JetBlue TrueBlue - JetBlue Posts 1st Quarter 09 Profit

Correct me if I'm wrong, but I think this makes JetBlue and AirTran the only major airlines in the United States to be profitable this past quarter (plus scrappy little profit-maker Allegiant).

http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-newsArticle&ID=1279777&highlight=

Thanks in large part to unwinding their fuel hedges at the end of last year to take full advantage of the lower prices in the 1st Quarter. Cutting out a lot of transcon flying during the winter months had to help things as well. Always nice to see positive results which in the US airline industry has been quite a rarity--especially in the 1st calendar quarter.

$12 million profit compared to a $10 million loss last year.

Seems like excellent news to me. ^ Making a profit when the economy is in the doldrums is a sign of very good management.

Indeed it is good news for jetBlue. I believe that all the legacy carriers still reported losses, though at least one was under solely because of the hedging positions they still held. Still, the future is not bright and rosy at all; future bookings across the industry are still low and yields are weak. Things are really touch and go these days.

Indeed it is good news for jetBlue. I believe that all the legacy carriers still reported losses, though at least one was under solely because of the hedging positions they still held. Still, the future is not bright and rosy at all; future bookings across the industry are still low and yields are weak. Things are really touch and go these days.

Certainly a much better Q1 report than UA's. :eek:

Certainly a much better Q1 report than UA's. :eek:
I haven't seen UA's yet. I'm not really looking for a depressant these days. I was referring to CO, who lost ~$135MM on ~$141MM in fuel hedge losses.

I haven't seen UA's yet. I'm not really looking for a depressant these days. I was referring to CO, who lost ~$135MM on ~$141MM in fuel hedge losses.

CO's loss is nothing compared to UA's. :eek: However, I think UA's is largely tied into larger drops in loads compared to their capacity cuts.

Indeed it is good news for jetBlue. I believe that all the legacy carriers still reported losses, though at least one was under solely because of the hedging positions they still held. Still, the future is not bright and rosy at all; future bookings across the industry are still low and yields are weak. Things are really touch and go these days.

The numbers don't bear out your overly simplistic analysis. Yes, CAL suffered hedging losses of approx $141 M, but B6's hedging losses amounted to $56 M for the quarter, just about the same per volume of fuel consumed as CAL.

You fail to mention that CAL's own Earnings Report singles out diminished demand in high-yield traffic as the primary cause for its 1st quarter loss. For B6, with its different business model, reliance on high-yield premium class passengers is much lower to begin with and that surely played a role in its better results.

Given the current environment, I think both carriers' results are quite good. In the case of CAL, given the stunning decrease in demand in numerous areas of its business (for example in its high-margin cargo operation where volume decreased by 30% compared to last year) the results are surprisingly good.

But the issue is not its hedging performance, where the losses are substantially similar to those experienced by most carriers.

:(The numbers don't bear out your overly simplistic analysis. Yes, CAL suffered hedging losses of approx $141 M, but B6's hedging losses amounted to $56 M for the quarter, just about the same per volume of fuel consumed as CAL.

You fail to mention that CAL's own Earnings Report singles out diminished demand in high-yield traffic as the primary cause for its 1st quarter loss. For B6, with its different business model, reliance on high-yield premium class passengers is much lower to begin with and that surely played a role in its better results.

Given the current environment, I think both carriers' results are quite good. In the case of CAL, given the stunning decrease in demand in numerous areas of its business (for example in its high-margin cargo operation where volume decreased by 30% compared to last year) the results are surprisingly good.

But the issue is not its hedging performance, where the losses are substantially similar to those experienced by most carriers.

Good job TWA Fan 1...you were much kinder to sbm12's "analysis" than I would have been. You could also mention that looking at net profit vs fuel hedging loss fails to take into account tax implications.

Good job TWA Fan 1...you were much kinder to sbm12's "analysis" than I would have been. You could also mention that looking at net profit vs fuel hedging loss fails to take into account tax implications.

Which part of my "analysis" was wrong? The part where one carrier would likely have realized a profit if they hadn't lost so much hedging? Or the part where advance bookings are down across the industry and no one is safe, even if last quarter looked good?

