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UAUA Q3 results/news/Mileage Plus/conference call discussion

UAUA Q3 results/news/Mileage Plus/conference call discussion

 
Old Oct 21, 08, 1:46 pm
  #31  
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Originally Posted by andersjt View Post
Here are points I found bothersome:

1. At $80 per barrel, Ms. Mikells pointed out their estimate of cash outlays to cover open hedge contracts at $600 million.
Did they provide any guidance for the exposure at, say, the recent price today of $71/bbl? Wonder what the pain will be if oil slides to $35/bbl or $40/bbl?

The flip side is that drastically lower oil prices, while costing UA money on the existing hedges, potentially results in billions of dollars in savings on fuel purchases. As long as unit revenue doesn't tank in an accompanying worldwide economic slowdown, things are looking OK.
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Old Oct 21, 08, 1:58 pm
  #32  
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Originally Posted by FWAAA View Post
Did they provide any guidance for the exposure at, say, the recent price today of $71/bbl? Wonder what the pain will be if oil slides to $35/bbl or $40/bbl?
no... however she did indicate how much was hedged and at what prices. Later I will find out the numbers and post them here.
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Old Oct 21, 08, 2:11 pm
  #33  
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Originally Posted by jhayes_1780 View Post
no... however she did indicate how much was hedged and at what prices. Later I will find out the numbers and post them here.
Thanks, but those numbers were in this morning's press release:

Code:
Hedge Positions as of Oct. 17, 2008

                                         Average  Average
                        % of              Price    Price
                      Expected    % of    where    where  Average    Average
                       Consoli- Expected Payment  Payment  Price      Price
                        dated   Mainline Obliga-  Obliga-  where      where
       Hedging         Consum-   Consum-  tions    tions Protection Protection
      Instrument        ption     ption    Stop    Begin   Begins     Stops
    4th Quarter 2008
    Collars              16%       19%     N/A    $99bbl   $109bbl      N/A
    3-Way Collars        33%       39%     N/A   $107bbl   $113bbl  $133bbl
    4th Qtr 2008 Total   49%       58%     N/A   $104bbl   $112bbl      N/A

    Full Year 2009
    Calls                 6%        7%     N/A       N/A   $106bbl      N/A
    Collars               3%        4%     N/A   $109bbl   $119bbl      N/A
    3-Way Collars        18%       22%     N/A   $102bbl   $117bbl  $145bbl
    4-Way Collars         1%        2%  $63bbl    $78bbl    $95bbl  $135bbl
    Full Yr 2009 Total   28%       34%     N/A   $101bbl   $114bbl      N/A
My question was directed at the total cash outlay (potential exposure) for settling open hedges if fuel prices continue their dramatic decline. In the worst case scenario, an airline could theoretically be forced to turn over almost all of its current cash to hedge counterparties to settle such hedges, preventing it from enjoying the lower fuel prices - as it would no longer be a going concern.
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Old Oct 21, 08, 2:56 pm
  #34  
 
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I can almost bet that since UA has already booked the losses and paid out the cash as collateral they will execute transactions that will bring the average price per barrel on the hedges down without impacting the actual cash flows. (ie. recognize the paper loses and enter into a new agreement with a new strike)

Rightly or wrongly they just look stupid for hedging at such high numbers.

rich
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Old Oct 21, 08, 3:16 pm
  #35  
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Originally Posted by bmvaughn View Post
Awesome, that will be more than half the 744s and over a third of the 763s.
Actually since there are 21 763s, two-thirds of the 763s will have been reconfigured by by the end of 2008.
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Old Oct 21, 08, 3:20 pm
  #36  
 
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Originally Posted by FWAAA View Post
Did they provide any guidance for the exposure at, say, the recent price today of $71/bbl? Wonder what the pain will be if oil slides to $35/bbl or $40/bbl?

The flip side is that drastically lower oil prices, while costing UA money on the existing hedges, potentially results in billions of dollars in savings on fuel purchases. As long as unit revenue doesn't tank in an accompanying worldwide economic slowdown, things are looking OK.
When asked, Ms. Mikells brought up a guidance number of $60 million for every $10 per barrel change.

