Fuel hedges could waste airlines’ money

Reuters UK – U.S. airlines are cheering a steep decline in the price of jet fuel since mid-July, when crude oil began a nearly $27-per-barrel descent, but that good news may come with a slight sting for carriers that locked in fuel prices when oil was at its peak.

The risk is that oil may drift below the current price airlines guaranteed with hedging contracts, which are usually options. If that happens, the hedges carriers purchased could be a waste of money.

Worse yet, it is possible some airlines could be committed to paying more for their fuel than market prices.

"Given some of the hedging mechanisms they are using, they are going to be subject to significant losses on those portfolios. We’ve never seen such volatility on oil prices," said Brian Nelson, equity analyst at Morningstar.

Read Complete Article

About the HedgeCo News Team

The Hedge Fund News Team stays on top of breaking news in the Hedge Fund industry on an hourly basis. Signup to HedgeCo.Net to recieve Daily or Weekly news updates from our team.
This entry was posted in Syndicated and tagged , , , , , , , , , , , . Bookmark the permalink.

Comments are closed.