More Fuel hedging? Seriously?
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More Fuel hedging? Seriously?
Russia and Saudi Arabia alone produce almost as much oil as the rest of OPEC combined,” says Jim.
That means even if smaller OPEC members cheat on the production caps — which happens a lot — it doesn’t make a big difference to global supply. “Saudi Arabia and Russia maintained their production discipline and have maintained the price of oil in a relatively narrow range of $40–60 per barrel since mid-2016,” he says.
Their mutual objective: Keep prices high enough to generate sufficient revenue for the Saudi Arabian and Russian governments… while keeping them low enough to put a lid on profits for their fiercest competitors — American shale-energy producers.
Even Bloomberg has noticed the emerging relationship: “The Saudi-Russian rapprochement marks a policy change between two unlikely partners. Saudi Arabia is historically a staunch ally of the U.S., Russia’s longtime adversary and the main partner in the discovery and production of the kingdom’s crude. The recent boom in U.S. shale production proved a turning point, with Saudis and Russians recognizing a shared interest in defending against this contributor to a global supply glut and working closely together to reach the cuts accord.”
Jim’s conclusion: “Saudi Arabia and Russia will use active measures including production cuts to keep the price of oil from going higher. The $60 per barrel ceiling is crucial for keeping new frackers on the sidelines and discouraging new production and exploration.”
That means even if smaller OPEC members cheat on the production caps — which happens a lot — it doesn’t make a big difference to global supply. “Saudi Arabia and Russia maintained their production discipline and have maintained the price of oil in a relatively narrow range of $40–60 per barrel since mid-2016,” he says.
Their mutual objective: Keep prices high enough to generate sufficient revenue for the Saudi Arabian and Russian governments… while keeping them low enough to put a lid on profits for their fiercest competitors — American shale-energy producers.
Even Bloomberg has noticed the emerging relationship: “The Saudi-Russian rapprochement marks a policy change between two unlikely partners. Saudi Arabia is historically a staunch ally of the U.S., Russia’s longtime adversary and the main partner in the discovery and production of the kingdom’s crude. The recent boom in U.S. shale production proved a turning point, with Saudis and Russians recognizing a shared interest in defending against this contributor to a global supply glut and working closely together to reach the cuts accord.”
Jim’s conclusion: “Saudi Arabia and Russia will use active measures including production cuts to keep the price of oil from going higher. The $60 per barrel ceiling is crucial for keeping new frackers on the sidelines and discouraging new production and exploration.”
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Something to bear in mind. With the latest rise in oil prices, CX's hedge is actually much less in the red. I notice that doesn't seem to be mentioned in AT's new weekly Pravda. Unbelievable as it may seem, this management has screwed things up so badly that we are probably the only airline in the world who starts to improve their balance sheet with higher fuel prices. Genius. The main point is this: CX is of course starting to see better numbers in every area of their op. But to admit that would be inconvenient. As inconvenient as the flu that I seem to be coming down with....
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So you are basically acknowledging that Ivan was correct all along? High fuel prices ARE good for CX and a way back into profit. Man was an unrecogised genius.
Thank you Traf (and of course AT) for helping him back up onto the pedestal to which he truly belongs.
Thank you Traf (and of course AT) for helping him back up onto the pedestal to which he truly belongs.
Last edited by Starbear; 3rd Dec 2017 at 17:52. Reason: spelling-I hope
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Ivan the Idiot actually said "low fuel price good for Cathay!" during that embarrassing interview... so no -- he was NOT an unrecognized genius -- he was and always will be an idiot!
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If you hedge 50% of your fuel at say $80 a barrel, and the spot rate is $50, you are saving more money than if the spot rate was $80.
Spot $80
1 barrel at spot $80, 1 barrel at hedge $80. Loss on hedge - $0. Total fuel cost $160
Spot $50
1 barrel at spot $50, 1 barrel at hedge $80. (loss on hedge $30). Total fuel cost $130
In the second case they would say they bought two barrels at $50 and lost $30 on the hedge for a total cost of $130.
So for every dollar we DON'T lose on the hedge, we lose $2 on the spot.
So yes, though he wasn't very eloquent, a lower fuel price is better for us IN SPITE of the hedge.
