dkco

An Open Letter to All Airlines - Quit Whining and Hedge Your Fuel Costs

Wow - what an onslaught of replies from all ends of the spectrum. First, I want to make it clear that my post was not as much an indictment on the airlines for not hedging their fuel costs (which in hindsight or foresight would be a wise business decision - oil prices have been volatile for years), but to chastise the industry for blaming "speculators" for their ills and the recent run up in oil prices.

Speculators are the "life blood" of any derivative market, providing liquidity, price discovery, and viability for hedgers. Sure, sometimes in markets speculators drive prices up, but other speculators come in, as I mentioned in the post, and sell to the buyers believing the fundamentals don't justify current prices. Remember, someone has been selling to the speculators all the way up - who will be crying for their heads when they make big profits when (if) oil prices decline?

Again, the bogey man isn't functioning markets, with speculators and hedgers, it’s the underlying supply/demand fundamentals and myriad other economic dynamics that affect the price of oil (and all commodities). If I was to concede any restrictions to the marketplace, I would consider raising the margin requirements on contracts, to reduce some of the leverage involved, which we've seen to be the essence of the troubles in the housing market.

I can't reply to all, but in general, I thank you for posting your replies and spurring discussion. Let's all hope for lower oil prices, and perhaps lower airline fares as well.