Until these open contracts have expired, they will be paying extra for the fuel, and that will eventually be a cash outlay. While they may have taken mark to market writedowns on these contracts in the third quarter, they will have to shift the cost to above the line when the fuel is consumed, which will affect CASM for some time. As you pointed out, they are going to be under a lot of pressure to increase unit revenue.

This conference call had a lot of the same feeling as the Annual Meeting back in June (minus the pickets and disruptions). Real questions about operational deficiencies were not answered. Mr. Tague did admit to the mistake of trying to charge for meals on international flights, and the subsequent backlash, but he would not answer the question as to how it may have affected loads and revenue.

Mr. Tilton pointed out that while the U.S. economy was floundering in the third quarter, companies such as McDonald's were finding growth overseas, and he said that United was well positioned to compete in that regard (thus the focus on the new seats). Wake up Mr. Tilton, what is happening now in the financial markets is global, and companies such as McDonald's are going to find their overseas growth hampered by the lack of available credit or capital. Executives that still have jobs will not be traveling as much.

Mr. Tague, I'm not sure what you meant by working on the "cleanliness" of the product, but until the image and experience that is the United can be improved worldwide, United is not going to be competitive. The seats are not enough, the whole customer service experience has to be seamless systemwide (international and domestic). With contracts with some very disgruntled pilots and flight attendants expiring on December 31, 2009, and your inability to improve employee morale, your product is going to remain pretty "dirty."
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Old Oct 21, 08, 3:26 pm
  #37  
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Originally Posted by andersjt View Post
Mr. Tague, I'm not sure what you meant by working on the "cleanliness" of the product, but until the image and experience that is the United can be improved worldwide, United is not going to be competitive. The seats are not enough, the whole customer service experience has to be seamless systemwide (international and domestic). With contracts with some very disgruntled pilots and flight attendants expiring on December 31, 2009, and your inability to improve employee morale, your product is going to remain pretty "dirty."
Tague literally means that United is focusing on maintaining clean cabins and clean, safe working environment as well for flight attendants. This is a separate effort to what you suggest - improving labor relations, both of which are important.
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Old Oct 21, 08, 4:35 pm
  #38  
 
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not sure if i am missing something here, but seems like (and appeciate any additions from anyone with better financial acumem than moi ) but seems like:

(1) UA got late into the hedging game and got burned big... how many folks on this board trashed them for not hedging? (SW got burned too).

(2) the after adjustment loss of $150 does not look bad to me, certainly looks good after ARMs 360 loss (who I think is the most analogous competator to them), but bad compaired to DL (50 unadjusted, for some reason I don't have the adjusted from their release)

(3) The opp revenue increase (6.1%) however does not match up well with DL (up 9%) and ARM (up 8%).

(4) I can't quickly find the PRASM for each, but 4.5% increase given their capacity cuts looks bad to me, show the debundling is not working well for them.

Not sure also how this stacks up with CO (who also had a hedging loss)

(5) the cash (2.9B) is it up, flat? no comparison given which is interesting. Delta is at $3.1B (up from 2.6), ARM is at $4.62 (down from 5.5B)

So seems to me that UA is in better shape that AA, not as good as DL, but able to staying in business, particularly with falling oil prices.
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Old Oct 21, 08, 5:30 pm
  #39  
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Originally Posted by spin88 View Post
not sure if i am missing something here, but seems like (and appeciate any additions from anyone with better financial acumem than moi ) but seems like:

(1) UA got late into the hedging game and got burned big... how many folks on this board trashed them for not hedging? (SW got burned too).
I disagree. UA has been hedging for quite a while now and has saved hundreds of millions of dollars via its hedging efforts. And WN? It has saved $1.3 billion on fuel this year alone thru its hedging efforts - I'd say it hasn't been burned yet. Its non-cash writedown of the third quarter merely reverses much of its non-cash gains of the second quarter.

Originally Posted by spin88 View Post
(2) the after adjustment loss of $150 does not look bad to me, certainly looks good after ARMs 360 loss (who I think is the most analogous competator to them), but bad compaired to DL (50 unadjusted, for some reason I don't have the adjusted from their release)
UA's net loss (net of all special items) was $250 million, not $150 million. I'd say that places UA a lot closer to AMR. Agree that DL's results are impressive.

