In their quarterly earnings report, United gave us a good, deep look into their hedging activities for the fourth quarter of this year and full year 2009. How does it look? Not so good. It took a few emails to friends and some studying up for me to figure out exactly what this means, but I believe I understand it now. The bottom line is that for the 4th quarter of 2008, United will pay no less than $104 a barrel for about half its fuel needs. Yikes. A quick look at the Jet Fuel Price Monitor today shows that including the crack spread, jet fuel is going for about $91 a barrel right now.
This is, of course, the ugly side of hedging. When fuel was at $140, this looked pretty good. But now, it seems overly aggressive. For next year, the airline has about a quarter of its needs hedged at no less than an average of $101 a barrel, but they also won't pay higher than $114 a barrel (unless oil spikes above $135 or $145). It's too early to know if this will be a bad move, but considering the state of the economy, it would likely take an external shock to make these hedges worth something.
|Hedging Instrument||% of Expected Consolidated Consumption||% of Expected Mainline Consumption||Average Price Where Payment Obligation Stops||Average Price Where Payment Obligation Begins||Average Price Where Protection Begins||Average Price Where Protection Stops|
|4th Quarter 2008|
|4th Qtr 2008 Total||49%||58%||N/A||$104bbl||$112bbl||N/A|
|Full Year 2009|
|Full Yr 2009 Total||28%||34%||N/A||$101bbl||$114bbl||N/A|