During last year’s massive run-up and subsequent run-down in oil prices, many airlines made hedges that caused the business to incur a massive loss. Delta’s second quarter loss included a $390 million loss attributed to fuel hedging alone. This pales in comparison to Cathay Pacific Airways which took an almost $1 Billion loss.
A recent Wall Street Journal article, discusses fuel hedging plans by the airlines for 2010 and beyond. Based on recent experience, most airlines are understandably hesitant to hedge aggressively – or hedge at all..
The article mentions that United, Delta and JetBlue have hedged 8%, 9% and 10% of their fuel needs respectively for 2010, while Continental remains un-hedged.
Southwest Airlines – the master-hedger of the airline industry – remains aggressively hedged at 47% helped by it’s massive cash reserves. This is a substantial risk for Southwest, but it’s a risk they understand well and even if it will cause the airline to pay more for fuel in certain situation, at least it will make business and operations planning easier, by avoiding to have to deal with fuel price spikes that inevitably happen in today’s economy.
FlyMiwok’s operators do not use Jet fuel. They use 100LL AvGas - for which there’s practically no real hedging experience. As the recent experiences of the airline industry has shown us fuel hedging can quickly become a double-edged sword. However, helping our operators cut costs is a major concern for us and we will review and study possible hedging scenarios in the future to explore its impact on our operator’s bottom line.
Gad Barnea – CEO – FlyMiwok, Inc.
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