Day Late and $500 Mil short

[UAL_TECH]

Fuel hedging hurts United as oil prices fall

First it was rising oil prices that wreaked havoc with airlines' balance sheets. Now falling prices are poised to have the same effect. United Airlines said Wednesday it could take a hit of more than $500 million in the third quarter due to hedging contracts that locked in oil at prices above current market rates. A spokesperson noted, however, that United has hedged less than half its fuel requirements for the next nine months, meaning that "should prices stay this low, our fuel cost will drop" in spite of the higher contract prices.

B) xUT

 

[boxer]

Is this something like being a little bit pregnant?

 

[FWAAA]

A spokesperson noted, however, that United has hedged less than half its fuel requirements for the next nine months, meaning that "should prices stay this low, our fuel cost will drop" in spite of the higher contract prices.

Now there's a silver lining for ya.

We're locked into really high prices for fuel but, fortunately, on just less than half of our anticipated consumption.

 

[Hi-C-Camp]

Now there's a silver lining for ya.

We're locked into really high prices for fuel but, fortunately, on just less than half of our anticipated consumption.

Well I guess the coin can flip either way for hedging.. FWAAA, you should worry about your own stewing problems at AA and hop back on your broomstick - er - S80 and fly to DFW or some exotic locale I am sure you go...

 

[Ralph]

This is a public bulletin board. Any member may post on any forum and thread. Stick to the topic--fuel hedging--please.

 

[Winglet]

With the tremendous losses, I've heard that UAL has only two months of payroll left. Any truth to that?

 

[BugWash]

With the tremendous losses, I've heard that UAL has only two months of payroll left. Any truth to that?

Wow Winglet. That's weird. I keep hearing that about Air Tran and US Air. I guess maybe we should all stop guessing and hope the best for everyone.

 

[flydude]

Wow Winglet. That's weird. I keep hearing that about Air Tran and US Air. I guess maybe we should all stop guessing and hope the best for everyone.

I haven't heard this about any airline, including UAL. BugWash, you really should take your own advice and stop guessing on things you want to happen. ie.... USAirways going out of business and your new topic, a merger between CAL and UAL. :down: IMO, neither of these GUESSES will come to fruition anytime soon. I truly hope the best, for all employees of any airline, including yours.

 

[hp_fa]

I don't see how the fuel hedges would cause an actual loss. The fuel is contracted for at a set price and that price is a known factor. What the hedges could do, IMO, is not allow United to take advantage of lower spot prices now that the prices are going down.

Does that make sense?

 

[FWAAA]

With the tremendous losses, I've heard that UAL has only two months of payroll left. Any truth to that?

I'm certain that's not the case. UA announced that it expected to have $2.9 billion of unrestricted cash, well in excess of 6 months payroll, even if no more revenue came in.

http://media.corporate-ir.net/media_files/...stor_Update.pdf

UA is in trouble, as are all legacies. The $147/bbl oil spike of July drained them of lots of spare cash and with the economy slowing, and a long, cold, dark winter approaching, they have their work cut out for them. Success will be releasing first quarter numbers in April with enough cash to keep operating into the busy summer season again.

 

[JS]

I don't see how the fuel hedges would cause an actual loss. The fuel is contracted for at a set price and that price is a known factor. What the hedges could do, IMO, is not allow United to take advantage of lower spot prices now that the prices are going down.

Does that make sense?

United buys its fuel at the same price as everyone else at the airport (just like the rest of us at the gas station). When prices drop, UA saves money at the pump but loses it in the hedging contracts. The two balance each other out.