Wednesday, January 21, 2009

Airline Sector Getting Slaughtered On Busted Hedges

The entire airline space today was getting whacked in early trading. Delta was down over 10%, United was down roughly 9%, and American was down over 20% after the last two announced weak earnings with the major culprits given were a sharp drop in capacity and load factors on the revenue side, and bad fuel hedging on the cost side. American is being punished the most as it noted it still has 45% of its Q1 fuel hedged at $2.58/gallon or $108/barrel. United on the other hand stated that it's mark-to-market loss on fuel hedges gone wrong is $566 million, and that its hedging counterparties held $965 million in cash deposits.

Tomorrow we will see how the two biggest hedgers in the space, Southwest and JetBlue, performed in the fourth quarter, when they both announce results before market, and both have a conference call at 11:30 am. As we noted previously, we are concerned mostly about Southwest which we think may be punished for their prior significant hedging position. Sphere: Related Content
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Anonymous said...

So- any comment on Southwest's results?