Oil price hedging...
10-13-2008, 06:54 AM
#31
Gets Weekends Off
Joined APC: Sep 2007
Position: 777 Captain in Training
Posts: 1,457
FDXLAG,
Perhaps $10 a gallon for regular gas (and $15 or $20 for premium) might be the way to persuade you that driving a more fuel efficient vehicle is in your best interest, as well as the interests of the rest of the world. Perhaps not. But fuel efficiency is certainly important, because we've got to make what petroleum there is left in this world, last as long as we can, so that in the meantime we can develop the alternative means of powering our vehicles, machines, ships, etc, etc. During the same time, we've got to update the infrastructure so that these alternative fuels can be delivered to homes and businesses in a more efficient and transparent manner. We've got a gas line running under the middle of the street where I live, but I choose to keep the oil system. Probably stupid, but when you consider the payback of the cost of the new gas system, over time, it's just too many years and I don't expect to be able to recoup my investment. Again, probably stupid, but no one ever said us pilots are smart.
I do understand why the good folks in Texas and Montana (as well as the rest of the country) don't take the subway to work. It's because the subway doesn't stop there. As well, I understand why folks in places like that drive at the speed they do. Hell, you've not gone fast until you're doing 85 in a 60, with 50,000 of your closest friends within 2 bumper lengths of your car, like we have here in the North East on a daily basis. New York City is, of course, an animal of a different color, and believe you me, when you're doing 55 on the West Side Highway, you do feel like you're doing 70.
I agree with you that if tomorrow, all vehicles driven here in the US, were to magically get 75 miles per gallon, the worldwide oil situation would not improve very much. But you gotta get rid of that Hummer. I mean Damn, Dude!
JJ (WD)
Perhaps $10 a gallon for regular gas (and $15 or $20 for premium) might be the way to persuade you that driving a more fuel efficient vehicle is in your best interest, as well as the interests of the rest of the world. Perhaps not. But fuel efficiency is certainly important, because we've got to make what petroleum there is left in this world, last as long as we can, so that in the meantime we can develop the alternative means of powering our vehicles, machines, ships, etc, etc. During the same time, we've got to update the infrastructure so that these alternative fuels can be delivered to homes and businesses in a more efficient and transparent manner. We've got a gas line running under the middle of the street where I live, but I choose to keep the oil system. Probably stupid, but when you consider the payback of the cost of the new gas system, over time, it's just too many years and I don't expect to be able to recoup my investment. Again, probably stupid, but no one ever said us pilots are smart.
I do understand why the good folks in Texas and Montana (as well as the rest of the country) don't take the subway to work. It's because the subway doesn't stop there. As well, I understand why folks in places like that drive at the speed they do. Hell, you've not gone fast until you're doing 85 in a 60, with 50,000 of your closest friends within 2 bumper lengths of your car, like we have here in the North East on a daily basis. New York City is, of course, an animal of a different color, and believe you me, when you're doing 55 on the West Side Highway, you do feel like you're doing 70.
I agree with you that if tomorrow, all vehicles driven here in the US, were to magically get 75 miles per gallon, the worldwide oil situation would not improve very much. But you gotta get rid of that Hummer. I mean Damn, Dude!
JJ (WD)
10-13-2008, 09:13 AM
#32
Gets Weekends Off
Joined APC: Feb 2007
Posts: 397
So why don't we all push our elected officials who have been talking about new energy programs for over 30 years that we should use our own resources - Anwar, Bakken shale formation, Nevada shale oil, etc...
Carter, Regan, Bush 1, Clinton, Bush 2 plus nearly every Dem & Repub congressional leader has talked about better energy plans - Energy Independence
What really stinks is that Paris Hilton has the best energy plan of any presidential candidate.
Carter, Regan, Bush 1, Clinton, Bush 2 plus nearly every Dem & Repub congressional leader has talked about better energy plans - Energy Independence
What really stinks is that Paris Hilton has the best energy plan of any presidential candidate.
