Kip Powick Posted January 10, 2007 Share Posted January 10, 2007 No break on fuel surcharge from Air Canada Carrier bet wrong way on hedging BRENT JANG l Tumbling oil prices should have been a late Christmas present for Air Canada passengers. Instead, the country's largest airline says it won't be reducing fuel surcharges after it made the wrong bet on oil when it locked in at higher prices. Under Air Canada's hedging program, the Montreal-based carrier will be paying a minimum of $60 (U.S.) a barrel with a series of fuel contracts that account for 26 per cent of its requirements in 2007. Yesterday, oil prices fell 45 cents to $55.64 on the New York Mercantile Exchange. In June, 2005, Air Canada implemented the first of three phases of fuel surcharges, which are actually built into base fares on domestic and transborder routes into the United States. Air Canada's round-trip fuel surcharge on each fare currently ranges from $38 (Canadian) to $74, depending on the length of the route -- rates that will remain in effect for the foreseeable future. Air Canada Vacations raised its round-trip fuel surcharge to $100 from $75 last July, and there are no plans to reduce that fee, either. On overseas flights, the fuel surcharge is separated for Air Canada customers to see on their tickets. On a round-trip fare between Toronto and London's Heathrow Airport, for example, it amounts to $150. "These fuel surcharges don't represent anywhere near what the actual added costs of fuel have been," said Air Canada spokesman Peter Fitzpatrick. He noted that amid a 4-per-cent rise in seat capacity during the first nine months of 2006, fuel expenses jumped $342-million or 21 per cent to $1.96-billion at Air Canada's parent, ACE Aviation Holdings Inc. Fuel is now ACE's No. 1 operating expense -- surpassing salaries, wages and benefits. Mr. Fitzpatrick said oil prices remain at historically lofty levels, despite a 29-per-cent decline from a record high of $78.40 (U.S.) a barrel six months ago. Oil prices averaged $19.70 a barrel in the 1990s, then averaged $31 from 2000 through 2004, before surging to averages of $56.70 in 2005 and $66.25 last year. Robert Kokonis, president of AirTrav Inc., an airline and travel management consulting firm, is skeptical about Air Canada's reluctance to shave fuel surcharges, even with the wrong bet on hedging contracts, because 74 per cent of the carrier's 2007 fuel needs are still unhedged. He believes there is room to reduce fuel surcharges on certain routes, notably Toronto-Heathrow. WestJet Airlines Ltd. placed the right bet by riding the declining spot market for oil and doesn't have any hedges. But the Calgary-based carrier cautions that oil prices must fall further and stay at lower levels to trigger a break for consumers. "We will continue to monitor the situation and make any adjustments when appropriate," WestJet spokeswoman Gillian Bentley said. "WestJet did not increase fares each time the price of oil increased." Transat A.T. Inc. has hedges in place at undisclosed prices, accounting for 74 per cent of its fuel needs for this year's winter travel season, but industry observers believe the tour operator's contracts are also based on oil prices above $60 a barrel. Michel Lemay, Transat's vice-president of communications, said the Montreal-based company can't afford to reduce its round-trip fuel surcharges of $100 (Canadian) to the Caribbean and $104 to Europe. "Margins are razor thin," he said. "With hedging, the objective is not at all to speculate but very much to minimize our risk and large fluctuations." On selected international routes, Air Canada has the flexibility to lower fuel surcharges, if it senses a competitive threat, as it has on flights between Toronto and Nassau in the Bahamas. As WestJet offered bargains on the Bahamas route, Air Canada lowered its round-trip fuel surcharge last week to $15 from $104 on the same route. A survey released yesterday by Desjardins Securities shows that WestJet's three-week advance fares have climbed 10 per cent over the past year, while Air Canada's are up 4 per cent. That survey compares lowest-available ticket prices on selected routes at Canada's two largest airlines. Link to comment Share on other sites More sharing options...
dagger Posted January 10, 2007 Share Posted January 10, 2007 No break on fuel surcharge from Air Canada Carrier bet wrong way on hedging BRENT JANG l Tumbling oil prices should have been a late Christmas present for Air Canada passengers. Instead, the country's largest airline says it won't be reducing fuel surcharges after it made the wrong bet on oil when it locked in at higher prices. Under Air Canada's hedging program, the Montreal-based carrier will be paying a minimum of $60 (U.S.) a barrel with a series of fuel contracts that account for 26 per cent of its requirements inA survey released yesterday by Desjardins Securities shows that WestJet's three-week advance fares have climbed 10 per cent over the past year, while Air Canada's are up 4 per cent. That survey compares lowest-available ticket prices on selected routes at Canada's two largest airlines. Call a 2007 fuel hedge a bad bet 10 days into 2007? My friends in the cave in Afghanistan will be laughing about that. Fares aren't going down. It's not about fuel. It's about consistent profitability, going for the gusto. Stupid reporters don't realize that. http://ca.news.yahoo.com/s/reuters/canada_...anada_fares_col Link to comment Share on other sites More sharing options...
