Any bets on UAL's potential fuel hedging losses? DAL is doing a great job of claiming they made a lot of money in the 4th quarter, except for those pesky hedges. With those, they lost 700 million. But they did liquidate a lot of 2015 hedge positions. They brought those losses "forward". This might have been a mistake, but at least their accountants are being honest.

After perusing a bunch of different airline and business sites, UAL is going to "bring foreword" 2% of their 2015 hedges into 4 qtr results. Their guidance is this will add .08 cents per gallon to 4th qtr fuel prices. The cost basis of this estimate was not given.

But my basic math ability tells me that if they used the same cost basis, and brought 100% of 2015 hedges foreword and realized the losses now, it would be a loss of about, aheeemmmm, 5 billion dollars.

I also read that there was one or two airlines that are so underwater on their no cost "collars", that they are getting margin calls on their accounts. The same article said they were struggling to arrange enough collateral to satisfy their brokerage house.

I would suggest we start a pool, but we only have a day or two to start it.

I hope I am wrong.

 

That could be devastating. I really hope UAL isn't one of them. I read somewhere that we weren't nearly as hedged as a few others. Guess we'll find out tomorrow.

 

We will.

FWIW, there is one analyst report out there that claims to have calculated DAL's hedge loss at $2B, SWA's at $500M, and UAL's at $200M. UAL's seems low, IMHO, but it would nice to be pleasantly surprised and beat DAL at something. Should be interesting to say the least.

As a side note, airlines need to continually "mark to market" all their hedging positions for their financial reports which is why DAL has to take such a huge hit all at once. If oil goes back to "normal" later this year they could instantly show huge a change in their positions.

Edit--(found the quote): "Among airlines, American (NASDAQ:AAL) should not suffer the cost headwinds related to mark-to-market hedge losses, unlike peers that hedge jet fuel; Delta can expect a $2B hedge-related loss, Southwest should see a $500M loss and United a $200M loss."

 

DAL has the worst fuel hedging position according to Forbes.

 

Yes, they have to "Mark to Market", but in accounting, it is an opinion, even though they are supposed to be following the rules. Also, they can "settle" futures contracts early. Did DAL and UAL do this? I believe I read that UAL settled 2% of 2015 positions early and counted that towards 4th quarter earnings.

What is a little disturbing is how little coverage this is getting. DAL is claiming victory in operating income for the 4th quarter, even though they lost over 700 million when you include those pesky little special items like fuel hedges. 2 billion worth.

I did not see whether DAL settled their contracts early, or just had to account for the potential losses on their earnings report. Apparrantly their refinery purchase has been a disaster as well. In addition to needing hundreds of millions in refurbishment, they are spending millions in "ethanol credits" as their refinery is not capable of mixing ethanol.

I am trying to find the article I read a couple of days ago. It named LUV and DAL and how much they lost. It also mentioned 2 other anonymous airlines that have lost so much they are scrambling for collateral to post for the margin calls they are getting.

Nothing like loosing your arse in the middle of the biggest airline revenue boom in 20 years.

How is that fuels savings program going? Single engine taxi?

 

Yes, why not? What do you do in the long line for departure on 4L at EWR for example?

 

I'm not ready to hammer UAL on their hedging losses. A hedge is simply a bet they made at an attempt to control costs. It could have went the other way. How many out there are buying oil futures or options? The point is that the oil market is very unpredictable because it's not a true supply and demand calculation.

 

I'm curious to see what Southwest's position is/was?

 

Worse than ours. They hedged heavily against rising prices. Delta hedged the most. American almost none at all. We surprisingly less than Southwest, so we get more benefit from the drop in fuel prices.

 

($244)
+($83)
______
($327) million for past and future hedges.