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The Other Side of Fuel Hedging: Huge Losses

Just a few months ago there appeared to be a large number of newspaper articles discussing how brilliant Southwest was for hedging fuel prices and then suggesting (at least hinting) that every other airline were fools for not hedging their fuel prices.  Well, it turns out we now know why other carriers didn’t hedge:  because it can be risky.

Northwest, United and Southwest have all announced large non-cash charges related to a decrease in the value of the hedges because of the price of fuel.  (Gary from View from the Wing explains it all far better than I can here).

It’s just amazing how quickly fuel prices have turned around and how airlines get burned when fuel prices go up and burned when they come back down.

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