United's Ugly Fuel Hedges Impact Fourth Quarter Results

(MoneyWatch)  United released fourth quarter results yesterday, and as expected, they weren't pretty. Overall the airline lost a whopping $1.3 billion, though only a mere $547 million after all special charges are pulled out. What were all the charges? Fuel was a big chunk, and it really cut into the airline's cash position.

How bad were those hedges? Here's just a taste from Holly Hegeman's take on the impact of hedges on cash (from PlaneBuzz):

At the end of the quarter, United was sitting on only $2 billion in unrestricted cash, a restricted cash balance of $272 million, and $965 million in cash deposits held by its fuel hedge counterparties. The airline saw $989 million in cash go out the door during the fourth quarter in operating cash flow and it posted a negative $1.1 billion in free cash flow during the quarter.

So cash tanked in the quarter thanks to bad hedges, and there's almost $1 billion still being held for future bad hedges. My guess is they won't see that money come back to them.

Of course, this has nothing to do with the airline's operating results, but dropping cash balances can certainly impact the airline's flexibility here. On the operating side, they've done an ok job of keeping costs down. Excluding fuel, their unit costs did rise, but considering how much capacity was cut, that's to be expected.