Originally Posted by spin88 View Post
(3) The opp revenue increase (6.1%) however does not match up well with DL (up 9%) and ARM (up 8%).

(4) I can't quickly find the PRASM for each, but 4.5% increase given their capacity cuts looks bad to me, show the debundling is not working well for them.
Agreed.

Originally Posted by spin88 View Post
(5) the cash (2.9B) is it up, flat? no comparison given which is interesting. Delta is at $3.1B (up from 2.6), ARM is at $4.62 (down from 5.5B)
Not quite. UA's cash at the end of the quarter was flat since June 30, but that was after raising $1.4 billion of new cash during the quarter. UA had to give almost $400 million to hedge counterparties and used the rest, primarily, at the gas pump. AMR's cash was $4.6 billion, down from $5.1 (not $5.5) billion at June 30. AMR raised similar amounts as UA during the quarter. Cash collateral held by AMR from its hedge counterparties was down by more than $600 million during the quarter.

Originally Posted by spin88 View Post
So seems to me that UA is in better shape that AA, not as good as DL, but able to staying in business, particularly with falling oil prices.
Not sure how you conclude that UA is in better shape than AMR. AMR still has $239 million of hedge counterparty cash collateral deposits in its possession, compared to the $378 million UA had to give to its counterparties. Further, AMR hasn't hinted at any $600 million additional exposure if oil remains at $80/bbl or falls further (as did UA).

I realize that UA has the oft-mentioned $3.0 billion of unencumbered assets - but borrowing against those and realizing anywhere near that amount right now would be quite a feat. AMR said last week that it holds about $3.5 billion of assets against which it could borrow - and I call BS on that for the same reason as at UA.

UA blamed much of its first quarter 2008 weakness on its lack of strength in warm-weather destinations - another advantage for AA in the fourth quarter of this year plus the first quarter of 2009. The Caribbean and S America strength will help AA for the next six months - perhaps balancing out (or beating) UA's Asian and European (with LH) strength.

I'd conclude that AMR and UA are about even - each has reported some advantages over the other in this latest quarter, and each has a big challenge to arrive at next summer's busy travel season (if there is one) with a healthy cash balance. Best of luck to both.
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Old Oct 21, 08, 7:16 pm
  #40  
 
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Originally Posted by FWAAA View Post
I disagree. UA has been hedging for quite a while now and has saved hundreds of millions of dollars via its hedging efforts. And WN? It has saved $1.3 billion on fuel this year alone thru its hedging efforts - I'd say it hasn't been burned yet. Its non-cash writedown of the third quarter merely reverses much of its non-cash gains of the second quarter.



UA's net loss (net of all special items) was $250 million, not $150 million. I'd say that places UA a lot closer to AMR. Agree that DL's results are impressive.



Agreed.



Not quite. UA's cash at the end of the quarter was flat since June 30, but that was after raising $1.4 billion of new cash during the quarter. UA had to give almost $400 million to hedge counterparties and used the rest, primarily, at the gas pump. AMR's cash was $4.6 billion, down from $5.1 (not $5.5) billion at June 30. AMR raised similar amounts as UA during the quarter. Cash collateral held by AMR from its hedge counterparties was down by more than $600 million during the quarter.



Not sure how you conclude that UA is in better shape than AMR. AMR still has $239 million of hedge counterparty cash collateral deposits in its possession, compared to the $378 million UA had to give to its counterparties. Further, AMR hasn't hinted at any $600 million additional exposure if oil remains at $80/bbl or falls further (as did UA).

I realize that UA has the oft-mentioned $3.0 billion of unencumbered assets - but borrowing against those and realizing anywhere near that amount right now would be quite a feat. AMR said last week that it holds about $3.5 billion of assets against which it could borrow - and I call BS on that for the same reason as at UA.

UA blamed much of its first quarter 2008 weakness on its lack of strength in warm-weather destinations - another advantage for AA in the fourth quarter of this year plus the first quarter of 2009. The Caribbean and S America strength will help AA for the next six months - perhaps balancing out (or beating) UA's Asian and European (with LH) strength.