Thebean Posted January 10, 2007 Share Posted January 10, 2007 Call a 2007 fuel hedge a bad bet 10 days into 2007? My friends in the cave in Afghanistan will be laughing about that. Fares aren't going down. It's not about fuel. It's about consistent profitability, going for the gusto. Stupid reporters don't realize that. http://ca.news.yahoo.com/s/reuters/canada_...anada_fares_col Agreed. Hedging fuel is a mugs game. You win some, you lose some. People forget WJ was under water for a while when it was hedged at $18 and change and spot market was $15..... Link to comment Share on other sites More sharing options...
J.O. Posted January 10, 2007 Share Posted January 10, 2007 Jeez, Bean! Agreeing with dagger is getting to be a habit for you. You're spoiling all our fun! As if the people in charge of fuel hedges could have predicted record warm temperatures in the eastern half of North America and the corresponding downward pressure effect it's had on oil prices, so far that is. Link to comment Share on other sites More sharing options...
dagger Posted January 10, 2007 Share Posted January 10, 2007 Jeez, Bean! Agreeing with dagger is getting to be a habit for you. You're spoiling all our fun! As if the people in charge of fuel hedges could have predicted record warm temperatures in the eastern half of North America and the corresponding downward pressure effect it's had on oil prices, so far that is. Crude will likely go below $50 before stabilizing. Of course lower pump prices will stiffen demand, so most analysts expect to see $60 crude by summer. In any case, a chance to buy energy trusts cheap and wait for the takeover offers. Link to comment Share on other sites More sharing options...
J.O. Posted January 10, 2007 Share Posted January 10, 2007 In any case, a chance to buy energy trusts cheap and wait for the takeover offers. Is that an official recommendation? Link to comment Share on other sites More sharing options...
dagger Posted January 10, 2007 Share Posted January 10, 2007 Is that an official recommendation? I don't make official pronouncements, but that's what I have been doing: buying airline shares and energy trusts as a hedge against instability. Two inverse performing instables actually create some portfolio stability. Link to comment Share on other sites More sharing options...
Dropzone Posted January 11, 2007 Share Posted January 11, 2007 Crude will likely go below $50 before stabilizing. Of course lower pump prices will stiffen demand, so most analysts expect to see $60 crude by summer. In any case, a chance to buy energy trusts cheap and wait for the takeover offers. The one thing that almost everyone dismisses as silly is the CHINA factor. I don't. Consumption is increasing exponentially every week. It is only a matter of time before the US is dwarfed in almost every category.....and they're not paying any attention Link to comment Share on other sites More sharing options...
Guest prob30 Posted January 11, 2007 Share Posted January 11, 2007 Air Canada is 74% unhedged for 2007. hmmmm Nice job Brent. NOT Link to comment Share on other sites More sharing options...
Maverick Posted January 16, 2007 Share Posted January 16, 2007 Nymex Crude Future 50.94 -2.05 -3.87 14:08 Dated Brent Spot 51.31 -1.05 -2.01 14:38 WTI Cushing Spot 50.75 -2.24 -4.23 14:05 PETROLEUM (¢/gal) PRICE* CHANGE % CHANGE TIME Nymex Heating Oil Future 147.70 -2.66 -1.77 14:08 Nymex RBOB Gasoline Future 137.64 -5.56 -3.88 14:08 NATURAL GAS ($/MMBtu) PRICE* CHANGE % CHANGE TIME Nymex Henry Hub Future 6.51 -.09 -1.38 14:08 Henry Hub Spot 5.92 .00 .00 01/12 New York City Gate Spot 6.65 .00 .00 01/12 http://www.bloomberg.com/energy/ Link to comment Share on other sites More sharing options...
