Holy Shit; MSNBC Has No Idea How Futures Work

Watch the video. Ignore for a minute that it’s horseshit and Delta is just booking tax offsetting losses (I know, I know. This isn’t a loss at all. They’re just cherrypicking a gross data point in a net world…). Or that Delta can now try and lock in lower prices along the entire length of the futures curve, more than compensating the “loss”.

At around 50 to 55 seconds in, Kate Kelly tries to argue that “analysts” thought losses related to hedging would be worse for Delta.

Pardon me, but a move from $100 a barrel – which had been there for 6 months – back to a price of around the $70s, or roughly where it was last September, would have destroyed ALL hedges. At least, any that weren’t on the books from before 2010 when oil could still be purchased for $40 a barrel.

What “open” positions is she talking about?

Delta Air Lines, which Tuesday morning announced that busted fuel hedges had resulted in a $155 million second-quarter loss, became the first in what could be a series of major carriers to take pain from an unexpected plunge in crude prices.

WTI crude futures have fallen more than 27 percent since their February high, taking the market by surprise and rendering airline hedges – originally intended to ease the economic pain of higher fuel prices – largely ineffective.

At Delta (DAL), the gyrations in crude not only created a loss related to fuel hedges that settled during the June quarter, which ends Saturday, but also contributed to what the company estimates will be an $800 million charge for its open hedging positions, which run through 2013.

United Continental Holdings (UAL), the nation’s largest carrier by available seat mile, is in a parallel position – though probably with smaller absolute losses, according to information from filings and people familiar with the matter. The airline has hedged between 31 and 36 percent of its expected consumption through options and collars on diesel, jet fuel, and other energy markets, according to securities filings, and was originally positioning for higher crude prices.

In keeping with its usual practice, United will issue second-quarter investor guidance in the coming days to reflect how sales and costs have impacted its performance over the past three months. That release, which could come as early as Wednesday, is likely to include new estimates for United’s overall seating capacity, how expensive jet fuel has been, and how revenue has held up, say the people familiar with the matter – all of which will impact overall results.