18 September 2008

The Perils of Hedging

Two players admitted goofing up on their fuel hedges. As far as common characteristics, you could not have two more diametrically opposed airlines.

United will take a half billion charge. It got it wrong by not hedging in the swift run up in price that peaked at $147 per barrel in the summer. Now it is going to have to cover the cost of fuel that it did hedge at too high a price.

Unlike the many other things that Ryanair gets right - it seem as that Fuel Hedging is not one of them. So I will retract an earlier statement that Ryanair was good at Hedging. They are not. However at least despite them saying how much they had committed no more than a few weeks ago for the fall and Q1 2009 periods all at prices well over the $120 mark, it seems that either they have got out of them or they have managed to mitigate them.

So far only Southwest seems to have got this delicate dance right.


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