JetBlue is going to continue to struggle to drive yields in the next few months, even following on their success in making money last quarter.

Which part of my "analysis" was wrong? The part where one carrier would likely have realized a profit if they hadn't lost so much hedging? Or the part where advance bookings are down across the industry and no one is safe, even if last quarter looked good?

JetBlue is going to continue to struggle to drive yields in the next few months, even following on their success in making money last quarter.
Second-guessing a hedge is like second guessing a poker hand ("if only I had been dealt the 7 card I would've won").

The fact is if CO's hedge strategy had turned out more to their benefit, they still would've lost money, just a little less. But since when one hedges, there is no way of knowing what will happen in the future, the idea of analyzing with a "what if" in retrospect is pointless.

Your first post on this thread implied that, had their fuel hedge turned out to more favorably, their $141 M fuel hedge loss would have been erased completely and they would not have registered a loss for the first quarter.

The only way that would have happened, given the extreme volatility of fuel prices over the past 12 months, is if they hadn't hedged at all, which would have cost them dearly anyway as they would have paid full retail for fuel at its peak price over the last summer (i.e., they would have lost money based on purchasing fuel vs hedging it).

The bottom line is that all carriers registered fuel hedge losses, including CO and B6. CO might have done slightly better, but no more than a few percentage points better than they did in actuality. The likelihood that their hedging would have resulted in no losses in as volatile a market as this one is statistically nil.

At best, they would have had a loss comparable to the one they suffered, perhaps a few million dollars more or less depending on how the roulette wheel of fuel hedging would have turned out.

As CAL stated in its own earnings report, they attributed the loss primarily to the weak demand in the high-yield market segment.

As far as B6, their profit is impressive in the current climate, but hardly substantial and their meager cash on hand reserves very troubling should they face another few quarters of losses.

But since when one hedges, there is no way of knowing what will happen in the future, ...I am confused. I thought the whole point of a hedge was that you know exactly what will happen in the future -- buying something at a known price instead of whatever tomorrow's/next month's/etc., market price is?

No?

I am confused. I thought the whole point of a hedge was that you know exactly what will happen in the future -- buying something at a known price instead of whatever tomorrow's/next month's/etc., market price is?

No?

Yes, but the point is, hedges only make sense when the hedge price is lower than what's on the market. When you make a hedge and fuel prices on the market go above the hedge....you're a genius! When you make a hedge and the price drops below your hedge....what were you thinking?

When the price of oil dropped off, the hedges that once looked smart soon became a liability since everyone else who didn't make a hedge could buy it cheaper.

I am confused. I thought the whole point of a hedge was that you know exactly what will happen in the future -- buying something at a known price instead of whatever tomorrow's/next month's/etc., market price is?

No?A hedge is an educated guess, a prediction based on market data and trends. As phxWNflyer wrote above, it works best when the price of fuel is constantly rising, but even in that scenario, you need to anticipate the rate of the increase of cost.

You can wrap up your hedge when the cost decreases, but anticipating that decrease accurately was nearly impossible in the past year, given the epoch-defining volatility that occurred in the market over the past twelve months.

Just like in poker, there is also an element of chance in hedging. If an airline had purchased a hedge when petroleum was at, say, $75/barrel and then the cost of fuel spiked to $140+/barrel, they would have been very lucky, especially if their hedge then expired precisely as the cost of fuel began to decrease dramatically.

Of course, had that happened, it would have been purely a matter of luck.

As it was, no one anticipated such a huge increase followed by such a huge drop in cost, up to $140+ per barrel down to as low as the low $30's.

That's what I meant by comparing it to a hand of poker. If the purchasers of hedges had "known" that petroleum would surge to $140/barrel and then drop dramatically only a few months later, they would have incurred no hedging losses.

But who could possibly have known that?

Not only is there obviously no way to know the future, but also, because of the nature of fuel sales, there is also no such thing as "insider trading" when it comes to fuel hedging. Hedgers are totally at the mercy of a huge worldwide market for petroleum.

In fact, no one predicted the cost of fuel accurately and that's why all the airlines suffered hedging losses.

