Delta's hedges take hit as fuel prices drop

Airlines often try to control volatility by locking in prices for future fuel needs. But such hedging carries risk because prices can go in an unanticipated direction, undermining airlines' hedging strategies.

Delta's fuel cost for the June quarter will total $3.37 per gallon, higher than the $3.28 previously expected, due to losses on fuel hedges in May and June. It expects to record a negative 1 percent operating margin for the quarter.

Still, Delta expects its fuel costs to be lower in the second half of the year.

Dahlman Rose and Co. analyst Helane Becker wrote in a note to investors that airlines that do not hedge jet fuel and thus won't report hedge losses as fuel costs decline will likely say they are managing their businesses better, but that those airlines were "punished last year as jet fuel traded significantly higher." Becker expects continued volatility in crude oil markets.

Delta has taken significant steps to address fuel costs, even buying an oil refinery in a deal that closed Friday.

Separately, Delta said it will record $170 million in special charges for its 2,000 workers taking early retirement and severance while it cuts flight capacity by 3 percent to 4 percent this year, as announced last month.