Adverse oil prices and cut-throat rivalry have left airlines scrambling to limit losses with the increasingly attractive option of jet-fuel hedging. Although a complex exercise, hedging essentially involves locking in a forward fixed price, allowing an increasing number of airlines to avoid surprises from unforeseen cost fluctuations. Today, jet-fuel hedgers trade contracts in Singapore, Rotterdam, the U.S. Gulf Coast or New York, as well as crude and heating oil or gas oil in London and New York, the two most liquid swaps and options markets.
Aviation services provider TAC Air has unveiled a new product at NBAA (Booth No. C6927) which the Texarkana, Texas-based company said is aimed at helping flight departments protect themselves against drastic fuel cost fluctuations.
Most major U.S. airlines stayed profitable in the second quarter despite dramatically higher fuel costs. Delta, United Continental, US Airways, Alaska Airlines and JetBlue all reported quarterly profit in earnings releases late last month. An exception was American Airlines, which reported a net loss of $286 million blamed in large part on fuel prices. The story sounded similar across the Atlantic.
The spike in global oil prices brought about in no small measure by the unrest in the Middle East has driven the price of jet-A above $3 a gallon, prompting airlines throughout the world to adjust their air fares in an effort to compensate. According to the Air Transport Association, $3 jet fuel would raise U.S. airlines’ 2011 fuel bill by some $15 billion. Last year’s fuel bill for U.S. airlines totaled $38.8 billion.
European regional airlines don’t need to be told that fuel prices could stunt their growth. But one industry official believes that operators must start to view high fuel costs in the broader context of all expenses, and resist the temptation to blame them for all losses.
The time has come to forget industry recovery and talk instead of progress, said European Regions Airline Association (ERA) president Antonis Simigdalas in his opening remarks during the group’s March conference in Copenhagen. Perhaps the one area in which operators seek progress more than any other involves their reaction to high fuel costs.