Where's the fuel scare?

[jersey777]

Does anyone else remember all the comparisons AA was making when fuel costs were soaring? Every Jetmail had some sort of footnote comparing fuel prices in 2002,2003,2004 to what they were when they were skyhigh. Suddenly, we don't see those comparisons any more. If I remember correctly, one analyst said AA was going to save a few BILLION next year on fuel alone. But you won't be bombarded with this information from AA. The spin machine is in full gear!!

 

[will fix for food]

How much money are they going to lose because they hedged at the higher prices?

Oops.

 

[The Goose]

How much money are they going to lose because they hedged at the higher prices?

Oops.

They can sell those contracts at market and buy new and cheaper contracts then show a considerable loss.

They'll show us the loss and whine.

 

[flyhigh]

What's the point...you wouldn't believe the corresponding chart that shows the drop in demand and recession we are in.

 

[Winglet]

I believe geniuses at AA hedged a bunch of fuel at close to $100. Maybe that why they're not talking about fuel anymore.

 

[aafsc]

I believe geniuses at AA hedged a bunch of fuel at close to $100. Maybe that why they're not talking about fuel anymore.

When oil was trading over $100 a barrel, I distinctly remember endless b1tching, ranting, and raving here by many about how "the geniuses at AA" weren't hedging nearly enough; and that they should hedge "just like southwest".

 

[FWAAA]

When oil was trading over $100 a barrel, I distinctly remember endless b1tching, ranting, and raving here by many about how "the geniuses at AA" weren't hedging nearly enough; and that they should hedge "just like southwest".

No kidding. No doubt we'll see a lot of posts in the future by people claiming that they correctly predicted the oil bubble, both the dramatic price rise from the mid-$50s in early 2007 to $147/bbl this past July to the $40/bbl last Friday.

I believe geniuses at AA hedged a bunch of fuel at close to $100. Maybe that why they're not talking about fuel anymore.

As did the brain trust at WN and UA and DL and CO and NW and US.

From early reports, it looks like AA's hedging will cost it about a half billion dollars in the fourth quarter; UA has already reported that it will spend over $1 billion (at present prices) in the fourth quarter on fuel hedges gone bad.

The good news is that AA had hedged only about 38% or so of its fourth quarter fuel at high prices. The bad news is that AA hedged quite a bit of 2009's fuel needs at very high prices (as did every other airline).

 

[jersey777]

What's the point...you wouldn't believe the corresponding chart that shows the drop in demand and recession we are in.

My point being that the company is a master at spinning whatever challenge it is facing all in the name of "We can't pay you more money". The problem this time is that almost every analyst is saying that the airlines are ahead of the curve facing this recession due to reduced capacity and expect airlines to post a profit in 2009. My bet is that now we will be bombarded with reduced traffic numbers all in the name of reducing our expectations regarding the current round of contract negotiations.

 

[eolesen]

My point being that the company is a master at spinning whatever challenge it is facing all in the name of "We can't pay you more money". The problem this time is that almost every analyst is saying that the airlines are ahead of the curve facing this recession due to reduced capacity and expect airlines to post a profit in 2009. My bet is that now we will be bombarded with reduced traffic numbers all in the name of reducing our expectations regarding the current round of contract negotiations.

Yes, airlines were ahead of the curve in shedding capacity at the beginning of 4Q08. But that just means they didn't have to lay off as many workers as is happening in other industries (someone already posted a link to the WSJ blog that goes into a lot more detail on this).

And further cuts are coming; DL is already signalling what they're going to cut, and I'd be shocked if the other large carriers don't follow suit in limited fashion.

 

[iluvaa]

No kidding. No doubt we'll see a lot of posts in the future by people claiming that they correctly predicted the oil bubble, both the dramatic price rise from the mid-$50s in early 2007 to $147/bbl this past July to the $40/bbl last Friday.

but they get huge PERFORMANCE bonuses for there great leadership

 

[FWAAA]

but they get huge PERFORMANCE bonuses for there great leadership

And despite the somewhat flawed metric for determining the performance of the execs (see eolesen's posts on this topic), IMO, they earned most (if not all) of their PUP/PSP payouts. The execs of UAL, DAL and NWA all received huge stock payouts as those airlines emerged from bankruptcy. After wiping out all shareholders.

