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Aug 21, 2002
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United says unable to hedge 2003 jet fuel costs Fri January 31, 2003 03:56 PM ET CHICAGO, Jan 31 (Reuters) - The financial troubles that led United Airlines to file the largest ever airline bankruptcy last year also kept the world's second largest airline from hedging against steep fuel price increases in 2003, United said on Friday. Most airlines hedge to some extent against broad price changes in fuel, a key cost for air carriers that is especially uncertain because of a possible U.S. war in Iraq.
Parties that engage in the fuel hedging process are reluctant to work with companies that may be in financial distress, United said in a taped message to employees. Due to United's financial situation, the company was unable in 2002 to secure fuel hedges for 2003.
United parent UAL Corp. UAL.N also said on Friday that its average fuel price rose more than 10 percent in the fourth quarter to 86.5 cents per gallon from a year earlier. It also reported a $1.5 billion quarterly net loss. (--Reporting by David Bailey, editing by David Gregorio; [email protected]; Reuters Messaging: [email protected]; 312 408 8135)
If you can't protect yourself from the rise of fuel prices and you are left out in the cold to pay cash at the walk up price.
FYI most of the majors are locked/hedged into the 60-65c per gallon price range, to protect themselves in the event of war. How long can UAL and U last paying 30% premiums per gallon over the competition?
The fat lady is all but done with the last song.....
It's a sad day, because I work for AA and I see when the horse is leading the cart.
 
To all you Monday Morning Quarterbacks:

I am sick and tired of everyone getting all melodramatic every time they read the paper.

Yes, things are bad and it's going to take a lot of working together and a fair amount of luck for UAL to get through this. Yes, they will be paying a premium for fuel.

But please spare me/us the fat lady, it's over, run for the hills crap. It's getting way old.

This is the worst aviation slump ever. There are many many creditors and stakeholders in UAL that are better served with a successful reorganization. This isn't the 80's.

I suspect that when we go to war, congress will do something to help the industry. If nothing else, how much heat do you think Dumbya will take if United fails? 80,000 jobs lost. City of Chicago economy decimated. Don't forget the speaker of the house and many more prominent politicians hail from Illinois. Sure their influence couldn't win the ATSB loan, but the stakes are immensly higher now.

Venting complete, I feel better.

Go UAL! Go home fat lady!
 
G4G5..working for AA and losing as much as you guys are and have lost, becareful tracking where the fat lady is. She maybe clearing her throat and headed for Dallas, and if I was a betting man....I don't think she is going to Love Field.
 
Why would UA want to pay less for fuel? Thought their "best" customers (business travelers) are supposed to be eager to pay 4-10 times more for a coach seat on the same flight with the "trailer trash." If that were true, why wouldn't UA be happy (as a customer to fuel suppliers) to pay more?

What arrogance and sheer hypocrisy! While the network airlines scheme in every which way to squeeze their suppliers, they vainly imagine that their "best" customers should happily pay several times more than less-frequent fliers for the same use-it-or-lose-it, non-refundable, $100.00 change fee (plus possible huge fare difference) restrictions with -0-"value added" features.

Is it any wonder why the U.S. network airlines share the "distinction" (along with managed health care) of having the highest level of mistrust and hostility between customers and companies of all U.S. industries?
 
Its just another example of how many costs and operational complexities shoot up in any bankruptcy situation.
 
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Flufdriver,
In all reality the fat lady will be departing ORD sometime this summer for a direct flight to DFW. AA has enough cash to get through the summer, the high rev season, which should get them into the winter. Most of the professionals have AA listed with around $1.4 billion left by next Dec. Just enough cash to declare ch11 with. If the economy stays flat AA is around 1 year behind UAL.

UAL Chicago,

Hedging fuel is not "Monday Morning Quaterbacking". Do some research. Where does fuel fall on the list of expenses? What do you think will happen if UAL has to continue to lay out valuable cash up front for unhedged fuel that they are pay a 30%+ premium for?

Quaterback Sack!

