Bad Bets On Fuel Hit Delta Hard

Delta Air Lines' bad bets on fuel prices turned into a multimillion-dollar loss for the second quarter, but the company says it continues to use contracts to lock in prices to protect against volatility.

Atlanta-based Delta reported a $168 million loss for the quarter ended in June, including a $561 million charge to account for adjustments on so-called fuel hedges. Airlines often try to lock in prices for fuel they need in the future to protect against rising prices. But hedging can carry risk when prices go in the other direction, as happened in this case.

Without the fuel hedge loss and other special items, Delta said it would have had a profit of $586 million, or 69 cents a share.

Delta's chief financial officer, Paul Jacobson, said during a conference call with investors Wednesday that the company views its hedge contracts as "protection against volatility" and is confident they pay off in the long run.

The airline said it "expects to participate meaningfully in the fuel price decline" in the second half of the year.

Among the other "special items" Delta reported was $171 million in costs for severance and related expenses for 2,000 workers taking early retirement as the airline cuts flight capacity by 3 to 4 percent this year.

That includes a planned capacity cut of 1 to 3 percent in the third quarter, with the biggest cuts coming on international routes.

Delta's operating revenue grew 6 percent to $9.7 billion in the June quarter, even as it cut flight capacity by 1.3 percent. Operating expense increased 11 percent to $9.6 billion in the quarter.

Copyright 2012 The Atlanta Journal-Constitution