US Airways fuel hedges

[Andy]

CNBC just had a newsclip stating that US Airways doesn't hedge fuel. OUCH! We're 2 bits short of $110/barrel on WTI.

 

[redflyer65]

Your right Andy. They haven't had any hedges on for years. Worked pretty well when oil was around 80. Their next earning statement is going to be crushed above 110.

 

[kf4amu]

Add in the cost of the hedges plus the strike price you may end up paying close to 110 if you hedged in the last few months.

 

[ackattacker]

Even airlines that have hedged are going to be hurting, nobody is 100% hedged and the market has wised up to the volatility, hedges are more expensive than they used to be.

 

[Andy]

Add in the cost of the hedges plus the strike price you may end up paying close to 110 if you hedged in the last few months.

Oil futures are in normal backwardation. When did they flip from contango to backwardation? As far as I know, oil went from contango to backwardation in late October.
April '12 NYMEX crude traded at $109.62 last.
June '13 traded at $107.23 last.
Both traded today.

 

[kf4amu]

Oil futures are in normal backwardation. When did they flip from contango to backwardation? As far as I know, oil went from contango to backwardation in late October.
April '12 NYMEX crude traded at $109.62 last.
June '13 traded at $107.23 last.
Both traded today.

I'm confused...either way the cost of the future has put oil close to where it is trading today.

 

[General Lee]

Even airlines that have hedged are going to be hurting, nobody is 100% hedged and the market has wised up to the volatility, hedges are more expensive than they used to be.

Not if you hedge and still have fare increases to cover the rising costs. A few airlines have made money that way, Delta and Southwest for example. I think you're right about USAir not having hedges. I believe some of the legacies have around 40% hedged below $100 a barrel. Also, some are hedged using Brent Crude vs WTI, which takes a worldwide look vs just American prices, providing a cushion for spikes outside the US.


Bye Bye---General Lee

 

[Andy]

I'm confused...either way the cost of the future has put oil close to where it is trading today.

Really? Look at 2014 through 2020 futures prices and post them.

 

[Andy]

Also, some are hedged using Brent Crude vs WTI, which takes a worldwide look vs just American prices, providing a cushion for spikes outside the US.

It's a bit more complicated than that. Since you can't directly hedge Jet A, many airlines will use various futures products to hedge - not only crude but also home heating oil and gasoline in order to hedge against crack spread risks.

 

[kf4amu]

Really? Look at 2014 through 2020 futures prices and post them.

Hedge at a high level and the economy collapses again (which it will) oil prices will drop again. Usair calls it their natural economic hedge.