Unfortunatly my team is the next one to get the ball
 
Well, here's my scenario...

the Bush admin. will not help the industry. The industry will right itself as long as low-cost-carriers are profitable. If we go to war, the Bush admin probably won't provide direct help to the industry for this reason. As they see it, if UA & US fail, the competition is given a much needed injection of traffic and revenue. The arguement that it's a blow to Chicago and that they have a strong congressional delegation didn't do much for them on the loan and I don't expect much more if they fail. UAL said they'd be paying about $0.80/gallon at current rates. Expect that to rise to $1.00 and maybe more if a war happens. In that scenario, cash will fly out the door quicker. Has AA hedged? I know DAL & WN are. These three (& CO in EWR) are the biggest beneficiaries of failure at UA/US. NW in the Pacific could gain some depending on who gets UA's rights (in the event of a UA failure). If UA/US fail, it raises prospects at AMR, NWA, CAL, WN...and thus removes the need for the gov't to step in.
 
G4G5:

I never said that you observation of UA not hedging in 2003 was Monday Morning Quarterbacking.

Your "fat lady" melodramatic statement is Monday Morning Quarterbacking.

Once again, you misunderstand my point.

UA employees are going through an extremely trying time right now. How do you think they feel when people come over to their board from a competitor and say words to the effect of it's all over?

Please...give them a little respect. Make observations, but hold the melodrama.
 
I would certainly not wish to stand in the way of the venom that many seem to spew toward United and the great glee they enjoy in seeing other human's lives ruined but I think one needs to take a closer look at the oil price scenario.
I no nothing of UAL's fuel hedge policy. I am however, cognizant of the split between the world 'spot' market and thirty to sixty days contracts. Major users of oil usually can buffer out price spikes. For those who read the Economist, there has been much discussion of the role that Saudi Arabia will play in the stabilization of the market. SA can more than buffer all the Iraqi and South America output. If indeed the price spikes precipitously, America should (and this is a should - not a fact) have worked with SA to insure the world market can be smoothed. If the airlines cannot surive a 5 day price spike than even apart from hedging they simply have failed in their managerial mandate.
If however, the war is short, the price of oil could DROP just as precipitously and the carrier that did not hedge would be the beneficiary.
As I said, I am sorry to disagree with the wall of hate against United but the oil issue is a little more complex than gravatationally challanged ladies exercising their vocal cords.
 
UK,

Unfortunately, it isn't quite that simple...especially for a company like United. Having worked for a company that has sinced faded away through the bankruptcy process...I can tell you all about how much of an effect this has. While a short war would have a positive effect on oil prices in the long run, there is a strong chance that the price per barrel will rise as we lead into a war and for the duration of the war. While many will say that current prices already include the war factor in them, most economists agree that oil will go upward....regardless of actions by the Saudis. Keep in mind that most of the current inflationary pressures on oil are a result of Venezuela, NOT Iraq and the impending war. So, while UA could (but probably won't) benefit from a short war that could have deflationary pressures, they probably won't.
 
The war with Iraq will most likely last about an hour and a half. Anyone who has ever traded commodities can tell you that the run-up in oil prices is due to speculation and the price will collapse along with the Iraqi regime.
 
" but the oil issue is a little more complex..."

"The issue is not as simple as that..."

Flyhigh
I realize that we speak two variants of the Engligh language but I juxtaposed the two statements above with the intent of stressing their similitude. I contended that the issue was a little more complex. You countered that the issue was not a simple one. Is this indeed not the same?
Someone once replied to one of my posts that we are two cultures seperated only by a common language.
No one can predict the outcome of a war of course. If the industry collapses I will lay some of the blame at the feet of the carriers themselves. At least the Europeans are seeking war insurance for drop off in traffic with possible government help.
I am opening my self up to attack from the Americans when I say I continue to be perplexed by the combat capitalism. Go to war, let 150,000 unemployed flood to the unemployment dole, call this a shakeout and rejoice in its handiwork. One of the few places on earth that I know where the lowest levels of the work ladder have been co-opted into thinking that losing their job is good for them
[img src='http://www.usaviation.com/idealbb/images/smilies/15.gif']
 
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