Analysts - AA to benefit most for oil drop, DL least

[commavia]

Interesting read.  I predict the ratio of paragraphs of response/diatribe to paragraphs in the article on this will be at least 3:1.
 
http://www.forbes.com/sites/antoinegara/2014/12/01/american-airlines-jetblue-among-biggest-winners-in-oil-plunge/
 
"Delta and Alaska Air may benefit the least from falling oil, BAML analyst [Glenn] Engel said, citing Delta’s commodity hedges and a profit sharing agreement the company has with employees." (emphasis added)
 
"While BAML’s Engel is generally positive on the prospects of Delta and [Alaska], two strong performers in 2014, he sees 'little upside' to their current stock prices."
 
Perhaps Trainer wasn't the smartest bet.

 

[WorldTraveler]

it's very possible they are right but it is also possible they don't have enough facts to know.

AA will likely have a fuel hedge benefit but AA has yet to deal with the currency issue in Venezuela that gets worse with every dollar in fuel price drop in the US.

AA will not see any money from Venezuela and other Latin economies have currency issues as well - both impairments and changes in valuation. Add in increased competition and all of the fuel hedge gains that the other carriers hold will not amount to the amount of revenue loss that AA will face.

Trainer works just as well at lower crude oil input prices as it does with larger prices. Further, Trainer is intended to affect the crack spread - something lowering crude oil prices doesn't touch.

what makes less sense is spending tens of billions of dollars on new aircraft that won't deliver the fuel savings compared to M80s and older 737s.

 

[Glenn Quagmire]

Interesting read.  I predict the ratio of paragraphs of response/diatribe to paragraphs in the article on this will be at least 3:1

What you will probably see is more armchair bloviating. You will also see more of how the actual paid analysts are completely wrong...again.

And more of this:

AA has made critical errors with employees, Latin America, NYC, LAX. DL wins because of profit sharing, NYC, SEA, repeat, over and over.

Every thread becomes a repetition of the same thing.

 

[WorldTraveler]

feel free to call it bloviating if you wish but the size of AA's currency issues are far larger than what any other carrier has in exposure to fuel hedging.

I'm not denying that other carriers might have fuel hedge losses - they likely will.

but analysts are focused on fuel hedge losses because they can read the headlines regarding fuel prices.

they don't know AA's decisions regarding writing off or having revenue losses due to weakened or impaired currencies in Latin America.

sorry if you can't stomach the reality that if AA didn't have market issues the fuel hedge advantage would translate into something.

but in economics as in most other parts of life, an advantage in one area is a disadvantage in another.

Fuel hedge losses don't without a loss of revenue in other places.

 

[robbedagain]

Commavia now u did it now we'll probably hear how they dont knw the facts like a certain dl preacher thinks he knws it all etc glenn spot on bro

 

[NYer]

it's very possible they are right but it is also possible they don't have enough facts to know.

AA will likely have a fuel hedge benefit but AA has yet to deal with the currency issue in Venezuela that gets worse with every dollar in fuel price drop in the US.

AA will not see any money from Venezuela and other Latin economies have currency issues as well - both impairments and changes in valuation. Add in increased competition and all of the fuel hedge gains that the other carriers hold will not amount to the amount of revenue loss that AA will face.

Trainer works just as well at lower crude oil input prices as it does with larger prices. Further, Trainer is intended to affect the crack spread - something lowering crude oil prices doesn't touch.

what makes less sense is spending tens of billions of dollars on new aircraft that won't deliver the fuel savings compared to M80s and older 737s.

 
If you have a fuel hedge, you're probably loosing revenue since the prices set on those hedges were most likely much higher than they are today. Fuel hedges are beneficial when prices are going up, but a detriment when prices are going down.

 

[NYer]

feel free to call it bloviating if you wish but the size of AA's currency issues are far larger than what any other carrier has in exposure to fuel hedging.

I'm not denying that other carriers might have fuel hedge losses - they likely will.

but analysts are focused on fuel hedge losses because they can read the headlines regarding fuel prices.

they don't know AA's decisions regarding writing off or having revenue losses due to weakened or impaired currencies in Latin America.

sorry if you can't stomach the reality that if AA didn't have market issues the fuel hedge advantage would translate into something.

but in economics as in most other parts of life, an advantage in one area is a disadvantage in another.

Fuel hedge losses don't without a loss of revenue in other places.

 
How much of loss are other airlines taking from the fuel hedges?

 

[FrugalFlyerv2.0]

but analysts are focused on fuel hedge losses because they can read the headlines regarding fuel prices.

they don't know AA's decisions regarding writing off or having revenue losses due to weakened or impaired currencies in Latin America.

