Airlines and hedging – now there is praise

Was watching CNN last week, and heard that at least one major US airline, South West, has been making significant use of hedging to manage their fuel costs. Many other US airlines have not been hedging significantly.

Another article mentioned that Lufthansa hedged around 83% of their fuel requirements for this year. Air France-KLM hedged 78%.

Ryanair has gone against a vow not to hedge. Silly thing to vow in the first place.

Typically, the masses aren’t saying what a bad decision it was to hedge given that the oil price has been on the up. Hopefully some will remember this next time airlines hedge and the price drops. It’s not about the outcome, it’s about risk management, focussing on controllable factors and being able to make decisions without the paralysis that huge macro swings can have.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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