To then suggest, as sbm did, that CO's first-quarter loss was "solely" due to hedging losses, is simplistic, because it implies those losses were avoidable. The only way that would have been possible is if CAL could have both anticipated the record surge in the cost of fuel and its record plunge which immediately followed, and--on top of that--timed their hedge to expire exactly with the bursting of the bubble in fuel cost. This is not a reasonable supposition.

This is why all the carriers incurred hedging losses (including B6, which had $56 million in hedging losses, approximately the same rate of hedging loss per volume of fuel purchased as CAL).

Yes, but the point is, hedges only make sense when the hedge price is lower than what's on the market. When you make a hedge and fuel prices on the market go above the hedge....you're a genius! When you make a hedge and the price drops below your hedge....what were you thinking?Hedges make sense when the hedge price booked is lower than what the price becomes, not necessarily what it is on the market right now. But the concept is sound.

I am confused. I thought the whole point of a hedge was that you know exactly what will happen in the future -- buying something at a known price instead of whatever tomorrow's/next month's/etc., market price is?

No?
You're correct. A hedge lets you know exactly what the rate you are paying will be. Basically you can budget your costs despite market volatility. Of course, very few airlines hedge 100% of their fuel costs so they don't know exactly what the total costs will be but it does help predict more closely.

Your first post on this thread implied that, had their fuel hedge turned out to more favorably, their $141 M fuel hedge loss would have been erased completely and they would not have registered a loss for the first quarter.


I agree that hedging is betting. And they lost on the bet. My point was that operationally they were profitable and that the bet is where they lost money. Carriers are getting to the point where they are operationally profitable while they were not able to do that late last year. WN was also been operationally profitable when they lost money on hedging.

I understand that the premium cabin bookings and yields are soft and that CO is worried about that. But I also know that they are much less hedged next quarter so they do have a chance to be operationally profitable if the stars align correctly, just like jetBlue does.

I agree that hedging is betting. And they lost on the bet. My point was that operationally they were profitable and that the bet is where they lost money. Carriers are getting to the point where they are operationally profitable while they were not able to do that late last year. WN was also been operationally profitable when they lost money on hedging.The point is the "bet" is a part of the operation.

All the airlines lost money on their hedges because of the unique nature of the volatility of the fuel market in the past twelve months.

Again, you are deducting the entire fuel hedge loss ($141 M) from the bottom line. That, as I have discussed, is too simplistic. The point is there is no way they could have avoided that loss. Therefore, it was really essentially a cost of doing business in that time frame.

All the airlines lost money on their fuel hedges. Using your calculus, we could simply erase the fuel loss hedges of all the carriers. B6, for example, would have earned $76 M in the first quarter had they experienced no fuel hedge losses. But that's equally simplistic.

Since there is no way CO could have avoided a fuel hedge loss in this environment, one cannot say that they were operationally profitable, since the fuel hedge loss was both unavoidable and central to their operation.

P.S.: As far as CO being less hedged for the next quarter, there is no guarantee that this strategy will save them money. Already oil has crept up to nearly $50/barrel and there is talk that investors are going into oil as the safest commodity in this period of tremendous uncertainty.

I don't know any more than anyone else, obviously, but it is certainly not impossible that the cost of fuel will continue to rise (fueled not by demand but by speculators) and that any airline that does not hedge will find its cost of fuel significantly increased.

Since there is no way CO could have avoided a fuel hedge loss in this environment, one cannot say that they were operationally profitable, since the fuel hedge loss was both unavoidable and central to their operation.


I do not agree that fuel costs are directly tied to operational costs. Or if they are, perhaps I am referring to the "CASM excluding fuel" number or the "CASM holding fuel costs constant" number which the vast majority of airlines report. Those numbers are not absolute profit/loss, but they do provide some good reference for the operational efforts of the carriers over costs that they generally do have more direct control over.

I do agree that they made a decision to bet the money and they lost and that ultimately it affected them and most other carriers adversely in the past quarter and in the overall financial reporting they did lose money. A lot of it though not as much as some other carriers (**cough** United **cough**).

I am impressed the many carriers managed to eke out profit over CASM - fuel. That's all. Many struggled to do that in the past few quarters so this is a pleasant turnaround.

I do not agree that fuel costs are directly tied to operational costs. How do you operate without fuel?

