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US Airline Fuel Hedge Positions  
User currently offlineLAXDESI From United States of America, joined May 2005, 5094 posts, RR: 48
Posted (7 years 7 months 1 week 6 days 19 hours ago) and read 2805 times:

The purpose of this thread is to find the most current information on fuel hedges held by US airlines. I am looking for information on types of hedges utilized--option collars, futures contracts etc.

I know United uses option collars, wherein it buys call option to protect it against fuel prices rising beyond a certain level. To offset the cost of call option premium it must pay, United sells put option, thus collecting premium. As can be seen below, for the third quarter United had hedged 44% of its fuel using option collars, giving it protection against fuel prices rising beyond $127. However, having sold the put option to offset the premium for call option, it exposed itself to losses if crude oil prices dropped below $100. United had to recognise a loss( mark to mkt. accounting) for the third quarter, but since oil has dropped another 25% since Sep. 30, I expect United to recognise additional and larger losses for the 4th quarter given its collar positions for Q4 and 2009--assuming, of course, that fuel prices stay at the current level.

It looks like most airlines may have to recognise additional losses next quarter, unless crude oil prices go above $88 by the end of next quarter. It seems that American and US Air have no fuel hedges(at least as of Aug. 14, 2008) for FY 2009, and should benefit the most if fuel prices stay at the current level.

The information in the article below may be incomplete, so please do post(with links) so that we will have a better sense of hedges and future profitabilty.

Here's what I found on the web from an article dated Aug. 14.:

Continental Airlines H2 08 63 not disclosed
H1 09 29 not disclosed

United Airlines Q3 08 44 $100-$127/bbl
Q4 08 47 $99-$134/bbl
FY 09 14 $102-$152/bbl

American Airlines Q3 08 35 $95/bbl
FY 08 34 $82/bbl

Northwest Airlines Q3 08 63 not disclosed
Q4 08 56 not disclosed
Q1 09 21 not disclosed

Southwest Airlines Q3 08 80 $61/bbl
Q4 08 80 $58/bbl
FY 09 70 $66/bbl
FY 10 40 $81/bbl

Delta Air Lines Q3 08 48 $2.94/gln of fuel
Q4 08 46 $3.42/gln of fuel
FY 09 21 $3.48/gln of fuel
FY 10 5 $3.05/gln of fuel

* US Airways Q3 08 58 $97/bbl
Q4 08 47 $108/bbl

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