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AMR Corporation Message Board

  • sst94104 sst94104 Jan 19, 2006 7:27 AM Flag

    Actually, THERE goes Q1.....

    Check this quote from WSJ out:

    "AMR Corp. is nevertheless banking on some of the certainty hedging provides, protecting 30% of its first-quarter 2006 fuel purchases by locking in the price at an average crude oil price of $63 a barrel. The position averages 18% at $60 a barrel for the full year.

    That compares with Southwest's 75% hedge in the first quarter at $36 a barrel, and 70% for the rest of the year, also at $36 a barrel."
    *********************************************

    Ignoring the WN comparison and all that implies, isn't it now true that idiot AMR management has LOCKED IN A LOSS for Q1? They *CAN'T* make money with their hedged costs at $63 and spot costs currently at $65--- they just showed us with Q4! Shit, they lose money hand over fist like this! And they ensured it.

    You're risking everything by buying this stock at this level. It is madness.

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    • Well I am no AMR pumper, but you are incorrect. By hedging at that price they give themselves the ABILITY to purchase a little fuel at that contract price. If the price goes up, then they will save money. If the price goes down then AMR buys it at market price and is out the cost of purchasing the contract. They are not paying $60 a barrel right now, they paid a % of that for the right to later PERHAPS buy the fuel at $60.

      Basically it is saying they can control their costs in a worse case scenario.

      • 3 Replies to look_n_4_info
      • One poster implies that AMR has hedged 30% of its fuel cost by using futures, and, therefore, is bound to purchase at $60. Another poster say that AMR uses options and is only required to buy fuel at $60 is a worst case senario. I'm confused on this issue. Can anyone clear this up for me. Futures, options, or some other derivitive?

      • Well I am no AMR pumper, but you are incorrect. By hedging at that price they give themselves the ABILITY to purchase a little fuel at that contract price. If the price goes up, then they will save money. If the price goes down then AMR buys it at market price and is out the cost of purchasing the contract. They are not paying $60 a barrel right now, they paid a % of that for the right to later PERHAPS buy the fuel at $60.

        Basically it is saying they can control their costs in a worse case scenario.
        -----------------------------------------------

        "SAVE MONEY"? you mean, "lose less"....right?

      • You're right that they don't have to exercise the hedges, but I'm right if oil stays in the $50-55 range: The hedges didn't appear for free!

        They paid a considerable sum for the right to buy oil at $63...... If they don't need to exercise it and can buy oil for $55 for example, isn't it true that their true cost for fuel will then show up as, say, $58 instead (if there's $3 attributatble to the hedge)???? What this results in is raising the price of the fuel they DO buy in the $50s, thus locking in "high prices" (I don't think anyone can safely bet that oil is going into the $40s any time soon, and think about this: the 1st Quarter is now NEARLY 1/3 booked!)

        Unless you see oil dropping precipitously ($15/bbl) like next week, you'd better run your numbers for AMR figuring that their fuel component is at least $63 for 1/3 of Q1, and that makes an UGLY picture.

        To me, this earnings report just proves they aren't going to make money any time soon, at least not in Q1. Do you acknowledge that?


        I notice that the idiot hyper-bullish JPM analyst cited back about 50 messages also factors in substantial fare increases as if these happen all the time, and are within AMR's power... nice try, but this industry doesn't work that way....