 
I'm sorry but again I can't buy what you're selling here: analysts know how to evaluate the fuel hedging but are too stupid to analyze the currency situation in Venezuela.  That just doesn't pass the smell test.

 

[swamt]

Guys, It still doesn't change the FACT that AA  will benefit way better than Delta and Alaska.  And if I am not mistaken, AA will benefit more than SWA will too.  SWA had too many hedges covered for 14 and into 15.  It will benefit us but not as much as AA will benefit.  You see anytime someone post anything in the slightest bit positive for their own airline this idiot will come in and try in any way shape or form to knock it down below the Delta level of whatever.  I proved this during a little experiment over in the SWA thread, he will do it every single time and it just speaks volumes about his character and demeanor... 

 

[WorldTraveler]

If you have a fuel hedge, you're probably loosing revenue since the prices set on those hedges were most likely much higher than they are today. Fuel hedges are beneficial when prices are going up, but a detriment when prices are going down.

revenue is what a company generates as a result of selling its services or products.

Fuel hedges are an offset to a cost item.

Fuel hedges do not affect revenue per se.

the only reason why they are linked is because low fuel prices - which is what will create hedge losses - affects the economies of certain countries far more than that of others. Venezuela is one of the most susceptible to decreasing oil prices and is also one where AA is not only dominant but has virtually no likelihood of repatriating its money.



 
 

How much of loss are other airlines taking from the fuel hedges?

AA is the least hedged airline - they have none.... every other airline will have some hedge losses.

but not all airlines use the same hedge instruments and no airline has said how they will be affected... probably will within the next two weeks as the end of the year comes into view.

It is merely a swag for analysts to guess the degree to which airlines will be impacted by hedges.

the airlines only release their hedge positions once a quarter and none have provided revised guidance since their 3rd quarter earnings.

DL already said in their 3rd quarter earnings call that they unwound most of their hedges beyond the 4th quarter and would have minimal impact.

it is likely that other airlines have done the same thing.

again, analysts have seen hedge losses many times and so they jump on the bandwagon when they see fuel prices dropping.

they do not know how to evaluate currency losses because they are much less common in the airline industry.

and it still doesn't change that AA's currency losses in Venezuela alone will amount to over $700M. No other airline has anywhere close to that amount exposed in fuel hedges based on what they have disclosed so far.



further the part that is lost is that AA made huge investments in new fleet based on the expectation of high fuel prices.

AA is already the most heavily indebted US airline. Every day jet fuel prices stay as low as they do validate that DL's 20 plus year old M80s and WN's 733s of the same age make more financial sense than AA's hundreds of new aircraft.

DL and WN's fuel costs go down; AA's debt payments do not.

 

[700UW]

Older aircraft cost more to operate and to maintain, guess you haven't heard of the FAA's mandatory aging aircraft program.

 

[robbedagain]

oh jeeze swamt  now you really did it too bro   you might of really sent wt over the cliff  or into the hospital   bec now we may hear a 1 billion page how bad it is for AA but sooo good for the Al Mighty Wiget  

 

[WorldTraveler]

Older aircraft cost more to operate and to maintain, guess you haven't heard of the FAA's mandatory aging aircraft program.

yes, I do.

and you and everyone else seem to think money grows on trees - but it doesn't.

new aircraft cost money - and lots of it.

Part of the justification for new aircraft is the fuel economy. When fuel prices are low, a portion of the savings aren't there.

maintenance costs can be planned over the life of an aircraft. at some point, all aircraft have to be retired but in order to avoid increasingly heavy maintenance expenses but the age that aircraft can be used is a lot longer than many aircraft are being retired.

Let's remember that DL's M80s are not that much older than AA's and Dl can figure out how to keep them maintained and reliable while NW kept DC9s in service for the better part of 4 decades.

 

[700UW]

It still costs more to maintain an older less efficient aircraft, there is no way around that fact.

Parts cost more as those planes aren't in production so there is less inventory and require more intensive maintenance.

 

[WorldTraveler]

Maintenance costs more than a newer aircraft but you don't begin to understand the cost of money or the fuel cost savings involved.

And the way that DL is dealing with parts costs is by buying used, retired aircraft - including some of AA's - to strip them of parts.

AA is the most heavily indebted US airline. DL is at the opposite extreme among legacy carriers. UA is in the middle.

You can hold onto the notion that AA's strategy will end up as the best but I can assure you that low fuel costs and increasing debt are the absolutely last thing that will ensure AA's success.