Dart Share Discussion Threads

[sogoesit] 18/4/2019 11:29

Indeed, snorkel.
The aim is to fix price/cost forwards for physical consumption (not to speculate).
AIMV

[snorkelparker] 18/4/2019 11:27

I would also have thought a trading instrument probably buying spot or forwards rather than options..sure its lots more complicated than the basic currency hedging I have experience in..

[snorkelparker] 18/4/2019 11:25

Certainly read the situation with Delta and understand the reasons why it went pear shaped.. Do you have a link to a particular article?

[tongosti] 18/4/2019 11:24

Would be amazed if it is physical due to costs involved. DTG is not an oil trader anyway.

[sogoesit] 18/4/2019 11:23

We don't know snorkel, nothing specific is specified in the accounts.
Probably a mix of both since a forward base-line jet fuel consumption could be bought forward (physical) and the rest, or even that forward, could be hedged synthetically I imagine.

PS but woozle, that was what bootycall speculated and it turns out that DTG don't "follow the herd" as far as I can see.

[woozle1] 18/4/2019 11:23

Most corporate treasurers look around and see what the other is doing and copy (with a little variance). You could be a hero one year but take the company down the next. A few like O'Leary and Ashley fancy themselves as a punter but eventually come unstuck. I discovered that you can get bogged down is hedging maths etc but it essentially comes down to follow thy neighbour. As the commodity risk is similar across most airlines, the only way to differentiate is between cost and service.
w1

[snorkelparker] 18/4/2019 11:11

Thanks WL, very concise.. Good discussion..hopefully that clears up the issue of hedging.. The biggest risk is placing a hedge with the underlying commodity or currency in this case oil or gbp. Then the price failing to a point where the company can't manage the losses / margin incurred on the hedge and faced with short term cash flow issues..With regards to DTG hedging is it by pure financial instruments or a commitment to take physical?

[tongosti] 18/4/2019 11:09

Ah dear.

Again: you need to comment (you are a master of deflection obviously but I am not intending to let you off the hook when you avoid a very direct question on which you have no reply) on the following concrete scenario:

Oil goes to $25 over the duration of the hedges in place (if you want to hedge now oil prices are >$60). When your edges expire, you will be forced to realise your hedging losses ($60-$25 difference PLUS the premium you had to pay to enter the original hedging contract PLUS the additional rollover costs during the life of the hedge). At your hedges' expiry, the money will come from your cash account my dear accountant and hence the big hit on the P&L.

The benefit you will then get from much lower fuel costs will be offset from your huge hedging losses. As for your "Delta is different" case, the example if very fuel hedging specific so it is 100% relevant.

So yes dear - under the above scenario you are speculating big time on the price of oil. And by the way, IN PRACTICE all hedging (even though that is not the intention of it), implies a massive bet (i.e. you are certainly speculating on the price of oil going up which you dread hence you hedge it) on the price of underlying.


P.S. If you do not have an answer to the above very specific question, then better carry on with the rest of your day and stop pretending you know what you are talking about.

[wagnerlove] 18/4/2019 10:54

Trust me, you are the one who doesnt get it. It is about trying to remove fuel/currency risk from your operating decisions and planning. Delta is in the business of selling perishable seat only tickets that are highly volatile in short term pricing. If you lock in a higher fuel cost for a year then you put yourself at a severe competitive disadvantage to rival airlines who have not hedged if fuel falls by 50% next month.

All Dart's competitors in package holidays hedge forward, as it is a longer-term selling cycle than seat only which requires managing a range of cost inputs. No one wants to punt on oil/currency when managing capacity and margins on a 12 month plus time horizon.

You also seem not to understand the mark to market accounting on the hedges. I wrote: "If the hedge moves for or against the company in terms of spot prices it all nets out when the hedge rolls off”. Yes, the gains/losses that you face on the hedge offsets the movement in the price of what you are hedging, obviously. You are not losing or gaining money on these. If fuel price falls below your hedge price, you face loss on hedge in p&l reserve, but you make it back by buying spot fuel at the lower cost. Same in reverse if the opposite occurs.

If I lock in a price for materials at $100 for a something I make and sell, and expect to sell my product at $120, if the price of the materials then falls to $80 and I sell my product for $120, I am still making $20 gross profit. Alternativly, if price then rises to $110, then I am hedged, so I still make $20. The risk is not in the swings in the price of the materials, but if I can manage to sell my product at $120, which is a normal operational business risk. I am not taking risk by speculating on the price of raw materials.

