Casino-like fuel hedges to hurt airlines in oil plunge Q http://www.smh.com.au/business/avia...t-airlines-in-oil-plunge-20141205-1213mt.html Investors from Sydney to Mumbai cheered the plunge in crude-oil prices, sending Asian airline shares to their highest level in three years. But the bad news is several carriers could end up losing money from the sudden drop - with Qantas one of the few likely winners. Some carriers, like Singapore Airlines, have hedged fuel at an average $US116 a barrel of jet fuel, when spot market rates are about $US85. That can result in losses on paper as carriers will have to account for their wrong-way fuel hedges or pay charges to unwind contracts prematurely. Oil's dramatic decline in the past month is a replay of events in 2008 and 2009 when Hong Kong-based Cathay Pacific, Chinese carriers and Singapore Air all reported millions in losses because of wrong-way bets on fuel. An inability to take advantage of a drop in their biggest expense also means airlines may be reluctant to cut fuel surcharges and lower ticket prices for consumers. "It's like going to the casino," said Mark Clarkson, a Singapore-based business development director at flight data firm OAG Aviation, about the airlines' hedging. UQ
Q July 15, 2015 http://www.benzinga.com/analyst-rat...partner_feed&utm_content=analyst_ratings_page Morgan Stanley's Rajeev Lalwani analyzed airline stocks under the context of lower oil prices. In the firm's Question of the Week, Lalwani asked: "What do you prefer (A) low oil, limited capacity discipline, and higher profits or (B) high oil, increased capacity discipline, and lower profits?" The investors that Morgan Stanley polled "overwhelmingly" supported scenario B, to the tune of 76 percent of respondents. ... Oil's decline created an environment where the airlines will "achieve record profitability and return significant capital to shareholders," which Morgan Stanley "finds supportive" of long-term share prices. Amongst the airlines, JetBlue Airways Corporation (NASDAQ: JBLU) has been the standout, gaining more than 41 percent year-to-date. That performance is even more distinguishing when comparing against its peers – all down around 20 percent on the year. Southwest Airlines Co (NYSE: LUV) dipped 20 percent since the start of the year; American Airlines Group Inc (NASDAQ: AAL) lost 22 percent; and Spirit Airlines Incorporated (NASDAQ: SAVE) shed 22 percent. UQ
it doesn't sound like losses on paper but real losses. in any case i have always believed that losses on paper are real while profits on paper are not real and illusionary until realized
I remember when Southwest was the only one doing this and were considered geniuses and visionaries. I can't believe they're any better at guessing future fuel prices than anyone else.
Q http://www.elitetrader.com/et/index...etter-to-customers-on-oil-speculation.131312/ Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs. UQ
I like the fact that you dug up this article. however, it contains the same relentless nonsense used by industry insiders when they are unhappy with the price of their particular futures contract, due to their own incompetence which leads to losses in their hedged positions. basically they ignore or deny the value of price discovery and price transparency offered by future contracts. on occasion they succeed in getting a futures contract eliminated. i.e. potatoes of course lefties don't believe in free markets but government diktats of prices and production and support the elimination of futures markets.
Airlines could incur big losses on cost of fuels, either with hedging or without hedging! Actually a matter of bad timing - just like most speculative traders!