Tuesday, February 23, 2010

“UAL vows balanced fuel hedging - Reuters” plus 3 more

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“UAL vows balanced fuel hedging - Reuters” plus 3 more

UAL vows balanced fuel hedging - Reuters

Posted: 23 Feb 2010 01:06 PM PST

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NEW YORK (Reuters) - Wary of continuing oil price volatility, United Airlines will stick to a more balanced fuel hedging program this year, while US Airways Group (LCC.N) has no plans to hedge at all, the companies' chief financial officers said on Tuesday.

After incurring huge losses from fuel hedging in 2008 when crude oil prices tumbled and risky bets went bad, airlines are now treading more carefully, the CFOs said at the Reuters Travel and Leisure Summit on Tuesday.

"Overall our expectation is that prices are going to continue to be very volatile ... We have been maintaining a much more stable and systematic hedge book," Kathryn Mikells, chief financial officer of United's parent company UAL Corp (UAUA.O) said.

United Airlines expects oil prices to rise slightly from current levels in 2010. It has hedged nearly half of its fuel consumption for the year, but has also put measures in place should prices fall to help avoid the sting the company felt when oil prices fell in 2008.

"We are about 40 percent hedged for the next 12 months and have also made sure that should prices fall we would participate in the majority of that benefit as well," Mikells said.

United's plan is to hedge more in the short-term term than further out. For first quarter of 2010, the company has hedged 70 percent of its fuel consumption at a crude equivalent price of $75 a barrel. So far for 2011, five percent is hedged.

Oil price volatility -- which cost UAL $370 million in cash losses on fuel hedges that settled in the fourth quarter of 2008 -- has left the company wary of overly risky bets.

Oil prices fell from a record $147 a barrel in mid-2008 to around $40 by the end of the year, hitting the coffers of many airlines that had fuel hedging programs. On Tuesday, benchmark New York West Texas Intermediate crude traded around $80 a barrel.

"In 2008, the hedge positions that we had were 100 percent at-risk positions. As crude prices turned around from $147, because we had a portfolio with all at-risk positions we really took it on the chin," said Mikells.

"We no longer use 100 percent collars. Buying some straight call options in our portfolio allows us to participate in the upside opportunity should prices fall," she said.

Meanwhile, US Airways Group, still spooked by the losses incurred as crude prices dived in 2008, has no immediate plans to return to fuel hedging, its CFO Derek Kerr told Reuters on Tuesday.

"The volatility has been so great over the last year that we don't believe it is a smart move right now," he said.

(Reporting by Edward McAllister, editing by Alden Bentley)

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Travel demand rising post recession: US Air CFO - Reuters

Posted: 23 Feb 2010 12:25 PM PST

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NEW YORK (Reuters) - US Airways Group (LCC.N) sees strong gains in travel demand, but it may not return to pre-recession levels, the company's chief financial officer said on Tuesday.

Even if that demand stays relatively depressed, new capacity discipline and ancillary revenue will keep airlines on a sure footing, said Derek Kerr at the Reuters Travel and Leisure Summit in New York.

"I don't know if it will ever return to normal," Kerr said, referring to demand levels of 2007. "But we are seeing a significant increase in demand."

The airline industry was clobbered in 2009 by an economic downturn that eroded travel demand. Carriers lately are reporting a pickup in demand. This came on the heels of massive capacity cuts by major airlines.

Airlines are increasingly reliant on new revenue streams derived from fees for bag checks, meals and entertainment.

Kerr said US Airways expects to derive $500 million from ancillary revenue streams in 2010, compared with $400 million in 2009.

He also said that airlines are weeding out the lowest fares in their markets, but he was unsure if broad fare hikes would be implemented in 2010. Two attempted domestic fare hikes launched this year by several major carriers failed to stick because other airlines did not match them.

Shares of US Airways were near flat at $7 in afternoon trade on the New York Stock Exchange.

(Reporting by Kyle Peterson, Editing by Phil Berlowitz)

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Carlson says hotel rates to recover - Reuters

Posted: 23 Feb 2010 01:29 PM PST

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NEW YORK (Reuters) - Hotel room rates may jump back to pre-crisis levels sometime during 2012 to 2013 as companies start to ramp up their travel budgets, the head of private travel and hospitality company Carlson said on Tuesday.

