Delta - an open letter to all airline customers
Jul 10th, 2008, 04:16 AM
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Delta - an open letter to all airline customers
Received the following last night... I thought for certain it would address baggage fees but I was wrong...
"Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.
For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.
Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.
Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.
The nation needs to pull together to reform the oil markets and solve this growing problem.
We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com "
"Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.
For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.
Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.
Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.
The nation needs to pull together to reform the oil markets and solve this growing problem.
We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com "
Jul 10th, 2008, 07:14 AM
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I hope that letter is a fake. Because if it is not then the CEO's and CFO's of airlines better start cleaning out their desks.
http://krugman.blogs.nytimes.com/200...se-once-again/
Word to the airlines: You are a bloated, inefficient business. Stop pointing fingers and looking for a bailout.
Jul 10th, 2008, 07:45 AM
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I just received the exact same letter from United. It is signed by the chairs/CEOs of 12 major US carriers, including United, American, Continental, Delta, Northwest, Southwest, US Airways, Alaska, Hawaiian, AirTran, Jet Blue and Midwest.
Jul 11th, 2008, 10:16 AM
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As I said in the lounge - "the whine you hear when the engines are turned off is the US airline industry".
So anyone want to take bets on who in Congress will become the "champion" of the airlines?
So anyone want to take bets on who in Congress will become the "champion" of the airlines?
Jul 13th, 2008, 11:43 AM
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I got the email from United, where I'm an FF. I sent the following letter to all of the airlines CEOs who signed the email:
I received the email from Mr. Tilton, CEO of United Airlines, asking me to “Stop Oil Speculation Now”, citing the speculators were the cause of the increasing price of a barrel of oil.
Here’s how a contract for oil, or any commodity, works. In July, I agree to buy September oil for, say, $150 per barrel.
Why would I do that? Because I think I can get someone to purchase it from me for greater than $150 by the time the contract in due in September. I think, that is, I <i>speculate</i>, that the price will go up. That also means that, in July, someone must be willing to sell me oil at $160 <u>because they speculate the price will go down</u>. They speculate they can buy oil less than $160 and pocket the difference between that price and the $160 I agreed to pay.
After I buy September oil in July, what happens when the contract is due? I have only two choices:
1) I can sell the oil. Whether this is at a profit or loss is just a matter of whether the market price of oil is greater or lesser than the $160 I agreed to buy it at. I cannot <b>cause</b> the price to be higher. Remember, there was someone at the other end of the transaction who thought the price would go lower. If I can cause the price to be higher, why can’t they cause the price to be lower? If I can cause the price to be higher, heck why don’t I buy 1000 contracts of sugar, soybeans, and orange juice and just make my own money machine?
2) I can retain my contract. A fancy way of saying a big truck is going to place 1000 barrels of crude oil on my driveway. Few people have a need for anything beyond a three ounce can of 3-in-1 oil.
I assume United and other airlines buy oil futures because they too want to lock in today's price to avoid the impact of prices getting higher in the future. What you are saying then is airlines should be allowed to benefit from locking in today's price, but that other people shouldn't be allowed to. Why not? Because those other people are "greedy speculators," whereas the airlines are altruistic servants of the consumer?
No futures contract has any net affect on the supply of oil. You want to decrease the price of a barrel of oil? Increase the supply! Econ 101 gentlemen!
If you want to reduce the cost of a barrel of oil, then contact the people (and encourage us to do so as well, instead of “stopping speculation”) who are restricting the supply: The United States Congress.
Drilling is prohibited in the Alaska National Wildlife Refuge (have you been there? It ain’t Yellowstone!) , a potential source of 1 million barrels a day, 5 percent of America's daily oil consumption. Also off-limits is 85 percent of America's coastline, which Shell estimates contains some 100 billion recoverable barrels, 13 times America's annual oil consumption, and the vast majority of oil shale in Colorado, which Shell estimates at 1.5 trillion barrels.
Are you listening to the crowd that says “it will take ten years before any oil starts flowing?” (As though solar powered Triple 7’s are just a few weeks away!) Then why bother going to school? Goodness, the kid will be 18 before they graduate!
