Grumpy
09-18-2008, 08:38 AM
By THE ASSOCIATED PRESS
Published: September 17, 2008
United Airlines (http://topics.nytimes.com/top/news/business/companies/united_airlines/index.html?inline=nyt-org) said on Wednesday that it was on track to lose $544 million on contracts in the futures market it used to hedge against rising fuel prices this quarter.
The airline said it had recorded $72 million in actual losses and $472 million more in unrealized losses. Those positions forced United to put $400 million into restricted cash for the parties on the other side of its oil price bets.
However, the airline, the operating unit of the UAL Corporation (http://topics.nytimes.com/top/news/business/companies/ual-corporation/index.html?inline=nyt-org), will save money on its actual fuel purchases because the price of oil is lower now than it was when it bought the futures contracts.
And if oil prices rise, the loss on the futures contracts will decline.
A JPMorgan (http://topics.nytimes.com/top/news/business/companies/morgan_j_p_chase_and_company/index.html?inline=nyt-org) analyst, Jamie Baker, wrote in a note that the decline of oil prices over just one week would save airlines $3 billion.
Oil was trading at less than $94 a barrel on Wednesday, down from a July peak of $147. It settled Wednesday above $97 a barrel.
“Yes, hedgers are underwater on their hedges but they are seeing some relief on the cash market side. That’s how it should work,” said Jonathan Leak, a senior vice president for risk management at World Fuel Services (http://topics.nytimes.com/top/news/business/companies/world-fuel-services-corporation/index.html?inline=nyt-org), which puts together fuel-hedging programs for airlines.
However, fuel prices have not fallen as much as crude oil in the short run because refiners are at capacity. Hurricane Ike (http://topics.nytimes.com/top/reference/timestopics/subjects/h/hurricanes_and_tropical_storms/hurricane_ike/index.html?inline=nyt-classifier) made that worse because 12 of the 14 jet fuel refineries in its path are still shut down because the power is out, Mr. Leak said. Those 14 refineries make 19 percent of the nation’s jet fuel.
United also said it expected third-quarter passenger revenue to increase 4.5 percent to 5.5 percent for each mile. It said it was reducing overall capacity by about 3.6 percent.
Mr. Baker wrote that United’s guidance suggested it would lose $2.30 a share for the quarter. Analysts surveyed by Thomson Reuters had predicted a loss of $1.08 a share.
Stock in United, which is based in Chicago, fell $1.49, or 10.6 percent, to $12.53 a share.
Published: September 17, 2008
United Airlines (http://topics.nytimes.com/top/news/business/companies/united_airlines/index.html?inline=nyt-org) said on Wednesday that it was on track to lose $544 million on contracts in the futures market it used to hedge against rising fuel prices this quarter.
The airline said it had recorded $72 million in actual losses and $472 million more in unrealized losses. Those positions forced United to put $400 million into restricted cash for the parties on the other side of its oil price bets.
However, the airline, the operating unit of the UAL Corporation (http://topics.nytimes.com/top/news/business/companies/ual-corporation/index.html?inline=nyt-org), will save money on its actual fuel purchases because the price of oil is lower now than it was when it bought the futures contracts.
And if oil prices rise, the loss on the futures contracts will decline.
A JPMorgan (http://topics.nytimes.com/top/news/business/companies/morgan_j_p_chase_and_company/index.html?inline=nyt-org) analyst, Jamie Baker, wrote in a note that the decline of oil prices over just one week would save airlines $3 billion.
Oil was trading at less than $94 a barrel on Wednesday, down from a July peak of $147. It settled Wednesday above $97 a barrel.
“Yes, hedgers are underwater on their hedges but they are seeing some relief on the cash market side. That’s how it should work,” said Jonathan Leak, a senior vice president for risk management at World Fuel Services (http://topics.nytimes.com/top/news/business/companies/world-fuel-services-corporation/index.html?inline=nyt-org), which puts together fuel-hedging programs for airlines.
However, fuel prices have not fallen as much as crude oil in the short run because refiners are at capacity. Hurricane Ike (http://topics.nytimes.com/top/reference/timestopics/subjects/h/hurricanes_and_tropical_storms/hurricane_ike/index.html?inline=nyt-classifier) made that worse because 12 of the 14 jet fuel refineries in its path are still shut down because the power is out, Mr. Leak said. Those 14 refineries make 19 percent of the nation’s jet fuel.
United also said it expected third-quarter passenger revenue to increase 4.5 percent to 5.5 percent for each mile. It said it was reducing overall capacity by about 3.6 percent.
Mr. Baker wrote that United’s guidance suggested it would lose $2.30 a share for the quarter. Analysts surveyed by Thomson Reuters had predicted a loss of $1.08 a share.
Stock in United, which is based in Chicago, fell $1.49, or 10.6 percent, to $12.53 a share.