|English: Chart of jet fuel prices for major US airlines. (Photo credit: Wikipedia)|
Remember the difference between operational hedges (example Delta’s purchase of an oil refinery) and financial hedging (hedging with financial derivatives). And my prior on this is that hedging should be done and it is best to do it with financial hedging whenever possible.
From Flightglobal.com ANALYSIS: Should airlines hedge their bets on fuel?:
“When Delta Air Lines announced its intention to acquire an oil refinery earlier this year, the unusual move drew a mixed response from analysts. Some praised its innovation, arguing that its daily consumption of 210,000 barrels of jet fuel justified cutting out the middle man. Others questioned whether airlines should be in the business of refining crude oil.
But one thing no one disputed was the urgent need to offset fuel price volatility. According to IATA’s latest forecast, Brent crude, the main European benchmark, is likely to average $110 a barrel this year – but in just six months spot prices have ricocheted wildly between $128 and $88.”