A purchasing strategy that helped U.S.
airlines weather several years of high oil prices is giving them second thoughts now that commodity prices are crashing.
“While carriers saved hundreds of millions of dollars from oil prices halving since June, they forfeited a large chunk of that gain because of the fuel hedges they bought as protection against oil rising,” Reuters reports. Hedging their prices through advance purchases made sense when fuel was the largest cost involved in operating an airline. But now, those prices “are set at levels that force airlines to pay more for fuel than current market prices, turning them into a hindrance rather than a help.”
In the U.S., “three of the four biggest carriers—Delta, Southwest and United— said this week they were rethinking their hedging tactics,” Dastin writes, with Southwest projecting a loss of US$1.8 billion through 2018 at mid-January prices. “Meanwhile American, which does not hedge fuel costs at all, is reaping the biggest savings.”