The airlines, after being financially burned by their fuel hedging programs when oil prices crashed late last year, are back into the futures markets to stabilize prices and allow them to plan. With oil and fuel prices rising more than 60 percent in the recent months, this planning eliminates much of the volatility airlines face.
This “price insurance” comes with a downside. If the price of oil and, hence, jet fuel drops, the airlines will be paying more than they need to for some of their fuel. However, the corporate peace of mind fixed prices give planners is worth the risk.
Here are some of the fuel hedging positions as reported by Reuters. (I’m not sure what all the figures — tonnes, cif, NWE, collars — really mean but I find the airline plans fascinating.)
It looks to me that Ryanair, Lufthansa, Southwest and EasyJet are the most hedged for 2010. The major U.S. airlines are barely hedged for the coming year.
AIRLINE / PERIOD (Q3=Third Quarter 2009; Q4=Fourth Quarter 2009; H2=Second half 2009) DETAILS
Delta Air Lines
Q3 52 percent hedged; Using calls, swaps. $2.17 projected fuel price per gallon.
Q4 39 percent hedged; Using calls, swaps. $2.05 projected fuel price per gallon.
2010 10 percent hedged; Using calls, collars.
American Airlines
Q3 33 percent consumption average cap at $2.53. 30 percent average floor of $1.84. Average system price of $2.05.
2009 36 percent consumption average cap at $2.52. 33 percent average floor of $1.88. Average system price of $1.98.
United Airlines
H2 64 percent estimated consolidated consumption. Using calls, swaps.
2010 11 percent estimated consolidated consumption. Using calls, swaps.
Continental Airlines
Q3 18 percent consolidated consumption. Using swaps, collars.
Q4 10 percent consolidated consumption. Using swaps.
US Airways
Q3 11 percent mainline consumption.
Q4 0 percent mainline consumption.
2009 percent pct mainline consumption.
Southwest Airlines
Q3 Over 30 percent consumption.
Q4 Over 45 percent consumption. Capped at weighted average crude-equivalent in low $70/bbl oil range.
2010 Approx 50 percent at weighted average crude-equivalent in mid $70/bbl oil range.
British Airways
H2 70 percent consumption. At fuel equivalent to $71/bbl oil.
Ryanair
H2 90 percent consumption. At $620 a tonne cif NWE.
Q1 2010 60 percent at $610 a tonne cif NWE.
Lufthansa
H2 71 percent consumption. 2010 53 pct consumption.
EasyJet
Q3 75 percent consumption hedged at $1,031 a tonne cif NWE; 76 percent of US consumption at $1.82, $1.83 and $1.92. Using swaps, collars.
Q4 2009 – Q3 2010 51 percent hedged at $771 a tonne cif NWE. 45 percent of US consumption hedged at $1.74.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