I'd conclude that AMR and UA are about even - each has reported some advantages over the other in this latest quarter, and each has a big challenge to arrive at next summer's busy travel season (if there is one) with a healthy cash balance. Best of luck to both.
Excluding the non-cash, net mark-to-market hedge loss and certain accounting charges outlined in note 5, in the third quarter of 2008 the company generated an operating loss of $150 million, versus operating income of $592 million last year primarily as a result of the $946 million increase in consolidated cash fuel expense. The significant increase in average cash fuel price caused the company to generate a net loss, excluding the non-cash, net mark-to-market hedge losses and certain accounting charges, of $252 million in the third quarter of 2008. Including the non-cash, net mark-to- market hedge losses and certain accounting charges, the company reported an operating loss for the quarter of $491 million and a net loss of $779 million.

re UA's opperating loss, it was $150M: From the press release:

Excluding the non-cash, net mark-to-market hedge loss and certain accounting charges outlined in note 5, in the third quarter of 2008 the company generated an operating loss of $150 million, versus operating income of $592 million last year primarily as a result of the $946 million increase in consolidated cash fuel expense. The significant increase in average cash fuel price caused the company to generate a net loss, excluding the non-cash, net mark-to-market hedge losses and certain accounting charges, of $252 million in the third quarter of 2008. Including the non-cash, net mark-to- market hedge losses and certain accounting charges, the company reported an operating loss for the quarter of $491 million and a net loss of $779 million.


I think I quoted the same figure for AA (opp loss, after adjustments), but I may have gotten it wrong.

re Hedging, for SW it has clearly been a plus, they just got hit this quarter, but UA has historically not had major hedges (certainly not at the percentage of use they had this quarter) and while they have benifited in the past, I would be curious if you added up the hedges sense BKR if they will be ahead, or behind. Lots of UA hedges at $133 per BBL
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Old Oct 21, 08, 7:57 pm
  #41  
 
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I thought that the funniest part of the whole conference call was when one of the analysts asked UA management, "I guess you had some resistance to charging for meals in international economy?" About 4-6 seconds of strong laughter ensued among UA management's team, and they stated "You could call it that!" Said Tague, "That's one I wish I'd done another way."

Perhaps UAL really does listen when we tell them what we REALLY want. And, clearly, that was something that we really want. What else can we as a community achieve to help UA's management turn this company around into a profitable airline that we can once again be proud to fly on?
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Old Oct 21, 08, 8:05 pm
  #42  
 
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Originally Posted by UAPremierGuy View Post
I thought that the funniest part of the whole conference call was when one of the analysts asked UA management, "I guess you had some resistance to charging for meals in international economy?" About 4-6 seconds of strong laughter ensued among UA management's team, and they stated "You could call it that!" Said Tague, "That's one I wish I'd done another way."

Perhaps UAL really does listen when we tell them what we REALLY want. And, clearly, that was something that we really want. What else can we as a community achieve to help UA's management turn this company around into a profitable airline that we can once again be proud to fly on?
500 mile minimums.
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Old Oct 21, 08, 8:24 pm
  #43  
 
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The full transcript if you want to read, as opposed to listen, to the call:

http://seekingalpha.com/article/1009...script?page=-1
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Old Oct 21, 08, 8:38 pm
  #44  
 
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Hmm, yes, cash has stayed fine, but at the expense of moving from short term investments into cash over the last year? Down 1.8 bn

Reconciliation of cash and cash equivalents to total cash and cash equivalents,
short-term investments and restricted cash:
%
Increase/
2008 2007 (Decrease)
Cash and cash equivalents $ 2,931 $ 1,263 132.1
Short-term investments - 2,899 (100.0)
Restricted cash (b) 248 788 (68.5)
Total cash and cash equivalents, short-term investments and restricted cash (b) $ 3,179 $ 4,950
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Old Oct 21, 08, 9:31 pm
  #45  
 
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Originally Posted by bmvaughn View Post
Sorry, but M+ is a huge asset, ...
One thing I don't quite get is if UAL sells off M+ or even makes it a stand alone subsidiary and we all know Tilton would love to dump UAL to CO or ???, what happens to M+ when UAL is either sold or taken over after failure. Either way I see no value for M+ at the level they will need to perform at, without an airline behind it. IF CO or other took the airline, why not offer some amazing benefit to m+ members to get them over and let M+ go alone?

The only answer I see is a Chase program, not a UAL M+ program. What am I missing?
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