Maverick Posted January 18, 2007 Share Posted January 18, 2007 SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed above $52 a barrel Wednesday, prompting their benchmark contract to recover from its lowest levels in 20 months as traders weighed Saudi Arabia's apparent lack of support for another production cut against colder U.S. weather and uncertainty ahead of this week's data on petroleum supplies. At the same time, natural-gas futures dropped more than 6% on the eve of a separate report on the fuel's inventories. Crude for February delivery closed up $1.03 at $52.24 a barrel on the New York Mercantile Exchange. It traded as low as $50.60 earlier, but that was above Tuesday's 20-month, intraday low of $50.55. Prices didn't fall below $50 Wednesday and if they don't on Thursday, "then I think it's very possible the lows are in," said Phil Flynn, a senior analyst at Alaron Trading. "The weather is getting colder and the shorts have big profits and may cover for the [supply] reports," he said. The Energy Department and American Petroleum Institute will issue separate data on petroleum supplies on Thursday, one day later than usual because of Monday's Martin Luther King, Jr. holiday. Expectations for crude inventories are mixed, though most analysts expect to see a rise in both distillate and motor gasoline inventories for the week ended Jan. 12. Analysts at Wachovia Corp. expect a fall of 2 million barrels for crude supplies while Fimat USA expects to see a rise of 2 million. A survey of analysts conducted by Platts shows that the market predicts a fall of 1.55 million. Distillate inventories likely rose by 2.5 million barrels, Wachovia said. Fimat sees a rise of 680,000 barrels and the Platts survey shows a rise of 1.45 million. Wachovia also sees a 2.5 million-barrel climb in motor gasoline supplies, Fimat sees a rise closer to 2.2 million and the Platts survey predicts a 1.95 million-barrel climb. Crude-products were higher Wednesday. February reformulated gasoline futures closed up 0.93 cent at $1.3786 a gallon while February heating oil finished up 1.95 cents at $1.4998 a gallon. Misinterpretation? Flynn said oil prices likely found additional strength Wednesday as some traders began to believe that they may have misinterpreted Tuesday's comments from Saudi Oil Minister Ali al-Naimi. On Tuesday, crude futures tumbled 3.4% after al-Naimi said there is no need for the Organization of the Petroleum Exporting Countries to cut production further, rejecting calls from members Venezuela and Iran. Al-Naimi said the oil market is "significantly healthier" now than it was in October, when OPEC agreed to cut output by 1.2 million barrels a day. OPEC decided on a second output cut at a meeting in December but deferred that cut -- another 500,000 barrels a day -- until February. It's possible that al-Naimi's words were "more bullish than bearish," said Flynn. The "Saudis are sending a message to the rest of the cartel that if they want more cuts, it will be up to them to comply," he said. There's also the possibility that the Saudis "want to keep the market well supplied in case of an attack on Iran, said Flynn. And the market could just take al-Naimi "at his word that the supplies have fallen enough to make prices rise." "The minister stated that OPEC must wait and assess the effect of two reductions before implementing a third one," said Andrew Bradford, analyst at Canaccord Adams. In fact, the failure of many individual OPEC members to implement the cuts already agreed on -- and the cartel's reluctance to take action against them -- has cost it some clout in the market, according to Man Financial analyst Edward Meir. Still, "we think the Saudis were still right not to call for more cuts or for an emergency meeting at this time," he said. "Doing so, would only make it seem that OPEC is at the beck-and-call of the markets, and cutting yet again would devalue the cartel's remaining credibility." The cartel is likely gambling on the sudden arrival of cold weather across the U.S. to soak up the excess inventory created by what has been a very mild winter so far, said Meir. A series of ice storms this week had left about 80,000 Americans without electricity late Tuesday and sent emergency crews scrambling to restore power lines. Meteorologists were warning of more misery in Texas, where freezing rain pushed Governor Rick Perry's inauguration ceremony indoors in Austin on Monday, and parts of the Mississippi Valley and Louisiana. See full story. Price forecast cut J.P. Morgan said earlier Wednesday that it's cutting its 2007 oil price forecast to $61.04 a barrel from $64.05 a barrel. The revision is mostly due to a large cut in its forecast for the first quarter to $52 a barrel from a previous $68. "This implies a significant recovery in oil prices for the remainder of the year," said analyst Mark Greenwood. J.P. Morgan is expecting U.S. spring refinery maintenance to begin to have a positive impact on inventories in the next few weeks. "Planned maintenance should average almost 1 million barrels a day in the first quarter," said Katherine Spector, the bank's global energy strategist. At the same time, the onset of cold weather should improve heating oil demand, while OPEC should show signs of better compliance in the near term. J.P. Morgan is expecting the cartel to bring forward its February production cut and to implement it in the next few days. http://www.marketwatch.com/news/story/crud...9BBC7FE78C54%7D Link to comment Share on other sites More sharing options...
dagger Posted January 30, 2007 Share Posted January 30, 2007 Crude future closed up almost $3 today at $57. Does this mean Air Canada now wins the bet it lost three weeks ago? Link to comment Share on other sites More sharing options...
