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Delta loses $450 million bet on fuel prices

Delta Air Lines is taking a $450 million loss because jet fuel prices didn't jump as much as the airline bet they would. The Atlanta-based airline had locked in fuel purchases, in a contract known as a hedge, at levels above the current market value, betting that jet fuel prices prices would climb. And they did indeed rise. But they didn't go nearly as high as Delta had anticipated, which made that hedge a loser. So Delta pulled out of the fuel contracts, which cost the airline nearly… ( さらに...

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Bet it doesn't affect the bonuses.
R J 4
Hedges are insurance policies, not bets. These were protetective trades in case the worst happened, not speculation on the direction of fuel prices.
R J 1
Clearly I cannot spell. "Protective"
BaronG58 1
Hedges are bets/speculation. Buyer/seller is speculating what direction the price of a commodity will be x-number of months down the road. Hedges are risky. Money can be made and lost.
They will more than make up the loss by ripping off their customers through baggage, wifi and in-flight service costs.
I thought Delta owned their own refinery. How much money did the refinery make?
BaronG58 1
Yes, Delta owns their own refinery but buy their crude at the market. Their losing money on oil hedging.
The whole hedge / speculation / futures trading thing, whatever you want to call it, serves a valuable function in actually stabilizing world prices and supply of petroleum products over time. As pointed out in another comment huge profits were made when oil did skyrocket and those profits will offset the losses. You win some, you lose some, but in the end you are better able to project costs long term and in a business as fuel hungry as an airline, that's pretty darn important.
Couldn't have happen to a nicer company..Hope they choke on it

Muchits 1
Southwest is losing twice as much on their hedge - thanks for the kind words though.
Actually not. They had contracts going out years in advance, starting in 2003. It loaded up years ago on hedges against higher fuel prices. They bought @51/bbl and made a killing when it went to 149/bbl.

The hedges have helped keep Southwest profitable - producing gains of $455 million in 2004, $892 million in 2005 and $675 million in 2006 and $439 million for the first nine months of 2007, as oil prices nearly doubled that year. Other airlines were mostly unprotected against the increases

Right now oil trades @ 47/bbl for August contracts and it just depends at where they bought in. If at 52 then they lost a few shekels, but if it rises above 53 they made money.


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