I stand corrected. Looked at my scratch paper & can't figure out what I fat-fingered.

But yeah, it's still ugly.

I found this interesting:

https://weekly.visualapproach.io/p/f...ith-oil-spikes

Great article.

In a nutshell airfares are more elastic in relationship to the supply of seats and passenger demand and more inelastic with regards to cost inputs like oil/labor. This makes total sense and works the same way in the pricing of almost every other good or service.

I still think some airlines will try and pass off some higher fares because of this, but the total costs of air travel aren't going up significantly because of crude oil costs. Will impact bottom lines a bit but that's about it.

I think some airline managers will use this as an excuse when they explain why Q1 profits aren't great or their losses are greater than expected.

US airlines don't hedge. Hedging is expensive and the US carriers were burned in the past by hedging when oil price fell. Even for the non-US airlines that do hedge fuel, they rarely hedge against crack spreads as there is no liquid market for such derivatives, and would have to buy expensive, custom hedging products...in this current situation, crack spreads widening are as big an issue as oil prices. One caveat is that Delta owns their own refinery and gets a majority of their fuel from that refinery, so they are somewhat hedged against crack spreads widening. Also an important note on hedging -- your counterparty needs to be confident in your creditworthiness to allow you to hedge...some struggling airlines overseas that would have liked to hedge (such as Air Baltic) aren't creditworthy enough for many counterparties, and are therefore either underhedged or unhedged...another way that weaker airlines are more exposed to downside/left-tail risks.

you mean they don’t hedge now. SWA came out ahead in 2008 by hedging a barrel at $51.

By saying "US carriers were burned in the past by hedging when oil price fell" the implication is that they used to, so yes, I'm aware they used to hedge. Funny that you mention LUV's hedging in 2008, because that is exactly when the other carriers were burned; LUV got lucky (or maybe were smart) by hedging way in advance at super low rates, while the other carriers hedged after oil spiked in early 2008 and then were crushed when it tanked. I don't expect any carriers to start hedging again now, but if they did, they would likely end up in the same situation, hedging at peaks and getting crushed on normalization. Also funny how possibly the top driver, but certainly one of the main drivers, of LUV's outperformance historically (through maybe 2015 with the shale boom and OPEC price war) was them hedging long-term in a market with oil prices that went straight up from the late 90s to the shale boom (with one blip in the GFC), allowing them to undercut and grow profitably not only due to superior CASMx but also due to lower fuel costs.

What you just described is better managerial planning. It's what CEOs are paid to do. Hedging fuel absolutely should be a consideration (not sure if it is).

Dempster Fire is compensated at the AK CEO level so he should have that level of ideas and decision making. Time will tell.

No, airline CEOs are paid to manage airlines, not make directional bets on macroeconomics and geopolitics. If the forward fuel curve is exceptionally low, it may make sense to hedge and lock in low prices in the future. But the reason US airlines have moved away from hedging is that when fuel is range-bound at an average price, hedging is simply an expensive way to take a directional bet that investors want to be able to decide on themselves. If I wanted (positive or negative) exposure to oil prices, I'd take that position myself. Shorter-term hedges like what the legacies used to do are more acceptable as an actual hedging mechanism, but two problems remain: 1. they are an expensive form of insurance and you would have to see a big move for them to offset that price (in this scenario it would have paid off, but think about all the cash that would have been incinerated by hedging over the past 5 years); 2. airlines suck at hedging because anyone good at trading oil works for a trading firm/hedge fund. I have no opinion on Dempster and no horse in this race, just commenting on the history of fuel hedging in the airline industry.

[QUOTE=AK26;4010768]No, airline CEOs are paid to manage airlines, not make directional bets on macroeconomics and geopolitics. If the forward fuel curve is exceptionally low, it may make sense to hedge and lock in low prices in the future. But the reason US airlines have moved away from hedging is that when fuel is range-bound at an average price, hedging is simply an expensive way to take a directional bet that investors want to be able to decide on themselves. If I wanted (positive or negative) exposure to oil prices, I'd take that position myself. Shorter-term hedges like what the legacies used to do are more acceptable as an actual hedging mechanism, but two problems remain: 1. they are an expensive form of insurance and you would have to see a big move for them to offset that price (in this scenario it would have paid off, but think about all the cash that would have been incinerated by hedging over the past 5 years); 2. airlines suck at hedging because anyone good at trading oil works for a trading firm/hedge fund. I have no opinion on Dempster and no horse in this race, just commenting on the history of fuel hedging in the airline industry.[/QUOTE

Dempsters dumpster dollars it is ! Move over Biffle bucks $$$

Flying planes is a job. Being a commercial pilot is a career.

better career planning and you wouldn’t be in the position you are in. Coming on here every day to hate on the company you work for and yet totally unwilling to leave. Blaming management at every turn yet never looking in the mirror.

You are not some inactive entity that can only be acted upon. Commercial pilots must be proactive and hyper aware of their careers. Just like you blame management for not foreseeing the spike in fuel or other macroeconomic trends resulting in the circumstances you are in now. A commercial pilot must also analyze the macroeconomics of the industry and economy at large.

Or, it’s all just dumb luck (probably more likely imo) which airlines succeed and which fail so blaming management for not running an airline profitable enough to pay legacy rates is m utterly futile.

I don’t think the Herb, Kirby, or Crandall himself could turn F9 into an airline profitable enough to pay legacy rates. The market has shifted way faster than anybody believed and Indigo lost their fastball. Wizz and frontier had down years.

it’s not helpful to blame management for failing to foresee the collapse of the ULCC domestic model when you had the biggest hiring opportunity in generations and you failed to capitalize on it. Blaming others instead of taking control of your career is childish.