How do you operate without fuel?
Thank you for selectively quoting me and not taking the whole of that thought into account. :rolleyes:

Thank you for selectively quoting me and not taking the whole of that thought into account. :rolleyes:The CASM figures with the fuel costs either removed or averaged are certainly not meant to imply or connote that fuel is not an operational expense.

Instead, as you wrote, this measure segregates the cost of fuel because of its great volatility, and the CASM with the fuel charge removed or averaged is meant to demonstrate how the airline controls its others costs, over which, as you wrote, they have greater direct control (personnel, cost of aircraft leases/financing, maintenance, etc.).

I'm actually a little surprised that you did not draw a distinction between the cost of fuel, which is obviously a direct and substantial operating expense, and hedging, in the respect that hedges can represent cost--as in the current case--at a price point that was established in a previous quarter. In this sense, hedges are not precisely a direct operating expense, and this is surely what you had in mind originally.

Nevertheless, hedges are most certainly an operating cost in the macro sense, in the respect that, absent the hedges, in most cases, the long-term costs of fuel would increase. Even in our current example, with a once-in-a-lifetime volatility in fuel prices, the hedge allowed CO to save substantial sums in the 2nd and 3rd quarter vis-a-vis buying all their fuel on the open market.

Since the hedges did not end at the precise moment when the bubble burst, these savings were then diluted and transferred to operating costs in the 1st quarter of 09. On the whole, though, CO nevertheless saved money by hedging versus no hedging at all.

Could they had avoided these losses by timing the hedges to coincide exactly with the drop in prices? Obviously. But since there was clearly no way to reasonably anticipate the exact moment at which prices were to begin falling, and then to what extent, that discussion is entirely moot.

It would be a little bit like saying that you played 00 on the roulette wheel, and the ball stopped on the 4, but that the ball landed on 00 three turns later. That's terrific but still entirely moot.

The fact remains that hedging is central to the operation of any major airline, including CAL and B6, and thus gains or losses incurred from this practice are entirely a part of the operational sphere of the business.

Therefore, to claim that CAL made a profit operationally in the 1st quarter is simply not accurate, since the hedges are an on-going and innate part of CO's operation, and the hedges took a $141 M loss.

Sure, had CO not hedged at all, they would indeed have made a $6 million in the 1st quarter, but this practice would simply have shifted the loss--and far more substantially--to the 2nd and 3rd quarters of 2008, when, if CO had purchased all its fuel on the open market only, its cost of fuel would have been dramatically higher.

A hedge is an educated guess, a prediction based on market data and trends. As phxWNflyer wrote above, it works best when the price of fuel is constantly rising, but even in that scenario, you need to anticipate the rate of the increase of cost.I think we're talking about 2 different things. Hedges reduce risk. To say "With a hedge, you never know what's going to happen" is inaccurate in that light.

Now, hedges don't always turn out to be profitable, but that's entirely different. That's simply the price you pay for the insurance (reduction in risk) provided by the hedge.

I think we're talking about 2 different things. Hedges reduce risk. To say "With a hedge, you never know what's going to happen" is inaccurate in that light.

Now, hedges don't always turn out to be profitable, but that's entirely different. That's simply the price you pay for the insurance (reduction in risk) provided by the hedge.
A hedge is not insurance. With insurance you pay a premium in order to protect you from some potential future risk. The premium is set actuarily.

No one in their right mind would ever write airline fuel insurance, that is why they have hedges.

With a hedge, you are buying a future supply at a fixed price you hope will be lower than the future price. There are a couple of models of hedges and all of them have various limits and safeguards to protect both the purchaser and seller, but it's still a commodities future contract, not insurance.

Since there is no way of knowing the future price with absolute certainty, the hedge does not always pay off. The fact that it is so difficult to predict the price of airline fuel is, in fact, why hedges are possible. After all, if only the hedge purchaser ever benefited, no one would be in the business of selling it.

In the past year, many carriers purchased hedges at, say $75, felt like geniuses when fuel soared to over $140/barrel and then like utter dunces when it dipped to close to $30/barrel, at which point they were (in most cases) still paying at the $75/barrel rates.

The airlines suffered, but the entities selling hedges made handsome profits.