johnny kat
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How could Delta be so wrong about fuel hedges?
Delta's Pathetic quarterly results
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WorldTraveler
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because the whole notion of hedging means that you will be right some times and wrong others. Remember that in the last quarter of 2011 and the first quarter of 2012 DL locked in lower prices than many of its competitors and benefitted from it. Notably, WN had very bad hedges earlier this year which hurt them; in the "hedges gone bad" cycle it is now DL's turn to feel the pain.
It is very hard to benefit when fuel prices drop if hedged - which is part of why US showed such good numbers. There might be more and more validity to the argument that it is no longer necessary to hedge fuel since capacity in the industry is under much better control due to consolidation and fuel price increases can be passed along to consumers.
It also says that permanently reducing the cost of fuel which is what DL says it will do with the refinery deal provides more benefit than hedges which you sometimes win and sometimes lose.
Notably, AA has not seen the volatility that other carriers have had since AA's hedging was reduced but not eliminated while in BK. The company fought hard to be able to keep the ability to hedge; they still do but at lower percentages.
We haven't heard from UA who will likely post a far more "pathetic" quarter and it will be driven by revenue - which has a much larger effect on the bottom line. We still don't know how bad they got bit by hedges but that is bound to contribute to their woes.
If you look at DL's revenue numbers - aside from fuel - DL still maintained RASM growth well above average for the industry - and DL has been doing that for well over a year.
It might be a testament to how difficult to hedge that probably DL's last year hedging will turn out creating some bad bottom line numbers.
The silver lining is that they are creating a different approach to deal with fuel prices that eliminates the risk involved with hedging while reducing costs relative to its competitors.
It is very hard to benefit when fuel prices drop if hedged - which is part of why US showed such good numbers. There might be more and more validity to the argument that it is no longer necessary to hedge fuel since capacity in the industry is under much better control due to consolidation and fuel price increases can be passed along to consumers.
It also says that permanently reducing the cost of fuel which is what DL says it will do with the refinery deal provides more benefit than hedges which you sometimes win and sometimes lose.
Notably, AA has not seen the volatility that other carriers have had since AA's hedging was reduced but not eliminated while in BK. The company fought hard to be able to keep the ability to hedge; they still do but at lower percentages.
We haven't heard from UA who will likely post a far more "pathetic" quarter and it will be driven by revenue - which has a much larger effect on the bottom line. We still don't know how bad they got bit by hedges but that is bound to contribute to their woes.
If you look at DL's revenue numbers - aside from fuel - DL still maintained RASM growth well above average for the industry - and DL has been doing that for well over a year.
It might be a testament to how difficult to hedge that probably DL's last year hedging will turn out creating some bad bottom line numbers.
The silver lining is that they are creating a different approach to deal with fuel prices that eliminates the risk involved with hedging while reducing costs relative to its competitors.
johnny kat
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I think the purchase of the refinery was a brilliant move. I suppose it will be a matter of time before DL will be the most savy of all the airlines in regards to hedging. Just the fact that DL would have posted a profit of hundreds of millions of dollars if not for the hedging disadvantage is truly heartening not just for DL but the entire industry. Exciting times indeed. All the best to the hardworking DL folks.
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DL consumed nearly one billion gallons of fuel in the quarter and had settled fuel costs 20 cents per gallon higher than US - who was unhedged - paid. That should provide some color to the size of the hedging problem.
Kev3188
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Dunno if I'd call them pathetic...
IMO, it proves that hedging is a bit like a casino. Had they hit a hedge-driven windfall, we'd all be calling them geniuses (much like everyone did w/WN for a while)...
- Unit revenue increased by 8.5%
- They paid down $374m in debt (though I still don't like the idea of carrying ~ $12.1B, but whatever)
- Operating margin was 9%
IMO, it proves that hedging is a bit like a casino. Had they hit a hedge-driven windfall, we'd all be calling them geniuses (much like everyone did w/WN for a while)...
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good words, Kev.
listening to the conference call right now.
DL has reduced debt by $5B of its intended $7B.
DL operated 99.7 of its flights - few airlines have done that well for so long a period of time - and is at the top of the industry. THAT is a tribute to all of the people who make DL work - and it is a reflection of the work done by EVERYONE at DL. And I see it every time I fly.
Increased DL productivity is a big piece of the RJ fleet restructuring - 200 50 seaters should be gone in the next 2 years. Can I hear an Amen?
listening to the conference call right now.
DL has reduced debt by $5B of its intended $7B.
DL operated 99.7 of its flights - few airlines have done that well for so long a period of time - and is at the top of the industry. THAT is a tribute to all of the people who make DL work - and it is a reflection of the work done by EVERYONE at DL. And I see it every time I fly.