So the hedging is not creating a risk, it is removing one. You are not punting on fuel/euro being lower in the next six months as you have already locked in your input costs and can plan your pricing/capacity around that. Yes, you are of course facing normal business risk that you dont sell enough holidays at the price you built your margin on. But that is not a result of hedging.

[tongosti] 18/4/2019 10:15

Pal - you're really wasting anyones time when you are caught out in your state of ignorance on the topic and avoid owning up your own statements.

Originally you said“If the hedge moves for or against the company in terms of spot prices it all nets out when the hedge rolls off”.

Look at Delta's fuel hedging policy disaster for the reply to your nonsense statement.

Now you say: :It is not riskless (good progress - you are stepping back now from your above foolish comment as you were caught out), but far less risky than getting screwed by oil suddenly spiking and wiping out all your profits for the year.

Really??? Assume for a second, oil goes to $25 over the duration of the hedges (if you want to hedge now oil prices are much much higher) in place - how come this is less risky (in the presence of you hedging against much higher prices when oil is priced > $60) than oil spiking up?? Btw, this scenario is consistent with my "it can go either way" earlier statement.

Under such a scenario, this will not be a "mark to market hedge in the reserve" exercise but will hit directly the cash account (and ultimately your bottom line). fact not fiction.

Care to reply specifically (we both know you can't, don't we) to this very exact scenario sport?

PS. Lastly, when you are caught out and have no reply to very direct questions, deflections and word play do not do you any good. Read that as helpful advise. You'd probably be better off not replying at all.

[wagnerlove] 18/4/2019 10:01

You simply don't understand the hedging programme. Email the company and ask them to explain it to you. If hedging can "go either way" against you then it is not hedging. Delta is a different business. You can get p&l volatility as you need to mark to market hedge in the reserve, but that does not change the cash earnings of the company that year, as movement in hedge offsets any gain or loss on the original price they hedged at. You fix your costs 12-36 months out, and then manage your capacity and sell your holidays based on that margin. It is not riskless, but far less risky than getting screwed by oil suddenly spiking and wiping out all your profits for the year.

[shaker44] 18/4/2019 09:55

A key part of the executives role is to improve the QUALITY of earnings. Which is why they hedge. They are not in the currency and oil markets. Far better to derisk by hedging and focus on primary executive roles.

[tongosti] 18/4/2019 09:50

Also and more specifically, can you please explain how Delta should have understood your VERY INTERESTING statement?

“If the hedge moves for or against the company in terms of spot prices it all nets out when the hedge rolls off”

Obviously you know something Delta’s CEO was missing on hedging so can you please enlighten us all???

P.S. Your strange statement above really shows how much you know about the topic. It is precisely such a lack of knowledge that pushes you to aggressive behaviour against anyone who does not share your ... "opinions". Good luck.

[tongosti] 18/4/2019 09:33

Sport - I am still waiting for your reply on how come big players you have mysteriously identified do not show on printed volumes???

Have heard a few strange ones in my career but this one is up there with the best ...

[tongosti] 18/4/2019 09:32

Ignorance reigns supreme with this poor sod - instead of having a go at me every time I post you'd better stop being a child and grow up instead. Need to read much, much more pal: yes hedging is meant to counter adverse moves in the underlying asset (obviously it's not meant to be directional " in theory" but it can well turn out to be a very big one in practice) BUT it's not foolproof (as you naively state) and YES it can BACKFIRE. Big time. Proof: DELTA stopping their hedging fuel cost policy in the presence of collapsing oil prices in 2014. https://www.investopedia.com/articles/investing/032116/delta-stop-hedging-fuel-costs-aal-dal.aspFor an airliner hedging fuel costs is fine as long as oil prices are rising but it backfires big time if oil prices go the other way. In other words, in the second scenario hedging has gone from a risk mitigator to becoming an outright bet gone horribly wrong. I rarely reply to your posts because of your childish and aggressive behaviour so this time around I would make an exception and welcome your comment on the factual DeltA's experience if you consider yourself an adult (In fact, I challenge you to comment on their Deltas hugely misfiring hedging policy). Otherwise - you're very very welcome to keep your thoughts to yourself. PS. Considering not everyone has the capacity to read and understand properly, what I originally said was that hedging decisions can go either way (as delta's experience proves it can be a massive flip of the coin exercise) but over the long term such decisions have a tendency to cancel themselves out. Common sense here!

