The benefits of lower fuel costs are working through the system.. Delta Air Lines reports Q4 results:
http://www.nytimes.com/aponline/2016/01/19/business/ap-us-earns-delta-air-lines.html?_r=0
“Cheaper jet fuel thanks to falling oil prices helped Delta Air Lines earn $980 million in the fourth quarter despite lower revenue than a year ago.”
“Atlanta-based Delta’s net income for the fourth quarter contrasted with a loss of $712 million a year earlier, when the airline took a $1.2 billion write-down in the value of fuel hedges, which provide insurance against rising energy prices but cost money when oil prices fall. Delta’s fuel-hedging loss was a far smaller $54 million in the fourth quarter of 2015.”
Delta has wrestled with hedging issues over the years… In 2011, Delta switched from using WTI based contracts to Brent based ones to better align fuel costs with hedging vehicles (basis risk)… And, in 2012, Delta bought the 185,000 barrel per day Trainer refinery (a producer of jet fuel) … Forward hedging for airlines is a bit tricky because hedging losses caused by lower prices due to an economic contraction could be compounded by lower ticket sales… That is, the airline becomes over hedged (similar to a farmer who hedges a future crop only to see a drought cause higher prices and a smaller than expected crop yield)… There are other costs associated with hedging, too, (too many to go into here) that have led some companies (oil and other) to not hedge and rather focus on becoming the low cost, most efficient player…
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