"Fundamentally, in order to grow businesses you need to travel, you need face-to-face contact," Carlson Chief Executive Hubert Joly said at the Reuters Travel and Leisure Summit.

Companies pared back their travel spending last year as global economic activity slowed and unemployment grew. Hotel room rates tumbled nearly 9 percent in 2009, the worst year for the hotel industry since the Great Depression.

The downturn has forced some firms to make permanent changes in the way they book travel, Joly said. But other companies are likely to revert to previous levels of spending.

"Try investment bankers and tell them on a permanent basis that they're going to be in the back of the plane -- they're not going to do deals," Joly told reporters.

Joly's comments echo sentiments from another hotel operator this week.

Starwood Hotels & Resorts Chief Financial Officer (HOT.N) Vasant Prabhu noted that as the economic outlook improves, it is likely that companies will loosen some of their more onerous restrictions on travel spending.

"Sometimes these restrictions are often not in the best interests of their business either, so they have to start loosening up things," Prabhu told Reuters on Monday at the summit.

"The name of the game in 2010 is grow your top line," Prabhu added.

Changes in room rates at luxury and upscale properties often have a trickle-down impact on economy and midscale brands, said Wyndham Worldwide Corp (WYN.N) Chief Executive Stephen Holmes at the summit.

Carlson, the ninth-largest hotel operator in the world, expects to boost the number of hotels 50 percent over the next five years, Joly said. The bulk of the company's pipeline is outside North America.

The company is also in the midst of revamping its Radisson chain. More than 400 of its 1,059 properties worldwide belong to this chain.

Radisson is about one-third of the company's portfolio in the United States, Joly said. Unlike Radissons outside the country, the brand is less upscale.

Over the next five years, Carlson plans to invest $1 billion in overhauling and marketing Radisson properties, a process that will mean some hotels will have to leave the system.

"As a result of the relaunch of this brand, we expect RevPAR to go up significantly," Joly said, referring to revenue per available room, a measure of hotel industry performance that takes into account room rates and occupancy.

(Reporting by Deepa Seetharaman; additional reporting by Ruben Ramirez; Editing by Phil Berlowitz)

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Wyndham: hotel portion of EBITDA growing - Reuters

Posted: 23 Feb 2010 10:58 AM PST

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NEW YORK (Reuters) - Wyndham Worldwide Corp (WYN.N) projects its hotel business will make up a third of earnings before interest, taxes, depreciation and amortization in five to 10 years, Chief Executive Stephen Holmes said on Tuesday.

Wyndham franchises about 7,000 hotels, including Days Inn and Super 8 brands. Holmes described it as a business with a "great margin."

"We'd like to see that business grow," Holmes told reporters at the Reuters Travel and Leisure Summit.

In 2009, lodging was 21 percent of Wyndham's EBITDA.

Wyndham is the No. 2 hotel company in the world as measured by number of rooms, according to Smith Travel Research. The company also has a vacation exchange and rentals business as well as a timeshare business.

Wyndham said in 2008 that it would shrink its timeshare unit, cutting 4,000 jobs in the process. Revenue from this segment accounted for roughly half of its revenue in 2009, and this year timeshare will be a smaller piece, Holmes said.

Growth in the lodging segment could come through adding more hotels to its portfolio or through adding a new brand to its banner. Wyndham has said in recent quarterly calls it is actively looking for brands to add to its portfolio.

Like many of its peers, Wyndham also sees demand for hotels in Europe and Asia growing in coming years.

The number of new hotels in the United States is expected to tick up this year, but that growth is expected to be muted compared to earlier years. However, there is a dearth of hotel rooms in areas that are starting to see bustling travel demand.

Holmes said he sat down with tourism officials in China last year, who said there would be 200 million additional travelers entering the leisure market.

"Two hundred million -- they do not have enough hotel rooms to service that population growth," Holmes said.

India presents an array of challenges, but Holmes sees that country holding tremendous potential for the company.

"The infrastructure in India still has a ways to go, that is the biggest challenge to that market," he said. "We're active in that market and we hope to see growth there."

(Reporting by Deepa Seetharaman; editing by John Wallace, Phil Berlowitz)

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