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."
These are tough economic times for the nation, most would agree, and one hard-hit sector has been the airline sector, specifically the major carriers.
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