Are you listening to those who say, "We can't drill our way out of this crisis." What does that mean? This is like telling a starving man, "You can't eat your way out of being hungry!" "You can't water your way out of drought!" "You can't sleep your way out of tiredness!" "You can't drink yourself out of dehydration!" Seriously, what does it mean? Finding more oil isn't going to increase the supply of oil?
Say, wouldn’t be nice if we could get all of our oil from a friendly country? And what if this country had more oil than Saudi Arabia? Wouldn’t that be great? Such a country exists. It’s called The United States of America.
I find it incredulous that people who are smart enough to be CEO of major companies, controlling billions of dollars, be so collectively economically ignorant. Not one of you said to the others, “Whoa, there, boys, speculation isn’t the problem!” If I were on the Board on any of your companies, I would recommend your termination.
I received the email from Mr. Tilton, CEO of United Airlines, asking me to “Stop Oil Speculation Now”, citing the speculators were the cause of the increasing price of a barrel of oil.
Here’s how a contract for oil, or any commodity, works. In July, I agree to buy September oil for, say, $150 per barrel.
Why would I do that? Because I think I can get someone to purchase it from me for greater than $150 by the time the contract in due in September. I think, that is, I <i>speculate</i>, that the price will go up. That also means that, in July, someone must be willing to sell me oil at $160 <u>because they speculate the price will go down</u>. They speculate they can buy oil less than $160 and pocket the difference between that price and the $160 I agreed to pay.
After I buy September oil in July, what happens when the contract is due? I have only two choices:
1) I can sell the oil. Whether this is at a profit or loss is just a matter of whether the market price of oil is greater or lesser than the $160 I agreed to buy it at. I cannot <b>cause</b> the price to be higher. Remember, there was someone at the other end of the transaction who thought the price would go lower. If I can cause the price to be higher, why can’t they cause the price to be lower? If I can cause the price to be higher, heck why don’t I buy 1000 contracts of sugar, soybeans, and orange juice and just make my own money machine?
2) I can retain my contract. A fancy way of saying a big truck is going to place 1000 barrels of crude oil on my driveway. Few people have a need for anything beyond a three ounce can of 3-in-1 oil.
I assume United and other airlines buy oil futures because they too want to lock in today's price to avoid the impact of prices getting higher in the future. What you are saying then is airlines should be allowed to benefit from locking in today's price, but that other people shouldn't be allowed to. Why not? Because those other people are "greedy speculators," whereas the airlines are altruistic servants of the consumer?
No futures contract has any net affect on the supply of oil. You want to decrease the price of a barrel of oil? Increase the supply! Econ 101 gentlemen!
If you want to reduce the cost of a barrel of oil, then contact the people (and encourage us to do so as well, instead of “stopping speculation”) who are restricting the supply: The United States Congress.
Drilling is prohibited in the Alaska National Wildlife Refuge (have you been there? It ain’t Yellowstone!) , a potential source of 1 million barrels a day, 5 percent of America's daily oil consumption. Also off-limits is 85 percent of America's coastline, which Shell estimates contains some 100 billion recoverable barrels, 13 times America's annual oil consumption, and the vast majority of oil shale in Colorado, which Shell estimates at 1.5 trillion barrels.
Are you listening to the crowd that says “it will take ten years before any oil starts flowing?” (As though solar powered Triple 7’s are just a few weeks away!) Then why bother going to school? Goodness, the kid will be 18 before they graduate!
Are you listening to those who say, "We can't drill our way out of this crisis." What does that mean? This is like telling a starving man, "You can't eat your way out of being hungry!" "You can't water your way out of drought!" "You can't sleep your way out of tiredness!" "You can't drink yourself out of dehydration!" Seriously, what does it mean? Finding more oil isn't going to increase the supply of oil?
Say, wouldn’t be nice if we could get all of our oil from a friendly country? And what if this country had more oil than Saudi Arabia? Wouldn’t that be great? Such a country exists. It’s called The United States of America.
I find it incredulous that people who are smart enough to be CEO of major companies, controlling billions of dollars, be so collectively economically ignorant. Not one of you said to the others, “Whoa, there, boys, speculation isn’t the problem!” If I were on the Board on any of your companies, I would recommend your termination.
Jul 14th, 2008, 08:52 AM
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I heard on NPR Market Place that the speculation on oil is also done by the airlines. Southwest bought futures too. The airlines are complicit in all of this so they can't whine now that they are victims.
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