Kip Powick Posted January 30, 2007 Author Share Posted January 30, 2007 From the original post. Under Air Canada's hedging program, the Montreal-based carrier will be paying a minimum of $60 (U.S.) a barrel with a series of fuel contracts that account for 26 per cent of its requirements in 2007. Dagger says.... Crude future closed up almost $3 today at $57. Does this mean Air Canada now wins the bet it lost three weeks ago? My answer is........"Not at this time". Link to comment Share on other sites More sharing options...
dagger Posted January 30, 2007 Share Posted January 30, 2007 From the original post. Dagger says.... My answer is........"Not at this time". Well, we'll see on Feb 9 what the current hedge position is... Link to comment Share on other sites More sharing options...
CanadaEH Posted January 30, 2007 Share Posted January 30, 2007 I'm sure you'll keep us all updated. Link to comment Share on other sites More sharing options...
Cargo Agent Posted January 31, 2007 Share Posted January 31, 2007 This was taken from an article in the Nat Post about the airline industry in Canada. >Blue skies for now: Canada's two major airlines couldn't seem to do wrong over the past two years, but they might run into some turbulence this year< Source: NATIONAL POST Section: Financial Post Investing Page: FP8 Byline: Chris Sorensen Date: 01/30/2007 It's subscription access only. "For now, Raymond James is forecasting the average price of oil (West Texas Intermediate crude) at US$67 a barrel in 2007 and US$70 a barrel in 2008. " Link to comment Share on other sites More sharing options...
Maverick Posted January 31, 2007 Share Posted January 31, 2007 This was taken from an article in the Nat Post about the airline industry in Canada. >Blue skies for now: Canada's two major airlines couldn't seem to do wrong over the past two years, but they might run into some turbulence this year< Source: NATIONAL POST Section: Financial Post Investing Page: FP8 Byline: Chris Sorensen Date: 01/30/2007 It's subscription access only. "For now, Raymond James is forecasting the average price of oil (West Texas Intermediate crude) at US$67 a barrel in 2007 and US$70 a barrel in 2008. " Interesting, From all I've read and it's quite a lot recently Raymond James is at odds with most of the investment houses out there. The oil market by most measures is showing weakness along with the general economy. We are most likely at, or close to the top of this economic cycle, oil's going down folks, mark my words. Link to comment Share on other sites More sharing options...
dagger Posted January 31, 2007 Share Posted January 31, 2007 Interesting, From all I've read and it's quite a lot recently Raymond James is at odds with most of the investment houses out there. The oil market by most measures is showing weakness along with the general economy. We are most likely at, or close to the top of this economic cycle, oil's going down folks, mark my words. Funny, today's US GDP figures would suggest the economy is not nearly as weak as the bears think. Crude Oil Rises on Speculation U.S. Fuel Demand Will Increase By Mark Shenk Jan. 31 (Bloomberg) -- Crude oil rose above $57 a barrel on speculation that U.S. fuel demand will jump because of increased economic growth and cold weather. Total U.S. fuel consumption grew 2.5 percent to 20.9 million barrels a day last week, an Energy Department report showed today. Refiners shut units as they performed maintenance before gasoline demand picks up this summer, the report showed. The nation's economy grew at a faster-than-forecast annual pace of 3.5 percent last quarter, the Commerce Department reported. ``Refineries are going into turnarounds soon, which will put pressure on the gasoline market,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``The forecasts are for frigid weather through the month of February. If the forecasts pan out, the overhang in distillate and natural-gas inventories will be burned off.'' Crude oil for March delivery rose 36 cents, or 0.6 percent, to $57.33 a barrel at 11:22 a.m. on the New York Mercantile Exchange. Futures touched $57.50, the highest since Jan. 8. Prices are 16 percent lower than a year ago. Oil surged 5.5 percent yesterday, the biggest one-day gain since Sept 19, 2005, when Hurricane Rita was approaching the U.S. Gulf of Mexico coast. Crude-oil supplies increased 2.68 million barrels in the week ended Jan. 26, the report showed. A gain of 1.5 million barrels was expected, according to the median of 15 responses in a Bloomberg News survey. The department released its weekly report on petroleum inventories at 10:30 a.m. in Washington. ``The last two weeks we had the same pattern, we closed higher even though the numbers were bearish,'' Barakat said. ``The psychology of the market has changed. Any dip is seen as an opportunity to buy.'' Link to comment Share on other sites More sharing options...
