... we are in good hands!!!!

 

[700UW]

If you are so jealous of Government employees why dont you quit and become one instead of whining constantly over it, they are not the problem.

The problem is companies like GE, Exxon, Verizon and others who made billions and paid ZERO TAXES and got refunds.

Assign the blame where it belongs, the right wants to take care of big business and screw the common worker.

 

[NoYellowNeck]

If China calls our debt then they're in deep doo doo too.

Are debt is, partially, from buying goods made in China.

 

[usa1]

If you are so jealous of Government employees why dont you quit and become one instead of whining constantly over it, they are not the problem.

The problem is companies like GE, Exxon, Verizon and others who made billions and paid ZERO TAXES and got refunds.

Assign the blame where it belongs, the right wants to take care of big business and screw the common worker.

Hey your Dem's were up on capital hill last week busting the big bad airlines chops for raising air fairs when the FAA quite collecting their "tax". Don't those Dumb ###'s know that airline employee's are mostly union members, the same ones that elected them ... that want their airline to turn a profit ... so they can get a raise, like government employees and congressman do every year? Gezzzz!

 

[700UW]

Keep avoiding the true issue at hand, how about your fellow right wingers shutting down the FAA partially cause they are in Delta and FedEx's wallet?

And did any of the airlines pass that money along to the workers?

Nope, but I bet they gave the executives another bonus.

 

[usa1]

Yeah they need to re-distributed some more of our SS contributions to fund a few more of these ..... John Murtha's $150 million 'runway to nowhere' .... the $150 million in federal money that has been poured into the John Murtha Johnstown-Cambria County Airport that is causing a ripple effect of controversy from the halls of Congress to the hills of Western PA.

According to the Washington Post, the little-used airport has collected federal cash to fund projects as various as runway-widening ($800,000), a new air traffic control tower ($6.8 million), and a state of the art radar tower ($8.6 million) that costs $150,000 a month to maintain but has not been used since its completion in 2004. Even the passengers are expensive: federal subsidies for United Express' six daily flights from the airport cost about $1.4 million in 2008.

Quite drinking the cool-aide before it's to late.

 

[luvn737s]

Keep avoiding the true issue at hand, how about your fellow right wingers shutting down the FAA partially cause they are in Delta and FedEx's wallet?

And did any of the airlines pass that money along to the workers?

Nope, but I bet they gave the executives another bonus.

Who cares if executives get bonuses? Who cares if corporations don't pay taxes? Any increase in business costs pass directly through to consumers. Taxes don't come out of executive's pockets.

Airlines shouldn't collect taxes if there are no taxes levied, but they can't sit by the phone waiting for the FAA to be re-funded and then tell people that the flight they booked two weeks ago is now subject to tax. Charging it and refunding it is the best solution. Leaving fares at the same level prevents sticker shock when the tax is reinstated.

Airlines (and every other for-profit business) should charge the maximum price that yields maximum profit. Instead people view airlines as quasi-public utilities and like to micromanage their business through such silliness as a Passenger's Bill of Rights. Starbucks has no Coffee Drinker's Bill of Rights that forces them to adopt certain policies. They should let competition work like it should and remove all restrictions, especially slot restrictions.