Airline losses (due fuel prices/hedges, etc.)

[Pieter C. 5]

Airlines' losing gamble: Carriers suffer big losses on fuel hedging, face future liabilities

 

January 27, 2009--Initial financial reporting for full-year 2008 indicates that the steep drop in fuel prices in the second half of the year was a double-edged sword for airlines around the world, many of which suffered significant losses on hedging programs. Some have serious hedging liabilities going forward if per-barrel crude oil prices remain low; programs that often paid off in the past now are biting back.

 

Merrill Lynch estimates that nine major Asian carriers alone will combine for $3.8 billion in fuel hedging losses for 2008 and can expect an "especially unpleasant" first half of 2009 partly owing to hedging liabilities. In the US, perennially profitable Southwest Airlines posted losses in both the third and fourth quarters on hedging charges and has conceded it has a net hedging liability of around $1 billion in 2009-13 even though it has moved to reduce its hedging position.

 

Some airlines, such as SWA, have been hedging aggressively for years, a strategy that proved beneficial when crude oil prices skyrocketed to as high as $150 per barrel in the 2008 summer. Others that had been reluctant to place bets on fuel prices in the past scrambled to hedge last year as fears of $200 oil became prevalent. But oil prices have receded rapidly since last July, sitting at around $50 per barrel currently, leaving numerous carriers paying well above market rates for a good percentage of their fuel.

 

"The steep reduction in fuel prices is cold comfort for many carriers locked into higher prices," the Centre for Asia Pacific Aviation said last week. "Hedging contracts have provided some spectacular losses for many carriers in the past few months."

 

Air China, for example, suffered mark-to-market fuel hedging losses of $994.5 million for 2008, according to CAPA. Cathay Pacific Airways and China Eastern Airlines both recorded mark-to-market hedging losses of more than $900 million.

 

Thai Airways moved fast to hedge in the first part of last year and is paying the price. In the last six months of 2008 it hedged more than 40% of its fuel needs at $86-$125 per barrel, well above market rates. The carrier, which likely will report a full-year loss for 2008 for the first time in more than 40 years, cannot extricate itself from the high level of hedging at high prices until at least March.

 

Airlines around the world have been defending their hedging as necessary, noting that predictions of $200 oil were within the mainstream of expert opinion in the early part last year. Thai called hedging a "risk management tool" and claimed it wasn't expecting the program to be a means to "making profit."

 

United Airlines Chairman, President and CEO Glenn Tilton, who came out of the oil industry, said the "implosion" in oil prices has created a "huge commodity bubble, just as we had a huge credit bubble." UA recorded mark-to-market hedging losses of $547 million in the fourth quarter alone and posted a $5.3 billion net loss for the full year. CFO Kathryn Mikells said hedging is akin to "taking an insurance policy out" and that one should not "expect them to pay."

 

American Airlines Chairman, President and CEO Gerard Arpey noted that hedging "is designed to dampen the impact of fuel price volatility and it is not designed to take risky speculative bets on what we believe the price will be at a specific point in the future. In periods [during which] the fuel prices rise, hedges can buffer expense increase, while in the periods where fuel prices are falling, hedges will offset some of that favorable impact." Overall, he asserted, hedging has been a positive and will continue to be so going forward.

 

AA predicts that average system price for jet fuel will be $2.06 per gal. in 2009. But it won't be able to enjoy the full benefit of those prices because it has 35% of its anticipated full-year fuel consumption hedged at an average cap of $2.59 per gal.

 

SWA has moved to "substantially" reduce its fuel hedge position given the "rapid collapse in energy prices," and estimates that about 10% of its consumption will be hedged through 2013, according to CEO Gary Kelly. He said that the LCC's jet fuel costs per gal. "could exceed market prices" by 16-17 cents from 2009 to 2011, by 10 cents in 2012 and by 8 cents in 2013

 

[Pieter C. 5]

Fuel Hedges Burn Continental, US Airways

 

January 29, 2009

Four US airlines became the latest major carriers to report quarterly losses and to post hundreds of millions of dollars in charges from their fuel hedges.

 

The fourth-quarter results on Thursday from Continental Airlines, US Airways, JetBlue Airway and Alaska Air Group follow losses reported by other major airlines that also were battered by volatile fuel prices and a shaky economy.