Increased DL productivity is a big piece of the RJ fleet restructuring - 200 50 seaters should be gone in the next 2 years. Can I hear an Amen?
I haven't yet studied DL's results in depth (other more pressing things this morning) but from my cursory glance at the numbers, I'd say pretty good results. Still leading the industry in unit revenue gains with high load factors. I disagree with the GAAP rules that require that out-of-period hedges be marked to market and thus produce a huge "loss" this quarter. It's good for investors to be apprised of a potential huge loss looming in future quarters, but I'd rather that the net income or loss for this quarter be based on settled heges and not the future hedges. But that's a nitpick with the accountants governing bodies.
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To be fair, AA did outperform DL by about a half point on unit revenue (RASM). Note that DL described its revenue growth as "among the best in the industry" rather than industry leading. It does show that very careful management of capacity goes a long way to generating very good results with revenue. AA has been able to reduce capacity which allows them to pull out a relatively small percentage of low-performing flights (even on a day of week basis) that allow results to drop right to the bottom line.
Notably, AA and DL both produced very strong RASM growth on the Pacific even on increased capacity. A year ago the Japan earthquake and nuclear scenario were unfolding and the world seems to have moved past it this year. DL also noted that Mexico RASM was up almost 25% - which might be part of the "wind" AeroMexico needed to help justify its record (for Mexico) aircraft order today. DL noted that even though Mexico and the US do not have Open Skies, DL's equity position and seat on the board allows it to help maximize synergies between AM and DL. DL noted that other regions of Latin America are performing fairly strong, although they are concerned about the increased capacity that is coming between the US and Brazil particularly later this year.
Domestically, DL noted that its corporate revenues are up about 14% and that the LGA expansion is proceeding as well as or better than expected.
A couple of analysts and media asked about Skywest's recent comments that they do not want to participate in the 50 seat fleet reduction that DL has said they intend to pursue. Richard Anderson said emphatically that DL has the ability to achieve its goal of reducing the fleet to the 125 fleet size for 50 seaters in the next couple years.
He also refused to provide any update on Comair's future.
Notably, AA and DL both produced very strong RASM growth on the Pacific even on increased capacity. A year ago the Japan earthquake and nuclear scenario were unfolding and the world seems to have moved past it this year. DL also noted that Mexico RASM was up almost 25% - which might be part of the "wind" AeroMexico needed to help justify its record (for Mexico) aircraft order today. DL noted that even though Mexico and the US do not have Open Skies, DL's equity position and seat on the board allows it to help maximize synergies between AM and DL. DL noted that other regions of Latin America are performing fairly strong, although they are concerned about the increased capacity that is coming between the US and Brazil particularly later this year.
Domestically, DL noted that its corporate revenues are up about 14% and that the LGA expansion is proceeding as well as or better than expected.
A couple of analysts and media asked about Skywest's recent comments that they do not want to participate in the 50 seat fleet reduction that DL has said they intend to pursue. Richard Anderson said emphatically that DL has the ability to achieve its goal of reducing the fleet to the 125 fleet size for 50 seaters in the next couple years.
He also refused to provide any update on Comair's future.
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Now that nearly all carriers have reported, DL's revenue growth was clearly some of the best.
Notably, nearly every carrier paid more for fuel than US indicating they have bad fuel hedges but no one else said as much. AS' economic cost of fuel was 3 cents per gallon higher than DL's.
DL's revenue is within a couple percent of UA's and DL's consolidated yield is higher than UA's. But DL's regional carrier costs are higher than UA's even if you consider that the two post regional carrier fuel costs in different places.
DL clearly needs to cut its regional carrier costs and generate comparable if not higher levels of revenue using its own employees; given that one of the benefits of the 50 seater - 717 swap is that DL can increase productivity of its own pilots, they can likely bring alot of the regional carrier operations inhouse at lower fuel and labor costs.
Notably, nearly every carrier paid more for fuel than US indicating they have bad fuel hedges but no one else said as much. AS' economic cost of fuel was 3 cents per gallon higher than DL's.
DL's revenue is within a couple percent of UA's and DL's consolidated yield is higher than UA's. But DL's regional carrier costs are higher than UA's even if you consider that the two post regional carrier fuel costs in different places.
DL clearly needs to cut its regional carrier costs and generate comparable if not higher levels of revenue using its own employees; given that one of the benefits of the 50 seater - 717 swap is that DL can increase productivity of its own pilots, they can likely bring alot of the regional carrier operations inhouse at lower fuel and labor costs.
eolesen
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Guess y'all now have your update on OH's future.
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Not sure of DL was at the meeting but Anderson clearly knew this Friday was coming when he read his prepared response to the questions about OH... as if his statement didn't portend the future.
