By Brian MacIver
Medill News Service
CHICAGO – Frontier Airlines President and CEO David Siegel said Friday that the airline took a multi-million dollar loss on oil derivatives in its first quarter as hedges meant to protect the company from rising oil prices backfired when prices instead declined.
In an interview following a breakfast panel at the Society of American Business Editors and Writers, Siegel said the loss is a “manageable number” that is “below $50 million.”
Frontier, owned by private equity firm Indigo Partners, is well-positioned for the rest of 2015 “and our hedges for 2016 are in the money,” or profitable, Siegel said.
In the first three months of the year, crude oil prices fell 1.7 percent. From the June 19 high of $114.96, prices are down 43 percent. In early afternoon trading Friday, the June West Texas Intermediate crude oil futures contract stood at $56.94 per barrel.
United Airlines reported Thursday that it had lost $161 million dollars in fuel hedging in the quarter ended March 31. Delta Airlines reported a loss of $411 million in fuel hedging in the quarter, compared with a fuel hedge gain of $78 million in the same period of 2014.
Southwest Airlines’ revenues were knocked down by $47 million. American Airlines does not enter into futures contracts for fuel and are, as a result, at the mercy of market fluctuation in prices.
Carnival Corp., parent of Carnival Cruises and Costa Crociere among others, reported it lost $169 million on oil derivatives, including $112 million in unrealized losses, in the first quarter.
“Lower fuel costs are definitely good for us in the long haul,” said Carnival Corp. CEO Arnold Donald in an interview following the breakfast panel. “Having said that, the realities in how they impact our finances, they have impacted them directly versus the guidance we’ve given. And so far in ‘15, we anticipated the lower costs, but the reality is about 50 percent of our fuel is [hedged.]”
Donald noted the relationship between the low oil prices and the strong U.S. dollar. He said the strong U.S. dollar has created headwinds in both “transactional and translational currency impact.”
