Delta 3rd quarter loss
10-22-2009 | 12:19 PM
#71
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From: A-320A
Actually, if you look close I think you'll find that the hedging losses were folded into the operating numbers. They were not included in the special items.
We would have made nearly $300 million on an operating basis if management had not lost all that money on fuel contracts.
We would have made nearly $300 million on an operating basis if management had not lost all that money on fuel contracts.
10-22-2009 | 12:23 PM
#72
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So some of the hedging losses are just unwinding from previous paper gains, but some of the hedging losses are actual cash outlays.
That said, the purpose of a hedging program is to eliminate risk in fuel. It is meant to break even over a long period of time, not to make money or lose money. We made a lot on hedges in 2008 and of course 2009 has been a negative. This is not a failure but it is how the program is designed. If we could win every time on hedging, we could quit flying passengers around and make lots more money speculating on fuel.
That said, the purpose of a hedging program is to eliminate risk in fuel. It is meant to break even over a long period of time, not to make money or lose money. We made a lot on hedges in 2008 and of course 2009 has been a negative. This is not a failure but it is how the program is designed. If we could win every time on hedging, we could quit flying passengers around and make lots more money speculating on fuel.
Granted, I honestly do not know the ins and outs of speculation, or rampant speculation at that, however I do know that oil, anyway you look at it, has become an uncontrollable, unpredictable cost variable in our delicate business model. The general rules of oil speculation that have traditionally taken place over the past decades no longer seem to apply.
Example, unemployment is up, businesses are down, and we've have just entered into the fall season. In the past, any one of these three events would have caused a downward push in fuel prices. Yet for some reason prices are still surging, OPEC has refused to increase production because they have admittedly said that fuel demand has not increased at all and that the upward price trends are a direct result of speculation.
What if I were to begin purchasing all the Flu Vaccines at the beginning of each Flu Season, there by create a decrease in supply while the year to year demand remained the same? In that scenario, I would be speculating on the increased demand for Flu Vaccine, so I then decide to start selling it off slowly at a much more inflated rate, thereby causing patients to pay 3-4 times what they should be paying for it. I know it's not a perfect correlation, but if this scenario would ever pay out there would be anarchy, and rightfully so.
Our cost structure in providing our services to our customers is heavily reliant on our ability to stabilize, secure, and solidify our production costs.
The best business model in the world will not be able to make a airline profitable, unless rampant speculation comes under stringent regulation and oversight.
10-22-2009 | 12:24 PM
#73
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From: A-320A
Not sure if this should be in this thread or the L&G, but did anyone else notice LCC anouncing they are considering selling the rest of the E-Jets(15)? I know, DUH, but really who else is in line to buy them other than RAH? If this comes to fruition would this get us closer to a termination of contract with them? Just wondering.
Burn Notice
PS-The concern over H1N1, how? I took my 2 year old in for her regular flu shot and asked the nurse if they are seeing a lot of H1N1. She said they are seeing A LOT of flu but quit testing for H1N1 a long time ago and just started assuming it is H1N1. This is backed up by a Doc-in -a-box I visited a couple of weeks ago as well. Just my observations.
BN
Burn Notice
PS-The concern over H1N1, how? I took my 2 year old in for her regular flu shot and asked the nurse if they are seeing a lot of H1N1. She said they are seeing A LOT of flu but quit testing for H1N1 a long time ago and just started assuming it is H1N1. This is backed up by a Doc-in -a-box I visited a couple of weeks ago as well. Just my observations.
BN
Nice to see you have resurfaced.
And I would not be so fast with RJET. They have all of these neat little airplanes under different certs so they do not conflict with the mainline PWA's. In effect not much we can do the way ours is written. (or so they say)
10-22-2009 | 12:57 PM
#76
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Sorry, no clue. It would depend upon the AFA contract. I think the NMB will have to make a decision pretty soon.
10-22-2009 | 01:22 PM
#77
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One area I think you are getting confused with is operating profit vs a loss in conjunction with write offs. Guys have alluded to this in posts above. The special charges you keep hearing about are a smart way to reduce tax liability and the Delta tax guys take as many write offs as possible. Now don't be confusing write offs as being actual cash losses. Ideally we wouldn't have any special charges (ie early retirement payoffs, early termination of contracts, etc) and just have huge net profits. Although that does not exist right now the silver lining is that if Delta were to quit taking write downs for tax reasons we would be showing a slight net profit.
One other thing that has skewed the numbers for a while is the merger with NWA. Numbers from one year to the next are not apples to apples comparisons as you integrate large volumes of another carrier. 2010 to 2011 will finally get the company to a point where you can compare year to year to see how things are really progressing.
The biggest thing as pilots that we want is to be profitable (net profit even with any write downs) like for example one billion per year 2011 to 2012 since the new contract for pay etc will be due then and it will be easier to get "restoration" to contract 2000 plus (ie a 777 Captain makes $330 per hour and a 757 FO makes $180 per hour) if the numbers are crunching really well. This also opens up more growth, moving up the latter and hiring guys like you if you are still gunning for Delta by then. Clear as mud?