[11023154] 18/4/2019 09:16

“Higher durations are meant to reflect prudence on the management’s part and that is laudable but we know this can backfire as well.“

Why is it laudable?

[wagnerlove] 18/4/2019 08:40

Sigh. Tongo's comments about Dart's hedging are completely wrong. It is nothing like "a flip of a coin". Please do some research before commenting if you want to be taken seriously. The hedging of fuel and currency allow the company to build its margin 12-24 months out. It is the exact opposite of speculative activity, or a directional punt. If the hedge moves for or against the company in terms of spot prices it all nets out when the hedge rolls off. Yes, of course higher brent prices/lower sterling over medium term is bad in terms of cost base. But using hedging is not risk to the company that can "backfire", but an important mitigant of risk.

[tongosti] 18/4/2019 08:39

Sg - such lag will certainly have that effect but I would always argue that any (if) material event would probably manifest itself in unusual price behaviour way before published accounts reflect past hedging decisions.

[sogoesit] 18/4/2019 07:54

tongosti post 5661, you’re in fact speculating about speculative hedging outcomes! ;-)

“over the longer cycle benefits/costs .... should cancel themselves out..”
They should theoretically, and may practically, but a 30 month hedging strategy will not be seen in the accounts of a 12 month period; figures which will attract more attention from investors than a note in the accounts.
AIMV

[castleford tiger] 18/4/2019 07:43

Dear Lord it’s back!
I thought it had gone away.
I hope someone else reports as it’s a clear attempt to mislead people by copying a name.
Just get your own !
Tiger

[castleford t1ger] 17/4/2019 22:26

PROFIT WARNING

Dart Group warn, "flight-only and package holiday products are becoming "more competitive" especially due to attractive pricing and desinations offered by holiday giants TUI and Thomas Cook, with the latter going through a robust restructure. Stronger Budget Airlines are also slashing prices putting pressure on the AiM listed company.


Sell

[tongosti] 17/4/2019 22:08

Hedging fuel costs/FX exposure is part and parcel of the business but in reality is a flip of the coin more often than not. Higher durations are meant to reflect prudence on the management's part and that is laudable but we know this can backfire as well. Even so, over the longer cycle benefits/costs related to hedging should cancel themselves out so this is not necessarily a point I would lose any sleep on.

[sogoesit] 17/4/2019 17:45

Re. fuel hedging. I don't think DTG's policy is similar to other airlines.
Here is the policy from the 2018 Annual Report Note:

"The cost of fuel is a material element of the cost base of the Leisure Travel business and the effective management of aviation fuel price volatility remains important. The Group’s policy is to forward cover up to 90% of future fuel requirements, up to 30 months in advance. As at 31 March 2018, the Group had hedged a significant proportion of its forecast fuel requirements for 2018/19 and 2019/20."

DTG also hedge currency risk separately. Fuel being part of currency risk.

This is a significantly higher duration and exposure quantity, and specific, hedge than, for example, EZJ.
(EZJ consider fuel an ongoing Cash Flow Hedge rolling 65-85% jet fuel plus forex on 12 months forward then 45-65% on the next 12 months exposure).
DYOR

[castleford tiger] 17/4/2019 17:02

thanks
Clearly you understand it too.
PM has a few bob in this and its his life.
He and the CEO often rock up at 5.00 am at Leeds or any airport because they enjoy it.

The business model and vertical integration does work as you can see.
Only European airline in the top 10 is some achievement for low cost.

I do agree the sector looks under pressure this year ( my pal is a driver for RYAN and he got a cheaper flight than in the jump seat during the winter ) that cannot continue.

Several have gone and many more are in trouble.
I think the cautious tone is pretty normal because Meeson says they are all over company statements looking at ways to get back lost business.
So often they say little.
I find they open up at the AGM in the question section as they are all holders or advisers.

I think DART are also looking at another aircraft deal possibly to replace the 757 fleet that all moves to Manchester from the end of the Summer.
If you look at their News section there has been much growth away from Spain this year.

I hope like woozle you climb on board
Tiger

[snorkelparker] 17/4/2019 16:55

Less than 250k shares traded after a trading update would not have expected that.. Take it as positive that we didn't have a sell off.. I'm still thinking that eps for this year end is 1.1.. Is that slightly higher than market expectations I wonder