AA's execs didn't wipe out all shareholder value and for turning things around, IMO, they deserve their rewards. Terminal sufferers of paycheck envy will, of course, disagree.

Too bad your union leaders were too stupid to demand similar compensation in case AA turned things around. Maybe you'll do better in the current negotiations.

If they had correctly predicted the fuel price bubble and hedged against it perfectly, then I'd argue that Arpey and Co would be entitled to even more.

 

[eolesen]

Just wait 'til you see WN's 4Q08 financials. WN's hedging program has always been more aggressive in terms of actual needs.

 

[NewHampshire Black Bears]

No kidding. No doubt we'll see a lot of posts in the future by people claiming that they correctly predicted the oil bubble, both the dramatic price rise from the mid-$50s in early 2007 to $147/bbl this past July to the $40/bbl last Friday.



As did the brain trust at WN and UA and DL and CO and NW and US.

From early reports, it looks like AA's hedging will cost it about a half billion dollars in the fourth quarter; UA has already reported that it will spend over $1 billion (at present prices) in the fourth quarter on fuel hedges gone bad.

The good news is that AA had hedged only about 38% or so of its fourth quarter fuel at high prices. The bad news is that AA hedged quite a bit of 2009's fuel needs at very high prices (as did every other airline).

FWAAA,
Should AA "lock-in"..2010...NOW at todays $$$'s ???

Serious question !

 

[FWAAA]

FWAAA,
Should AA "lock-in"..2010...NOW at todays $$$'s ???

Serious question !

Bears, I don't know. Seriously.

When oil was $80/bbl, and someone posted a similar question here and on Flyertalk, I said "probably not, since it's likely to go much lower."

When oil was $60/bbl, I said the same thing.

When oil hit $50/bbl, I said the same thing. So far, I'm batting 1.000 on my oil price predictions since late summer. 🙂

Even Friday, when oil fell to $40/bbl, I still thought the same thing.

OPEC can blather all they want about cutting production - but historically, OPEC has not been able to maintain high prices for long periods of time.

And here's an oil exec warning that oil could very well fall to $20/bbl (as I have been hinting ever since oil began its freefall in late July), along with Merrill Lynch saying it could easily fall to $25/bbl:

Crude oil prices may crash below $25 a barrel next year and gas prices could fall below $1 a gallon if the global recession spreads to China, an energy analyst and CEO said Thursday.

Demand for oil will continue to decline in 2009 as economic growth slows to its weakest level since 1982, Merrill Lynch Commodity Strategist Francisco Blanch concluded in a report.

"A temporary drop below $25 a barrel is possible if the global recession extends to China and significant non-OPEC cuts are required," Blanch was quoted by Bloomberg as saying. "In the short-run, global oil demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations."

In October, when oil was trading for around $100 a barrel, Merrill predicted prices could drop to $50. Oil fell Friday to $43.64 a barrel in electronic trading.

The last time crude fell below $25 a barrel was November 2002.

Meanwhile, Gulf Oil CEO Joe Petrowski said on Wednesday that the price of oil could sink even lower — to $20 a barrel — and gasoline prices could drop as low as $1 a gallon by early next year.

http://www.foxnews.com/story/0,2933,462284,00.html

Except for relatively short blips between 1979-85, 1990-91 and 2003-08, oil has bounced around between $10/bbl and $30/bbl, with long periods of $20/bbl or so. Like from 1985 to early 2003, except for the short Gulf War I blip caused by Hussein.

Sure, it could go higher (lots higher), but then again, $147/bbl turned out to be an unsustainable asset bubble.

Time to enact that gas tax I talked about a while back. A big gas tax.

 

[Bob Owens]

Time to enact that gas tax I talked about a while back. A big gas tax.

I agree, and earmark the funds for the development of domestically produced green alternates such as wind, solar, hydrogen etc.