One other thing that has skewed the numbers for a while is the merger with NWA. Numbers from one year to the next are not apples to apples comparisons as you integrate large volumes of another carrier. 2010 to 2011 will finally get the company to a point where you can compare year to year to see how things are really progressing.
The biggest thing as pilots that we want is to be profitable (net profit even with any write downs) like for example one billion per year 2011 to 2012 since the new contract for pay etc will be due then and it will be easier to get "restoration" to contract 2000 plus (ie a 777 Captain makes $330 per hour and a 757 FO makes $180 per hour) if the numbers are crunching really well. This also opens up more growth, moving up the latter and hiring guys like you if you are still gunning for Delta by then. Clear as mud?
Operating income is all income created by flying planes around. Operating expense is what it costs to fly planes around. Operating profit/loss is the difference between the two.
Overall profit/loss is the operating profit/loss adjusted for interest expense, taxes, and special charges.
In this quarter we had about $7.5 b in operating income and about $7.3 b in operating expense. That gave us a $200 mm operating profit. That operating expense included the one time charges for merger expenses and the early retirement costs as they are both operating expenses.
We had about $315 mm in net interest expenses and about $80 mm in the one time write down on debt. That gives us about a $180 mm loss before taxes. We about a $20 mm rebate from taxes (don't ask me how) and the net loss was $160 mm or so.
Note that borrowing money changes your cash balance but does not affect profit/loss except for the interest charges. Paying back debt does not affect profit/loss except for reducing interest charges.
Since borrowing or paying down debt doesn't affect profit/loss, you can develop different numbers for carriers based on their aircraft ownership. That is why you see people talk about EBITDAR which is earnings before Interest, Taxes, Depreciation, Amortization, and Rent. This eliminates differences in aircraft ownership costs (owned outright, owned but mortgaged, capital lease, operating lease) and allows carriers to be compared on an equal basis.
10-22-2009 | 01:33 PM
#78
#WEDAT
Joined: Jul 2009
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From: 717a
Where have you been?
Nice to see you have resurfaced.
And I would not be so fast with RJET. They have all of these neat little airplanes under different certs so they do not conflict with the mainline PWA's. In effect not much we can do the way ours is written. (or so they say)
Nice to see you have resurfaced.
And I would not be so fast with RJET. They have all of these neat little airplanes under different certs so they do not conflict with the mainline PWA's. In effect not much we can do the way ours is written. (or so they say)
I have been lurking, but usually I am a day late and a dollar short in Brazil trying to catch up on posts. Finally ahead of the time zone to see what is going on. Anyway, I know, I know about RJET. I know DAL does have a pretty hard core legal team and there HAS to be a loophole somewhere. If not then I vote to hire BB to write out 2012 contract. All that aside, I'm just gonna concentrate on bidding for holidays and see what 2010 brings.
Gonna be one for the record books! (Of course I been thinking that for about the last 9 years!)
Burn Notice
PS-I voted today.
10-22-2009 | 02:43 PM
#79
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Operating income is all income created by flying planes around. Operating expense is what it costs to fly planes around. Operating profit/loss is the difference between the two.
Overall profit/loss is the operating profit/loss adjusted for interest expense, taxes, and special charges.
In this quarter we had about $7.5 b in operating income and about $7.3 b in operating expense. That gave us a $200 mm operating profit. That operating expense included the one time charges for merger expenses and the early retirement costs as they are both operating expenses.
We had about $315 mm in net interest expenses and about $80 mm in the one time write down on debt. That gives us about a $180 mm loss before taxes. We about a $20 mm rebate from taxes (don't ask me how) and the net loss was $160 mm or so.
Note that borrowing money changes your cash balance but does not affect profit/loss except for the interest charges. Paying back debt does not affect profit/loss except for reducing interest charges.
Since borrowing or paying down debt doesn't affect profit/loss, you can develop different numbers for carriers based on their aircraft ownership. That is why you see people talk about EBITDAR which is earnings before Interest, Taxes, Depreciation, Amortization, and Rent. This eliminates differences in aircraft ownership costs (owned outright, owned but mortgaged, capital lease, operating lease) and allows carriers to be compared on an equal basis.
Overall profit/loss is the operating profit/loss adjusted for interest expense, taxes, and special charges.
In this quarter we had about $7.5 b in operating income and about $7.3 b in operating expense. That gave us a $200 mm operating profit. That operating expense included the one time charges for merger expenses and the early retirement costs as they are both operating expenses.
We had about $315 mm in net interest expenses and about $80 mm in the one time write down on debt. That gives us about a $180 mm loss before taxes. We about a $20 mm rebate from taxes (don't ask me how) and the net loss was $160 mm or so.
Note that borrowing money changes your cash balance but does not affect profit/loss except for the interest charges. Paying back debt does not affect profit/loss except for reducing interest charges.
Since borrowing or paying down debt doesn't affect profit/loss, you can develop different numbers for carriers based on their aircraft ownership. That is why you see people talk about EBITDAR which is earnings before Interest, Taxes, Depreciation, Amortization, and Rent. This eliminates differences in aircraft ownership costs (owned outright, owned but mortgaged, capital lease, operating lease) and allows carriers to be compared on an equal basis.
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