10-13-2008, 11:08 AM
#33
Slainge Var'
Joined APC: Oct 2006
Position: Zeppelin Tail Gunner
Posts: 1,530
10-13-2008, 07:59 PM
#34
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Thread Starter
Joined APC: Mar 2006
Posts: 3,333
I asked our president that question and he said that we didn't because they were always able to pass aking the increased costs in the form of fuel surcharges. The problem in the last year or so has been that the fuel rose so quickly that they couldn't add surcharged quicky enough.
I'm not talking a short term effect bur rather a long term scenario. In my view fuel hedging would save us way more money than all single-engine taxing, starting of the APUs later rather than sooner and other fuel saving procedures combined.
I’m guessing that all this cash UPS has available would generate even more cash if we hedged our fuel very aggressively instead of keeping it in CDs and other saving forms.
I know very little about the business aspect of running a corporation but I’m very surprised (and worried) that we don’t hedge as much or even more than SWA – it’s worked so well for them and I’m sure it’d help us out too.
What do you think?
10-13-2008, 09:52 PM
#35
Tri-tanic operator
Joined APC: Jul 2006
Position: Doggie
Posts: 2,382
That does make sense or rather it made sense in the past. Wouldn’t you agree that IF we hedged our fuel we wouldn't have to increase our fuel surcharges as much and thus we would be able to compete with other cargo companies even more?
I'm not talking a short term effect bur rather a long term scenario. In my view fuel hedging would save us way more money than all single-engine taxing, starting of the APUs later rather than sooner and other fuel saving procedures combined.
I’m guessing that all this cash UPS has available would generate even more cash if we hedged our fuel very aggressively instead of keeping it in CDs and other saving forms.
I know very little about the business aspect of running a corporation but I’m very surprised (and worried) that we don’t hedge as much or even more than SWA – it’s worked so well for them and I’m sure it’d help us out too.
What do you think?
I'm not talking a short term effect bur rather a long term scenario. In my view fuel hedging would save us way more money than all single-engine taxing, starting of the APUs later rather than sooner and other fuel saving procedures combined.
I’m guessing that all this cash UPS has available would generate even more cash if we hedged our fuel very aggressively instead of keeping it in CDs and other saving forms.
I know very little about the business aspect of running a corporation but I’m very surprised (and worried) that we don’t hedge as much or even more than SWA – it’s worked so well for them and I’m sure it’d help us out too.
What do you think?
I think you are right.
But hedging would require our management to take responsibility instead of assigning blame.
And that's probably another 50 years away ... IMHO
but what do I know
Last edited by CactusCrew; 10-14-2008 at 08:25 AM.
10-14-2008, 12:32 PM
#36
Gets Weekends Off
Joined APC: May 2005
Posts: 1,275
That does make sense or rather it made sense in the past. Wouldn’t you agree that IF we hedged our fuel we wouldn't have to increase our fuel surcharges as much and thus we would be able to compete with other cargo companies even more?
I'm not talking a short term effect bur rather a long term scenario. In my view fuel hedging would save us way more money than all single-engine taxing, starting of the APUs later rather than sooner and other fuel saving procedures combined.
I’m guessing that all this cash UPS has available would generate even more cash if we hedged our fuel very aggressively instead of keeping it in CDs and other saving forms.
I know very little about the business aspect of running a corporation but I’m very surprised (and worried) that we don’t hedge as much or even more than SWA – it’s worked so well for them and I’m sure it’d help us out too.
What do you think?
I'm not talking a short term effect bur rather a long term scenario. In my view fuel hedging would save us way more money than all single-engine taxing, starting of the APUs later rather than sooner and other fuel saving procedures combined.
I’m guessing that all this cash UPS has available would generate even more cash if we hedged our fuel very aggressively instead of keeping it in CDs and other saving forms.
I know very little about the business aspect of running a corporation but I’m very surprised (and worried) that we don’t hedge as much or even more than SWA – it’s worked so well for them and I’m sure it’d help us out too.
What do you think?
