When is Cheap Fuel Bad News?
After months of moaning about fuel prices every airline should be turning cart-wheels as fuel prices dip. Oddly enough, if you're American Airlines, United Airlines or Continental Airlines those lower fuel prices are not great news because you hedged on fuel last quarter at costs that are actually higher than current. Reuters has a good article that lays it out nicely. In summary, the oil companies are thanking these airlines for pre-buying a bunch of fuel at peak prices. So the benefit of this respite in fuel prices is somewhat muted for American, United and Continental. I was surprised to see Continental got caught in this gamble. Continental has stated in the past that they simply do not hedge on fuel. Smackdown quote goes to CreditSights airline analyst Roger King, "It was a complete blank-out on the basics of business management, Business school 101 says you have to hedge uncontrollable costs." Yeah...what he said.
Labels: Airline, American, Continental, fuel, United