United Continental (UAL +2.1%) and Southwest Airlines (LUV +1.9%) could issue a profit warning...

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Hedging is a double edged sword. Southwest's hedging gains were widely advertised, but only led to a one time gain from the run-up of oil to $148 per barrel, leaving all the other airlines behind. Southwest chose not to sell their positions, but instead keep their fares artificially low until the contracts expired. In effect, they gave their customers the value they created, not the shareholders.

Quickly scrambling to try to do the same, many of the airlines have made bad investments as they locked into higher than market oil prices. All the airlines must realize that hedging is a form of gambling, unless the airline can match the price of the ticket sold at a given oil price to lock in the margins.
26 Jun 2012, 02:34 PM Reply Like