 

Even a stunning 75 percent drop in the price of oil in the second half of last year managed to sting the airlines, many of which saw their fuel hedges become liabilities. Carriers remained on the defensive this year as some cut capacity to bolster fares as travel budgets shrank.

 

"The impact of high oil prices acted as a catalyst for airlines to take unprecedented measures to bring the supply of seats back into balance with passenger demand," US Airways chief executive Doug Parker said in a statement.

 

"We believe these actions have significantly softened the blow from the economic downturn that we as an industry now face," he said.

 

Last year, the airline industry slashed capacity and some carriers plan more cuts.

 

Continental, the number 4 US airline, said it expected to reduce its mainline capacity by 7.4 percent in the first quarter and by 3.5 percent to 4.5 percent for 2009.

 

"That's the only thing that's going to save us in the first half," said Calyon Securities airline analyst Ray Neidl. "We're looking for a lot of weakness in the first half of the year."

 

Neidl said that if airlines can retain their capacity discipline, they can be profitable in the second half of 2009.

 

CONTINENTAL RESULTS

 

Continental said its fourth-quarter net loss widened to USD$266 million, from USD$32 million a year earlier.

 

The company said it took a USD$44 million charge for payouts to retiring pilots and a USD$125 million one-time loss on some fuel hedges. The airline had said last week that it would take the charge on some fuel derivative contracts with a bankrupt counter-party.

 

Continental said its revenue fell 1.5 percent in the fourth quarter to USD$3.5 billion.

 

US AIRWAYS RESULTS

 

US Airways said its fourth-quarter net loss widened to USD$541 million, from USD$79 million a year earlier.

 

The carrier made headlines this month when one of its pilots was forced to land a plane on the Hudson River in New York.

 

Special charges included USD$234 million of losses resulting from mark-to-market adjustments on fuel hedging instruments.

 

US Airways' revenue fell 0.6 percent to USD$2.76 billion.

 

(Reuters)

 

 

JetBlue Reports Pre-Tax Loss, Takes Charge

 

January 29, 2009

JetBlue Airways on Thursday reported a pre-tax loss for the fourth quarter, which includes a non-cash charge, and forecast reduced capacity in early 2009.

 

The airline said it took a USD$53 million charge in the period related to the valuation of its auction rate securities and had not completed evaluating tax deductibility, preventing it from finalizing net results until mid-February.

 

JetBlue's pre-tax loss of USD$49 million compares with a pre-tax loss of USD$3 million for the year-ago period.

 

"Against the backdrop of record fuel prices and unprecedented economic challenges, we effectively managed our capacity and strengthened our network," JetBlue chief executive Dave Barger said.

 

JetBlue hedged about 24 percent of its fuel consumption, resulting in a 14 percent increase in fuel costs over the fourth quarter of 2007.

 

Capacity is expected to decrease between 5 percent and 7 percent in the first quarter of 2009 and stage length is expected to decrease roughly 6 percent over the same period last year.

 

Operating revenue for the fourth quarter was USD$811 million, up 9 percent. JetBlue ended the quarter with USD$561 million in cash and cash equivalents.

 

(Reuters)

 

Alaska Air Posts Q4 Loss After Charges

 

January 29, 2009

Alaska Air posted a fourth-quarter net loss on Thursday due to special charges, including realized losses of USD$50 million from early termination of fuel hedging contracts.

 

The company reported a net loss of USD$75.2 million loss, compared with a profit of USD$7.4 million a year earlier.

 

Special items also included pre-tax restructuring charges of USD$9.2 million and fleet transition costs of USD$6.7 million.

 

Excluding special items, Alaska Air reported a profit of USD$16.4 million, compared with a year-earlier loss of USD$17.9 million.

 

The company said it had nearly USD$1.1 billion in unrestricted cash and marketable securities as of December 31.

 

(Reuters)

 

 

[BC Tam 2]

A couple of cut and pastes

 

High costs fuel record loss at BA

 

BA boss: No sign of economic recovery

 

British Airways has announced the biggest loss since the company was privatised in 1987.

 

BA reported a loss before tax of £401m for the year to 31 March, after seeing its results hit by a weak pound and higher fuel costs.

 

The airline made a revised profit of £922m in the previous year.

