The other side of hedging: UAL loses up to $500 million

wheelsup

Well-Known Member
UAL: Falling oil prices may lead to sizable net loss

United Airlines parent UAL Corp., socked in recent quarters by soaring fuel costs, warned investors in a regulatory filing Wednesday that third-quarter results will take a hit as a result of ... declining oil prices.

Chicago-based UAL said it could take a third-quarter hit of more than half a billion dollars on hedging agreements it made to protect itself against oil price spikes, although the bulk of that will be in a relatively benign non-cash accounting charge.

[...source...]
$72 million in current loses with $472 million in predicted loses due to hedges gone bad if oil stays below $100/bbl.
 

Polar742

All the responsibility none of the authority
Sometimes you can't win for losing.....

People get the BMGs cause they're not hedged, and when they can hedge, they're doin' it wrong...

Man, I got friends there. Hope the boat doesn't go below.
 

E_Dawg

Moderator
How do they lose $$$... presumably their biz model worked just fine with oil at the higher, hedged, price.

If you take a step back that's actually pretty funny. These guys (UAL) just can't win it seems. Maybe they'll quadruple their second bag fee to make up for it ;)
 

Firebird2XC

Well-Known Member
Sometimes you can't win for losing.....

People get the BMGs cause they're not hedged, and when they can hedge, they're doin' it wrong...

Man, I got friends there. Hope the boat doesn't go below.
Check the thread I just dropped about a National Seniority list.

The NSL was proposed the United ALPA.

Interesting timing, no?
 

wheelsup

Well-Known Member
Check the thread I just dropped about a National Seniority list.

The NSL was proposed the United ALPA.

Interesting timing, no?
Yeah, it's called "we didn't want it before when it didn't benefit us but now that we think we are screwed we want it".

UAL is going down, the current management couldn't make money if it was growing on trees.
 

Firebird2XC

Well-Known Member
Yeah, it's called "we didn't want it before when it didn't benefit us but now that we think we are screwed we want it".

UAL is going down, the current management couldn't make money if it was growing on trees.
Well then. Here's the industry capacity reduction we've been looking for.

Watch for the remaining Legacies to step up to fill the void. Tada!

Suddenly ticket prices go up FAST. We all make money.

...er.. management makes money, and we fight and scrap for leftovers.
 

tonyw

Well-Known Member
Well, oil went back up so who knows? The hedges may be worth something.

I don't know what price they hedged for but if they didn't plan on losing money if oil prices went down, they're idiots.

I'm learning about options and futures and one thing I know is that you've got to be willing to lose every single penny you use to buy these things. If UAL's management didn't do that, shame on them.
 

matt152

Well-Known Member
I am by no means an expert on anything, but isn't a hedge used to basically lock in a price? Say they were hedged for oil at $130. When oil went to $100 the hedges lost money, but UAL made up for it by paying less for fuel. The end result: "a relatively benign non-cash accounting charge."
 

SlumTodd_Millionaire

Evil Landlord Capitalist
The same thing will happen here at AirTran if oil drops below about $85 with the way our hedges and collars were structured. I think I saw that if oil drops to $85 then we'll still be paying $89. There is some risk in hedging, but the stability in fuel prices that they provide is usually worth the risk, assuming you don't completely screw up your hedging strategy.
 

JEP

Malko In Charge
Staff member
I am by no means an expert on anything, but isn't a hedge used to basically lock in a price? Say they were hedged for oil at $130. When oil went to $100 the hedges lost money, but UAL made up for it by paying less for fuel. The end result: "a relatively benign non-cash accounting charge."
If I am thinking correctly, that is the problem. They locked in (paid) $130 but the price is now $100. They are not paying less. They paid $30 more than what they could buy for now. The benefit would be locking in at $130 and then fuel goes up above that. They have then, in essence, saved 'x' (being the amount more than $130).
 
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