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Oil hedging and the Airlines

  • 02-08-2019 1:01pm
    Registered Users Posts: 1,035 ✭✭✭ rivegauche

    Both IAG and Ryanair appear to have foregone a lot of potential profit so far this year due to hedging and Norwegian being unable to afford to hedge may have ensured their continued existence this year.

    If Ryanair get more 737Max and IAG get more Airbus Neo/A220/737Max then the fuel cost component of their profit and loss accounts may drop enough where they can afford to hedge less. It might sound like a loaded statement but Hedging seems to be more of a risk to profit these days than not hedging especially since the production of Oil is more globalized then ever before.
    The strait of Hormuz is a bit of powder keg at the moment but oil prices have risen hugely.

    Here is a recent article on Oil Hedging.

    "IAG chief executive Willie Walsh said rising fuel prices had sapped profits at the group, which includes British Airways, Iberia and Vueling."

    Ryanair "fuel bill increased 24%"


  • Registered Users Posts: 21,918 ✭✭✭✭ Podge_irl

    Hedging is about eliminating (or reducing) risk - it is not generally a profit-making endeavour. If you know what your fuel will cost you for the upcoming year you can plan with this in mind.

    Obviously the larger you are, with the greater cash reserves, the more you can afford to be exposed to the market. Hedging is a strategic decision though and someone who can afford not to hedge may well still hedge 100% of their fuel purchases.

  • Registered Users Posts: 6,920 ✭✭✭ billy few mates

    Some operators choose to hedge for the certainty for budget purposes. They find it preferable to plan around known costs instead of the volatility of the market.
    Like the old caveat 'the value of your investment can go down as well as up', some years it will be a great investment, some years it won't but the costs will pretty much be known in advance and planned accordingly.