BA ask 40,000 staff to work for nothing.

Generali

Tozer wrote: »

From what I hear, most airlines took the view that the price of oil was unlikely to fall much below recent lows and took out hedging on that basis to avoid the big losses suffered last time oil was $100+

Interesting. It would be very helpful to know various airlines' current hedging strategies.

Can you give more info? Feel free to PM me if you prefer.

Wookster

Generali, don't you think its a bit daft not to hedge your biggest expense when it reaches its 4 year low?

They don't have to hedge for 5 years but at least the next year. IMO its bordering on incompetent if they haven't, especially as a FTSE 250 business with (presumably) an enormous wealth of experience/ expertise to draw on.

chucky

Share price is trading slightly up today so the markets aren't so pessimistic about BA's future
http://uk.finance.yahoo.com/q?s=BAY.L

Citigroup have recomended BA as a Buy recomendation and so have these guys
http://www.guardian.co.uk/business/marketforceslive/2009/jun/10/britishairways

Generali

Wookster wrote: »

Generali, don't you think its a bit daft not to hedge your biggest expense when it reaches its 4 year low?

They don't have to hedge for 5 years but at least the next year. IMO its bordering on incompetent if they haven't, especially as a FTSE 250 business with (presumably) an enormous wealth of experience/ expertise to draw on.

Possibly.

It's also daft not to recognise your strengths and weaknesses. In this case I would include the impossibility of picking a bottom in a market without hindsight.

If I was picking a hedging strategy for BA, I'd be inclined to be looking to smooth costs so that I can set price with confidence that my costs are going to be fixed.

Thrugelmir

Generali wrote: »

Possibly.


If I was picking a hedging strategy for BA, I'd be inclined to be looking to smooth costs so that I can set price with confidence that my costs are going to be fixed.

The complexity for BA is that they have to estimate their fuel usage in order to hedge their risk. Its often forgotten that futures contracts do have a real commodity behind the option. To either purchase or deliver an item for that price.

If fuel consumption has fallen sharply then BA would possibly have to close out contract positions taken out over a year or so ago at a loss.

The_White_Horse

setmefree2 wrote: »

Good point. I think that BA charge way too much for a business seat particularly in this climate...

So you think they could charge more if it was warmer?

Wookster

Generali wrote: »

Possibly.

It's also daft not to recognise your strengths and weaknesses. In this case I would include the impossibility of picking a bottom in a market without hindsight.

If I was picking a hedging strategy for BA, I'd be inclined to be looking to smooth costs so that I can set price with confidence that my costs are going to be fixed.

Agree with all your comments and definitely hedging is not a profit making tool (otherwise you should be running a hedge fund) however it'd be an extraordinarily bold statement to say that crude would drop below $35/ barrel in the foreseeable future (unless you believe there will be economic meltdown) and it would seem prudent to hedge at least 18 months supply at that sort of level, even if with the hedging cost it works out to $55/ barrel (as we all know OPEC officially target $70-$80/ barrel).

JasonLVC

setmefree2 wrote: »

It's not an either or, is it? Surely, they just need to get smaller... I know that one of the problems is Heathrow slots. Airlines fly planes out of Heathrow empty to keep slots - totally inefficient.:o

A very good point!.

The government increasing [STRIKE]green taxes[/STRIKE] "screw the passenger" taxes on all flights doesn't help either, and yet are happy to bung car buyers a few grand to buy a car (which aren't exactly green either).

mbga9pgf

AS a pilot with lots of mates in the industry, its frikkin dire out there. BA have never cut pilots jobs in their history. Ever. Voluntary redundancy with big pay outs, yes, but never this. Virgin are cutting crews. Netjets are currently culling a LOT of mates of mine. I think some of those working for airlines have been told to go away for a years unpaid and come back to see if things have improved. Fortunately, most have working wives and a military pension to fall back on. Enough to survive.

Some of the guys said they would go work in the far east if we got a recession. Not this time, as its just as bad out there.... Its absolutely tragic.

THen again, the boom in the airline industry was always going to pop with far too much supply to support demand once the house of credit collapsed. Many of the businesses that previously paid for business class are downgrading to traveller plus, or even world traveller. Unfortunately, business and first is where most of the companies turnover is made. You see, for every 100 kilos of passenger and baggage, you burn about 3 kilos of fuel PER HOUR extra. Typical pax + bags is around the 100Kg mark, as you can see, shoving lots of people down a metal tube instead of raising lots of cash from fewer passengers starts to impact on your profits. (typically, 1 business traveller occupies the same space as 3 steerage class, business typically 3 times steerage, BUT you also get to save the fuel for the 3 steerage pax, typically 3Kg per hour = loss of around 65 quid per business traveller replaced for steerage). This is why the industry is SO sensitive to Oil price rises in times of recession.

I really hope the government help out our airlines at a time like this. I know people would be aghast, but even if it meant paying for Public sector workers to travel business instead of traveller, it would mean the airlines would have more cash in their coffers. otherwise, we ending bailing out the indusrty anyway and getting nothing for it.

michaels

The fuel hedging thang is all about game theory anyway between the competing airlines - as an airline your business is flying planes not speculating on fuel costs so you want to be about as hedged as your competition so that you are all pricing on the same basis. My suspicion is that VS had a stronger year than most as they had hedged a bit more last year than their competitors so they were able to compete on price/pocket some of the fuel surcharge but this is a risky strategy, for Ryanair it went the other way, overhedged when the fuel price fell and they were forced to take the loss.