Oil closed at $56.82 today; would anyone like to speculate what impact this will have on LCC's bottom line? LCC has 40% of it fuel hedged on oil prices of $72. Unfortunately the employee profit sharing program will be impacted by thisbold move.
US Airway's Fuel Hedging
- Thread starter kid5mule
- Start date
EricLv2Fish
Veteran
- Aug 25, 2005
- 1,171
- 5
Fuel hedging brings predictability to operational costs. DP has stated this has been and will continue to be the strategy concerning fuel hedging. Look at it as a cautious approach to bring stability to the operation more than gambling to save money.
Dog Wonder
Veteran
Fuel hedging is high stakes gamblling.
The smart ones win.
The losers take the money from shareholders, or in the case of profit sharing, the employees.
Flufdriver
Senior
For all of you "Monday Morning Quarterbacks" getting all worked up about LCC's hedging. Let me ask you this...what would you have done about the fuel when ALL you heard from every person in the know about how crude was going to $100 per barrel. So they gambled...you all would have lost sleep if they hadn't hedged with that looming. When you lock the price of natural gas in your home for 12 months at a set price and then it drops below what you signed for...you gambled. It's easy to second guess after the fact. I guess all of you knew it was going to drop after it was almost assured to go a $100 a barrel. I think some of you simply like to rag about everything they do. They did a educated gamble...get over it!!!! If they had hedged 40% at $70 and it went to $105....they would have been heros.Again, they rolled the dice! Take your profit sharing check, what ever amount it is and enjoy it. Atleast we're still here to get one! About two years ago I wondered if we were going to get another pay check not to mention a profit sharing check. Think about it!
Dog Wonder
Veteran
Don't get too worked up.
Gambled and lost some one else's money. If they lose just issue themselves more stock.
Heroes again?
Think about it.
When you fuel hedge you pay a premium for the right buy (without the obligtion) the commodity at a certain price by a certain time.
Note I said the right but not the obligation.
With falling oil prices US Airways could lose it's premium paid on the contract, but it certainly does not have to pay for jet fuel at a higher price if it deems the spot jet fuel price plus the premium is less than the hedged price.
In fact, falling energy prices will offer US Airways lower fuel costs than if prices had stayed high and US Airways hedged at its current levels.
One can certainly understand how current geopolitical events caused mangement to hedge, e.g. the Middle East situation, the war on terror, the Iraq problem, Iranian/North Korean Nuke issues, potential oil disruption with pipelines and hurricanes, and Chinese demand, just to name a few.
In fact, all it would take is one industry "shock" event to cause jet fuel to reach its previous highs for US Airways' current hedging program to be beneficial.
In fact, maybe we should look at the contracts premium expenditure simply as insurance against issues such as those listed above or the London terror plot.
Finally, I'm glad US Airways has the financial ability to hedge because it was not that long ago that US Airways was unable to hedge because it could not afford the premium.
Regards,
USA320Pilot
Note I said the right but not the obligation.
With falling oil prices US Airways could lose it's premium paid on the contract, but it certainly does not have to pay for jet fuel at a higher price if it deems the spot jet fuel price plus the premium is less than the hedged price.
In fact, falling energy prices will offer US Airways lower fuel costs than if prices had stayed high and US Airways hedged at its current levels.
One can certainly understand how current geopolitical events caused mangement to hedge, e.g. the Middle East situation, the war on terror, the Iraq problem, Iranian/North Korean Nuke issues, potential oil disruption with pipelines and hurricanes, and Chinese demand, just to name a few.
In fact, all it would take is one industry "shock" event to cause jet fuel to reach its previous highs for US Airways' current hedging program to be beneficial.
In fact, maybe we should look at the contracts premium expenditure simply as insurance against issues such as those listed above or the London terror plot.
Finally, I'm glad US Airways has the financial ability to hedge because it was not that long ago that US Airways was unable to hedge because it could not afford the premium.
Regards,
USA320Pilot
fatherabraham
Veteran
- Sep 27, 2002
- 814
- 354
Fuel hedging ( gambling ) or whatever word we use IMHO should be regulated by law. Many cultures have laws in place to protect individuals from themselves. Considering the decades of airline losses and government subsidies ( taxpayer bailout ), I would not mind legislation prohibiting fuel hedging.
Would it be OK for some manager to bet large sums of corporate $ on the next favored sports team that all the pros say will win by 10 to 1 odds?
Does not make sense to me that government says OK to such legalized action when it can affect adversely employees/taxpayers and historically only put $ in the pockets of the elite.
FA
Would it be OK for some manager to bet large sums of corporate $ on the next favored sports team that all the pros say will win by 10 to 1 odds?
Does not make sense to me that government says OK to such legalized action when it can affect adversely employees/taxpayers and historically only put $ in the pockets of the elite.
FA
- Thread Starter
- #10
To those of you that have commented; thank you. The reason I asked for speculation on LCC's fuel hedging stratagy was not to dwell on the negative. American took a "$99 million charge to reduce the value of fuel-hedging contracts" and that is significant as they earned a mere $15 million. Since hedging will impact LCC's bottom line and our profit sharing, it is a point of concern. Also, thanks for the article on hedging.
Travelpro72
Veteran
- Jan 30, 2005
- 4,964
- 455
Just wait and see how much oil costs after the november elections. It will skyrocket probably. Your price at the pump will go closer to $3.00 a gallon.
EricLv2Fish
Veteran
- Aug 25, 2005
- 1,171
- 5
Good article. LCC hedged 40%, a realitively consersative amount and should be no surprise. DP has shown he has a conservative approach when spending money.
EricLv2Fish
Veteran
- Aug 25, 2005
- 1,171
- 5
I think the board determines his and other executive pay 700. Also the pay is laden with incentives if certain goals are met. You or anyone else may not think it's fair, but you probably wouldn't be complaining if you were in their shoes. It's not what labor gets, but who ever said life is fair, especially if one isn't agressive to improve their own situation. I suppose that's what unions are designed to do for large workforces. Anyone that isn't happy with what the union can do for them needs to either get active in the union or make themselves more marketable and find a new career.
Dog Wonder
Veteran
what goals have they met? Better than Wolf?
No wonder they don't complain. What more could you want than and endless supply of goobersmoochers and money?
Performance to date has been getting worse by the month. Of course it did rain in the Northeast.
