Rotorhead

NWA loses $317 million in 3Q, driven by hedging

October 22, 2008 10:00 AM

MINNEAPOLIS (AP) - Northwest Airlines Corp. on Wednesday posted a $317 million third-quarter loss driven by fuel hedges that are in the red because of falling oil prices, but said it would have made money otherwise.
The nation's fifth-largest carrier said it lost $1.20 per share, compared with a profit of $244 million, or 93 cents per share, during the same period last year. Revenue rose 12.4 percent to almost $3.8 billion.
Northwest says without the accounting charges for the fuel hedges it would have made a profit of $93 million, or 35 cents per share. That's well ahead of the average of analysts surveyed by Thomson Reuters, who expected a profit of 25 cents per share on revenue of $3.78 billion.
Northwest's non-cash charge for fuel hedges that are under water was $410 million.
Northwest collected 8.1 percent more in so-called unit revenue, or money collected per passenger for each available seat it flew. That happened even as Northwest, like other big carriers, shrank. Airlines began removing capacity late in the July-to-September quarter, originally as a way to fight high fuel prices. Fuel prices fell but removing flights ended up cushioning airlines from an economic slowdown.
"The fact that Northwest is able to report an adjusted quarterly net profit in a very challenging fuel environment is a testament to our strong unit revenue growth, capacity discipline and continuing focus on cost control," said Northwest President and Chief Executive Doug Steenland in a prepared statement.
Northwest said it saves $40 million per year for every $1 per barrel decline in oil prices — and oil has fallen more than $70 since its peak in July. But even though oil prices are off their peak, Northwest still paid more than $688 million more for jet fuel during the quarter than during the same period last year.
Northwest's plan to be acquired by Delta Air Lines Inc. in a stock swap still needs antitrust approval. "We anticipate regulatory approval form the Department of Justice soon," Steenland said. Northwest reiterated the expectation that the deal will close by the end of this year.
In morning trading, Northwest shares rose 54 cents, or 4.4 percent, to $12.57.

Now I know why we are tankering fuel from outstations to hubs.

satchip

Hey Super, NW is 2/3 the size of Delta and you lost 6 times as much!

just pulling his chain everyone, no need to get incensed.

Ferd149

I, for one, just want to be on the record as saying how proud I am, to once again, be on the wrong side of the fuel hedge issue. Can I get a big whoyaaaaaaaa for our crack management team?

Ok, wouldn't have guessed it would drop this far either.

Ferd
Your real glad I ain't drive'n this here bus either

ewrbasedpilot

What's so sad about all this is that the airlines are getting screwed from every which way now. They hedge to lock in prices to hopefully keep them from getting hosed even more, and as soon as they do it (based on EXPERTS recommendations no less), the oil prices tank and the airlines get hosed EVEN MORE. This is almost getting to the point of being ridiculous...... I guess all the "experts" who were predicting $170 a bbl oil are laughing their way to the bank as they "cashed in" on the misery of the airlines who "believed them" and all their rhetoric. NYSE = New York SUCKERS Exchange. Sad..................

KC10 FATboy

I for one didn't believe the hype of "peak oil" or the so-called "experts". Why? As someone who is middle class, even I was having a tough time justifying excess driving. It was clear that demand was headed downward thus causing the prices to go with it.

It is exactly like the housing market in NJ when I first moved here in 99. Normal single family homes were just over $200K. A year ago they were peaking in my neighborhood at $500-$600K. Who could afford that? I know the legacyfamilies in my neighborhood weren't. So it was only a matter of time before the hype crashed.

-Fatty

Larry in TN

You guys do understand that these hedging losses the airlines are reporting this quarter are just on paper, right? No cash is actually being lost.

It's like when your 401k goes up big last quarter and then loses some of that gain this quarter. The airlines showed big paper gains (again, no cash) the previous quarter(s) when the value of the hedges that they were holding exploded due to the rapidly rising oil prices. Now they've given back a large percentage of those "paper gains" as "paper losses". If oil prices go back up, as OPEC is currently meeting in an attempt to arrange, these exact same hedges will once again book large "paper gains".

They have not lost any actual money on these hedges.

acl65pilot

Depends on how they hedge and when they took delivery of the fuel.
They will pay for the fuel at the higher price if they did not sell that future.

ewrbasedpilot

Apparently a few big "ceo's" and bankers KNEW this was coming and were sending emails between themselves stating that they hoped they were "all wealthy and retired before the house of cards faltered". I hope they hunt down all those 'slimey scum of the earth poor excuses for humans', throw them in prison, and accidently lose the key. The airlines have definitely suffered because of their selfishness and GREED. It appears speculation WAS behind a lot of what was going on in the oil market. Wonder how much this will end up costing the airlines in the end? I feel sorry for all those who've been furloughed because of this big "money grab" mess. As for these hedges only being "paper" losses, tell that to the folks who ARE losing their jobs. Those AREN'T paper losses, but REAL losses...............

acl65pilot

Quite true.

Superpilot92

disregard, i looked it up. Reference the next post.