Thebean Posted January 31, 2007 Share Posted January 31, 2007 Interesting, From all I've read and it's quite a lot recently Raymond James is at odds with most of the investment houses out there. The oil market by most measures is showing weakness along with the general economy. We are most likely at, or close to the top of this economic cycle, oil's going down folks, mark my words. Raymond James is bullish because they host a big Growth Airline / Regional Airline conference every year at the end of Jan / early Feb. Their analyst / host is a big cheerleader for these sorts of airlines. Frankly, I think Ben C is far more analytical, but he has to sit quietly in the very, very, very back of the bus at this conference. Link to comment Share on other sites More sharing options...
dagger Posted February 2, 2007 Share Posted February 2, 2007 Hmmm, $59.17 a barrel at the close today... Link to comment Share on other sites More sharing options...
Maverick Posted February 2, 2007 Share Posted February 2, 2007 Hmmm, $59.17 a barrel at the close today... If oil trends up to $70/bbl by the end of February then AC has broken even (looking at it lineally). It's cold in US Northeast, lets talk in 6 weeks. Link to comment Share on other sites More sharing options...
dagger Posted February 3, 2007 Share Posted February 3, 2007 If oil trends up to $70/bbl by the end of February then AC has broken even (looking at it lineally). It's cold in US Northeast, lets talk in 6 weeks. You would have to know the expiry/delivery date of different contracts to know whether AC has made or lost money. If they had no contracts expire in January, they did not make or lose. To even project based on a full year, you would have to know AC's current fuel hedge and the average price. I'm guessing that it is more than the 26 percent of consumption and less than the $59 average cover price that was published by Brent Jang based on the last quarterly report. The hedge is for the full year, and one won't be able to make any final judgements until one adds up the gains or losses in the four quarterly reports. I only post this to remind the Globe and Mail reporters and desk editors that a year is 365 days long, save for leap year, and pronouncing somebody a winner or loser of a full year fuel hedge on the 7th of January is a tad premature. Of course, it's not bad if AC seems under water on its hedge because it also relieves public pressure on it to drop any surcharges. But I'd say right now if one were to project an average of $60 crude over all of 2007, AC is modestly in the black on its hedge. Yes, it's cold here too. Link to comment Share on other sites More sharing options...
Guest rattler Posted February 27, 2007 Share Posted February 27, 2007 Oil sitting comfortably above $60 a barrel Article Tools Ashok Dutta, CanWest News Service; Calgary Herald Published: Tuesday, February 27, 2007 CALGARY - A steep decline in inventories in the U.S., as well as concerns over Iran's nuclear program, has kept oil prices higher than $60 US per barrel for the fourth consecutive day of trading. Crude oil for April delivery Monday rose 25 cents to $61.39 a barrel on the New York Mercantile Exchange, the highest close since Dec. 22. Prices are still down 2.4 per cent from a year ago. Link to comment Share on other sites More sharing options...
yul07 Posted February 27, 2007 Share Posted February 27, 2007 <<Crude will likely go below $50 before stabilizing. Of course lower pump prices will stiffen demand, so most analysts expect to see $60 crude by summer. In any case, a chance to buy energy trusts cheap and wait for the takeover offers.>> <<Crude will likely go below $50 before stabilizing. Of course lower pump prices will stiffen demand, so most analysts expect to see $60 crude by summer. In any case, a chance to buy energy trusts cheap and wait for the takeover offers.>> Do not know about that Dagger. Right now Esso has parlayed damage at one Ontario Refinery into a contrived gas shortage that is costing consumers millions. Now Petro Canada and Shell say they are being affected. First of all Petro Cda has one of the largest and most modern facilities in Port Credit, so why are they having trouble meeting demands. Excuse 2. The CN strike. Except, the amount of gas moved by train in Southern Ont. is negligible. Sounds like the oil embargo of the 70's when the Seven Sisters held tankers off shore while Americans waited in gas lines, and paid through the nose. Can't blame the "Blue eyed shiks" in Alberta for this one, their pumping the stuff. Link to comment Share on other sites More sharing options...
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