US Airways Is So Bearish On Oil It Has Stopped Hedging Fuel Costs

Fuel hedging is a standard practice for most airlines to protect against the high volatility of one of their most important costs. As prices soared in 2008, Southwest was hailed for saving $3.5 billion through prescient hedging.

But US Airways hasn’t hedged for two years, the only major airline to take the strategy, execs said at a Platts Conference. So far the strategy has paid off during a period of low volatility.

Refusal to hedge amounts to a bearish call on fuel, and US Airways is considering remaining unhedged going forward.

The Barrel:

[Fuel director Michael Baer] questioned the idea that hedging is something that should always be pursued, noting that Southwest Airlines — which he did not mention by name, only in thinly-disguised references¬†— was practically worshiped solely because of its hedging prowess during the runup in prices that peaked in mid-2008. Hedging is speculation, according to Baer; so is not hedging.

The company may switch away from that strategy, but Baer said a company that at its peak made only $427 million has to be careful about tying up too much cash in a hedging strategy. Options, in particular, can be expensive.

So does US Air know something we don’t know about fuel demand in 2011?

Check out everything you need to know about the future of gas & oil –>

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