 

BA also offered staff the option of taking unpaid leave or working part-time. Chief executive Willie Walsh said he would work for no pay in July.

 

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read in full here

 

 

Emirates airline profits down 72%

 

The Emirates group, the largest airline in the Middle East, has reported a fall in profits of 72% for the 2008/09 fiscal year.

 

The group, like many others around the world, has been hit hard by the global slowdown and high fuel prices.

 

Its profit of 1.49bn dirhams ($406m; £255m) for the year to March 31 compared with a 5.3bn dirham profit for the previous year.

 

Also on Friday, British Airways reported a record loss of £401m.

 

Rising sales - thanks partly to the addition of new routes - and lower costs helped it remain in profit, Emirates group, which includes the Emirates airline as well as Dnata, an airport operations company, and other businesses.

 

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read in full here

 

Nothing out of the 'ordinary' though !

[BC Tam 2]

And on a cheerier note

 

Profits jump at Virgin Atlantic

 

Virgin Atlantic has reported a sharp rise in profits in the year to the end of February, bucking the trend seen by other airlines.

 

Annual pre-tax profits reached £68.4m ($109m), nearly double the £34.8m seen in the year earlier.

 

It said the results had been helped by a rise in premium fare passengers.

 

The results are in contrast to other airlines, including British Airways which reported an annual loss before tax of £401m last week.

 

BA said the level of premium fare travellers had fallen by 13% in the second half of its financial year and it had seen a rise in fuel costs.

 

Fuel costs

 

Virgin Atlantic chief executive Steve Ridgway said: "We are winning market share from our competitors during the toughest trading environment ever."

 

Talking to the BBC, Mr Ridgway added that successful hedging of fuel had helped the firm. Hedging involves buying fuel at set prices in advance to avoid fluctuations in costs on the open market.

 

During the year, the price of oil veered from as much as $147 a barrel to as little as $38. The carrier spent close to £1bn on fuel for the year.

 

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read in full here

[BC Tam 2]

Japan government plans emergency loan to Japan Airlines

 

TOKYO, June 22 — Japanese Finance Minister Kaoru Yosano said today the government was preparing a loan to loss-making Japan Airlines Corp, caught by severe airline turbulence in the global economic crisis.

 

Yosano said he has received a request by Transport Minister Kazuyoshi Kaneko, in charge of overseeing airlines, for the Development Bank of Japan (DBJ) to extend loans to JAL, Japan's biggest airline.

 

"I replied that we hope to cooperate through DBJ loans and that I will pass on the request to them," Yosano told a news conference after a cabinet meeting. The Ministry of Finance oversees operations of DBJ, a state-owned bank.

 

A bank official said it would likely provide around 100 billion yen (RM3.5 billion) in emergency financing to JAL.

 

Hit by slumping global travel and rising fuel costs, global airlines are forecast to lose US$9 billion (RM31.5 billion) this year, the International Air Transport Association said this month, nearly double its estimate of just three months ago.

 

JAL earlier this year requested finance through a government emergency loan lending programme.

 

JAL has not announced the amount it is seeking, but a company source said it may be around 200 billion yen.

 

The carrier reported a 50.9 billion yen operating loss for the year to March 2009 and warned of a 59 billion yen in the current year to next March.

 

A syndicate of Japan's three biggest banks and the state-backed DBJ are planning to lend about 100 billion yen to the airline as early as this month, the Nikkei daily reported earlier this month.

 

Government support for the carrier will help ease funding strains as it would encourage commercial banks to lend to JAL, Yosano said.

 

Kaneko said the Transport Ministry did not see any big problems in JAL's operation itself.

 

"The airline firm JAL and the airline industry are very important for the Japanese economy as well as for the people, and it is important to maintain airlines in Japan in order to operate internationally, too," he told a news conference.

 

JAL spokesman Satoru Tanaka said the airline hoped to draft out a new business plan as early as possible, reflecting the government's help. — Reuters

 

Things are still very very tough it seems

[KK Lee 5]

Posted for record and reference;

 

JAL annually consumes some 5 billion litres of fuel, or 31.5 million barrels (86,000 barrels per day), the company's website said.

 

In contrast, Singapore Airlines (SIAL.SI) consumes 35.8 million barrels of fuel a year.

 

http://www.reuters.com/article/idUSSGE60I07720100119