Delta Air Lines executives said Tuesday they expect to save more than $2 billion in 2015 from lower fuel costs, net of the impact of its fuel hedging.
“There’s a tremendous opportunity in front of us from lower fuel prices,” Delta CEO Richard Anderson told investors and reporters on Delta’s earnings call. “We will drive these savings to the bottom line with strong revenue growth and yield preservation regardless of fuel prices.”
Fuel hedges had a huge negative, though non-cash, impact on Delta’s fourth-quarter and full-year 2014 earnings.
Delta recorded a $1.2 billion charge in the fourth quarter for “mark-to-market adjustments” on fuel hedges that will settle in future periods. It had another $75 million special charge in mark-to-market adjustments on hedges owned by partner Virgin Atlantic Airways.
As a result of the fuel-hedge losses and other special items, Delta reported a net loss of $712 million in the fourth quarter. Excluding those items, Delta had a net profit of $649 million.
“If fuel remains at these levels, we are set up to fully participate in recent fuel declines during 2016,” Anderson said. “In addition, our hedge book provides excellent protection should fuel rise from current levels. We will use the decline in fuel prices as an opportunity to accelerate progress toward our long-term goals.”
Delta used 3.89 billion gallons of fuel in 2014, up from 3.83 billion in 2013.
Delta CFO Paul A. Jacobson said Delta is forecasting an “all-in price of $2.25 to $2.35 per gallon” in 2015, about 50 to 60 cents a gallon less than in 2014.
Delta was the first big U.S. carrier to report Q4 2014 and full-year 2014 results. Other airlines are supposed to spell out similar fuel savings as they discuss their 2015 outlook.
Unlike Delta, American Airlines Group and Allegiant Air won’t see a negative impact from fuel hedging. Neither company invests in fuel hedges.
The American Airlines management that took over when US Airways and American merged on Dec. 9, 2013 has a philosophy that the cost of hedging outweighs the protections it provides. By mid-year 2014, American had divested all its fuel hedges.