The airlines typically hedge in sweet crude or home heating oil, not jet fuel (jet fuel isn't traded on the futures market in the US). Sweet crude costs typically mirror the cost of jet fuel, though and that is a tool that allows airlines to fix their cost structure into the future.
If SWA hedges at $80/bbl for the next 10 years, they know, essentially, what their fuel cost is for the next 10 years. If jet fuel goes up to $100/bbl and that's what SWA has to pay for it, they can cash in their $80/bbl hedges and make money that can be used to offset the higher cost of jet fuel. If it goes down, well, their hedges are not as useful, but they are paying less for gas.
As long as they build their pricing model around their future fuel cost, they should be able to make money no matter what the price of Jet-A does. The hedge just takes out the volatility in the price of fuel, leveling out the peaks and valleys.
Having said all that, I'm not an Econ guy, so someone please correct me if I'm wrong... (like I even have to ask)
10-16-2008, 11:22 AM
#38
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Joined APC: Mar 2005
Position: 767 captain
Posts: 2,701
10-16-2008, 12:05 PM
#39
Fill'er Up Again
Joined APC: Jun 2008
Position: Scarebus Captain
Posts: 1,090
Reuters
Southwest reports net loss due to fuel hedges
Thursday October 16, 7:22 am ET
CHICAGO (Reuters) - Southwest Airlines (NYSE:LUV - News; NYSE:LUV - News) reported a quarterly net loss on Thursday, reversing a year-ago profit, on charges related to its fuel hedging program.
The low-cost airline's third-quarter net loss amounted to $120, or 16 cents per share, compared with a profit of $162 million, or 22 cents per share, a year earlier.
Excluding one-time items, Southwest earned $69 million, or 9 cents per share, beating the average Wall Street estimate of 7 cents per share, according to Reuters Estimates.
The airline industry has been severely battered this year by soaring fuel costs that peeked at a record high in July before falling rapidly.
Southwest, whose fuel hedges are the envy of the industry, was somewhat insulated from the spike in fuel prices but reported charges of $247 million related to adjustments on a portion of the future period of its hedge portfolio.
The airline's revenue rose about 12 percent to $2.9 billion. The company ended the quarter with $3.4 billion in cash and short term investments.
Southwest reports net loss due to fuel hedges
Thursday October 16, 7:22 am ET
CHICAGO (Reuters) - Southwest Airlines (NYSE:LUV - News; NYSE:LUV - News) reported a quarterly net loss on Thursday, reversing a year-ago profit, on charges related to its fuel hedging program.
The low-cost airline's third-quarter net loss amounted to $120, or 16 cents per share, compared with a profit of $162 million, or 22 cents per share, a year earlier.
Excluding one-time items, Southwest earned $69 million, or 9 cents per share, beating the average Wall Street estimate of 7 cents per share, according to Reuters Estimates.
The airline industry has been severely battered this year by soaring fuel costs that peeked at a record high in July before falling rapidly.
Southwest, whose fuel hedges are the envy of the industry, was somewhat insulated from the spike in fuel prices but reported charges of $247 million related to adjustments on a portion of the future period of its hedge portfolio.
The airline's revenue rose about 12 percent to $2.9 billion. The company ended the quarter with $3.4 billion in cash and short term investments.
10-16-2008, 03:21 PM
#40
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Thread Starter
Joined APC: Mar 2006
Posts: 3,333
I'm confused about the "non-cash charge to write-down the declining value of its hedging contracts" ...
Southwest Posts Loss on Hedge Charge (NYT, Oct. 16)
Southwest Airlines lost $120 million in the third quarter, its first quarterly loss in more than 17 years, because of a noncash charge to write-down the declining value of its hedging contracts for jet fuel.
Southwest said it took a one-time charge of $247 million, reflecting a steep decline in oil prices, which hit record high levels in July. The last time Southwest lost money was in the first quarter of 1991.
Without the charge, Southwest said it would have earned $69 million. That figure beat analysts’ expectations for the quarter. The airline had record operating revenue of $2.9 billion, up 11.7 percent.
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