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Few actors understand the pluses and minuses of hedging better than traders . . . and airlines. In an ironic twist, some airlines could be financially hurt by falling oil prices. That's right: hurt by falling oil prices.United Airlines (NYSE: UAUA) is one such airline. United said it could lose up to $294 million in Q3 if oil prices average $95 per barrel, marketwatch.com reported Wednesday. Oil rose $2.44 to $109.05 in mid-day Wednesday trading. United purchased fuel caps averaging around $111 per barrel this year and $118 for 2009. In other words, the caps mean United would be compelled to pay more for oil than the market price, due to the established contracts.
American Airlines (NYSE: AMR), and the slated-to-merge Northwest Airlines (NYSE: NWA) / Delta Air Lines (NYSE: DAL) are other carriers that could be hurt by oil hedges, marketwatch.com reported.
Hedges, caps: An attempt to create fixed expenses
Stock Analyst C. Leonard Bauer told BloggingStocks Wednesday most airlines "merely seek to break even with their fuel hedges and caps, not profit from them."
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