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American Airlines Group Inc. Message Board

  • fuzzhead72 fuzzhead72 Feb 3, 2014 8:46 AM Flag

    Long term oil drops to $79.45 - will this increase AAL profits? Can they take advantage of this?

    * is the info below good news for AAL (should it drive the price up), or is the info already priced in? I'm wondering how much of an affect this might have on the stock price. Does the company have any way to lock in this low price in the form of lower priced jet fuel?

    NEW YORK (Reuters) - Long-term U.S. oil prices have slumped to record discounts versus Europe's benchmark Brent, with some contracts dropping below $80 in a dramatic downturn that may intensify producers' calls to ease a crude export ban.

    Oil for delivery in December 2016 has tumbled $3.50 a barrel in the first two weeks of the year, trading at just $79.45 on Friday afternoon, its lowest price since 2009. That is an unusually abrupt move for longer-dated contracts that are typically much less volatile than prompt crude. For most of last year, the contract traded in a narrow range on either side of $84 a barrel.

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    • If the longer dated drop in futures is indicative of the world oil prices, it is positive.

      But I have mixed feelings. I'd almost want industry management to have to "manage" to get their margins regardless of oil. The risk to lower oil is that industry management will achieve margins by having an externally controlled cost drop ... i.e. oil ... and become lax managing what they can control.

      However, the other benefit to lower oil is to the overall economy. Growth? anyone? ... that is good for airlines.

    • I thought airlines purchase oil price at a fix number contract before hand, so even if oil rise or falls in the mean time they are not affected?

      • 3 Replies to iky43210
      • iky ... I think Parker once said that they purchase it a number of weeks, maybe a month out. But as stoxxer indicated LCC doesn't hedge ... other airlines do, so their hedging gains/losses would have to be netted against their monthly contract purchases to get a final fuel cost for whatever the accounting period.

        Fuzz was talking about the longer term outlook for fuel.

      • US Airways always had a policy to not do that. There are still some hedges in place from the legacy American Airlines but as these contracts run out they will not initiate any new ones. Their plan is to not use any hedges in the new American Airlines.

      • I guess the question is whether AA has already purchased long term contracts, or if they foresaw that prices might decrease significantly, and held off for lower prices before doing so. Does anyone know?

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