Spot $80
1 barrel at spot $80, 1 barrel at hedge $80. Loss on hedge - $0. Total fuel cost $160
Spot $50
1 barrel at spot $50, 1 barrel at hedge $80. (loss on hedge $30). Total fuel cost $130
In the second case they would say they bought two barrels at $50 and lost $30 on the hedge for a total cost of $130.
So for every dollar we DON'T lose on the hedge, we lose $2 on the spot.
So yes, though he wasn't very eloquent, a lower fuel price is better for us IN SPITE of the hedge.
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Except your competition didn’t waste money on buying fire insurance so can offer the same product at a price below your break even point.
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Spot $80
1 barrel at spot $80, 1 barrel at hedge $80. Loss on hedge - $0. Total fuel cost $160
Spot $50
1 barrel at spot $50, 1 barrel at hedge $80. (loss on hedge $30). Total fuel cost $130
In the second case they would say they bought two barrels at $50 and lost $30 on the hedge for a total cost of $130.
1 barrel at spot $80, 1 barrel at hedge $80. Loss on hedge - $0. Total fuel cost $160
Spot $50
1 barrel at spot $50, 1 barrel at hedge $80. (loss on hedge $30). Total fuel cost $130
In the second case they would say they bought two barrels at $50 and lost $30 on the hedge for a total cost of $130.
Wouldn't no hedging be better?
Spot $80
2 barrels at spot. Total cost $160 plus $0 due to no hedging cost.
Spot $50
2 barrels at spot. Total cost $100 + $0 for contract, versus $130 + price of the contract.
Why pay for hedging at all if the Russians and Chinese are going to do all the hedging and keep the price at below $60?
The company got greedy and gambled with our livelihoods because some banker told them that the price of oil was headed to $200. They went out to 4 years because they thought they would be raking it in.
I wonder what the fees were for the banker's advice? I wonder how much he got in bonuses that year that the hedging contracts were made?
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In the example above regarding hedged fuel at $80 against spot price of $50....The price of two barrels of unhedged fuel at $50 would be a total fuel cost of $100....generating the most cost saved.
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Therefore, CX must lower its costs in other places, ie labor. So yes, you and I are, in effect, being asked to pay for their disastrous hedging, except CX wants the cuts on pilots to be permanent, not expire in 2019.
Just wow! In this pilot market, I’m not sure how that will ever fly, unless we are the stupidest pilot group ever.
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CX can no longer afford to pay it's workforce what they have contracted and agreed to pay them. BUT, they will continue to pay twice the amount for fuel than their competitors. THAT agreement they will keep.
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Funny, I was just thinking the exact same before I reopened this thread. Why not reneg on the hedging companies rather than your employees? Who is it that looks after the operations and customers day to day?
This is opportunism at its worst. We (collective) need to see it for what it is and JUST SAY NO!
This is opportunism at its worst. We (collective) need to see it for what it is and JUST SAY NO!
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When the CEO made that statement sitting next to him was the COO (now the chairman)
Our current CEO signed off on our current fuel hedging strategy.
It turns out that their “stop-loss” strategy was to get the employees to reimburse the shareholders for any adverse fuel price movements.
Brilliant.
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"sabotage the airline". The management are doing a fine job of that. There is not a SINGLE flight that I have flown in the past 4 months where one or more of my crew is not in the process of leaving. Several that I know of have not even giving three months 'notice' and are in fact already working at their new employers. Couldn't happen to a nicer bunch of swine. 
. No direct sabotage needed. Our management is sinking the airline quite effectively all by themselves. All we are doing is manning the lifeboats and sailing into the rising sun on the horizon. RIP CX
. No direct sabotage needed. Our management is sinking the airline quite effectively all by themselves. All we are doing is manning the lifeboats and sailing into the rising sun on the horizon. RIP CX
We’ve paid more than $80 for fuel in the past and made billions. And let’s not forget 40% of our fuel has been at near record lows. I don’t see a drop in ticket prices or load factors. Furthermore just who are our low cost carrier competitors to the USA UK and most EU destinations? We still fill up to the high end Asian destinations at prices well above the competition soooo where is the gloomy outlook? They refuse to return employee concessions when the bottom line ‘improves’ ... it’s a hatchet job through n through.