Negative one percent for the Q due to fuel hedges and early out program. 115 million loss on fuel hedges PLUS 800 million non cash charge for hedges. GREAT job fuel hedge team!

 

These same guys lost $500 Million a couple years ago on hedges too...

But hey, we just bought an oil refinery, so we've got that going for us!

 

Remember that "non-cash charge" is a mark to market requirement. It doesn't actually mean DAL lost money....yet.

The real/actual gain or loss from the hedging only happens when the hedging instrument (contract) is sold to another entity or is executed at its maturity date.

Nobody thought fuel would be dropping this much in peak summer travel season, that is a worrisome indicator in the economy. (quick, buy gold! ....joking)

 

I wonder how much reserve capacity the facility in Trainer, PA can hold.

Hopefully that may help us reduce some of the losses associated with these fuel hedge bets.

 

hmmmm.... let's grow!

or merge and shrink.

 

That depends on the ALV. I guess we'll use the long callers to run the crack spreader.

 

Profit, over our most profitable quarter of - 1%.

IMHO we can't really blame hedges, if we are using them properly. Used in their correct form they serve to stabilize the price of fuel, not make bets on it.

In other words, if we know the price of our fuel (by locking in contracts, or hedges against fluctuation) then we can accurately price our products and meet our margins if demand continues as forecast.

Swinging to a loss on hedges suggests that we gambling more than simply assuring price stability.

One facet of the Trainer Facility purchase was the idea that we would not physically own the products except for the brief period of time that they were literally at hand; thus reducing our exposure to market fluctuations on "inventory." Hope that is the case going forward.

As I have been saying for years, we need to figure out what our core business is and focus on that. We have too many disastrous non core side bets which are not accounted for in daily operations which have taken a heavy toll on our bottom line.

 

I think the training and certification process to use the crack spreader machine may be beyond the capabilities of most of our pilots.

 

All the ones that I see say they loss on hedges but the profit margin increased. The hedge loss does not mean they will not record a profit for the quarter. Average analyst estimates of 82 cents a share which is almost twice as much as last year.

 

Go back and look at some of the previous "mark to market gains" in the previous quarters. In essence, they have a fuel hedge portfolio out into the future and each quarter they set a value on that portfolio. If fuel seems to be headed higher they record a gain. If fuel is going lower they record a loss. Some of the "loss" they just recorded includes cancelling out some of the "gains" they recorded on the exact same hedges last quarter. If you buy a stock at $20 and then it goes to $40, you can say you "gained" $20 although until you sell you don't have that gain. If next week the stock slips back to $30, you could say you just "lost" $10, even though you never actually gained or lost anything. If fuel stays low, then some hedges will end up losing money, but a lot of this write off is just cancelling out prior "gains".

It is called hedging, not fuel investment strategy. The idea of hedging is to eliminate uncertainty in future pricing, not to try to time the market for profit. If fuel is headed always up, then hedging always wins. If fuel is headed always down, then hedging always loses. If fuel swings up and down, then sometimes you win and sometimes you lose.