Hedging for Some May Hurt More Than Help

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Sep14

Hedging for Some May Hurt More Than Help

Rob Willers

September 14, 2006

Know More: Airlines, American Airlines, Continental Airlines, United Airlines 2.0, Airlines

Will summer fuel hedging actually hurt the big airlines in the third quarter? The parent company of American Airlines, AMR Corp., (AMR) hedged their fuel near the summer high of $78 dollars a barrel when they thought prices were going to climb even higher. And now they might be losing money on the deal that was suppose to help them save money.

Continental Airlines and United Airlines are in the same boat. They hedged their fuel for the summer near the peaks in price too. Now with oil closing down on Wednesday at just under $64 dollars a barrel, it could hurt the ailing industry that looked to be posed for a comeback.

"It was a complete blank-out on the basics of business management. Business school 101 says you have to hedge uncontrollable costs," said Roger King, an airline analyst with CreditSights.

Despite the fact that some airlines might have useless fuel hedged prices, the falling oil prices are a welcome sign at the airlines. United Airlines based their exit planning on the fact that fuel prices would remain right around the $50 dollars per barrel price, however that has not been seen in over half a year. American Airlines has done interesting things in order to cut their fuel bill, all of which include closing window shades prior to departure, less water in the toliets, and taxiing with just one engine.

The Washington Post

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