Aitran Bankrupt Next?

[num1bearsfan]

It's like someone else brought up. Airlines are not really immediately affected by short term oil price changes due to hedges. The truth is, it doesn't really matter that much whether the price is currently $115 or $150 a barrel. The airlines are still paying whatever their hedge is currently at, for better or worse..

[newsmanhoss]

Most airlines are not 100% hedged. Heck, even Southwest isn't fully hedged (they are in the 70% range for 2008 and lower amounts in future years).

So, changes in the price of fuel will still affect all carriers in big ways.

[num1bearsfan]

Originally Posted by newsmanhoss

Most airlines are not 100% hedged. Heck, even Southwest isn't fully hedged (they are in the 70% range for 2008 and lower amounts in future years).

So, changes in the price of fuel will still affect all carriers in big ways.

true,..

Do you know what airtran's hedge situation is?

[g50]

Originally Posted by num1bearsfan

true,..

Do you know what airtran's hedge situation is?

http://www.forbes.com/feeds/ap/2008/...ap5264044.html

[num1bearsfan]

Alright so 70% of Airtran's fuel is currently hedged. So the remaining 30% is purchased at market cost..

So with any fluctuation in the oil market, Airtran is only affected by the difference in the 30% that is not hedged..

[g50]

"AirTran said Tuesday (July 29th) its fuel hedging for the rest of the year will reduce the price it pays for crude oil by roughly $12 to $15 per barrel at current fuel price levels."


Crude oil has dropped around $15 since July 29th, so anymore drop in crude oil price will start hurting the hedge.

[num1bearsfan]

Originally Posted by g50

"AirTran said Tuesday (July 29th) its fuel hedging for the rest of the year will reduce the price it pays for crude oil by roughly $12 to $15 per barrel at current fuel price levels."


Crude oil has dropped around $15 since July 29th, so anymore drop in crude oil price will start hurting the hedge.

I wonder how permanent these recent oil price drops are though.. Do you think the trend will keep going down until we get back to semi normal prices again?

[newsmanhoss]

Originally Posted by num1bearsfan

I wonder how permanent these recent oil price drops are though.. Do you think the trend will keep going down until we get back to semi normal prices again?

I believe that we will continue to experience a long-term increase in the price of fuel. It will continue to spike and then pull back some. But during each spike/pull-back cycle, the average price will get higher.

I would bet that, due to the long-term increase that many expect, hedges are more likely to result in a net savings rather than a net cost increase. But, they are expensive propositions. Up-front costs to enter into fuel purchase contracts can be very high. Even though hedges help in the long-term, airlines have to decide how much they can invest in hedging vs. just paying as they go.