Why do Airlines Hedge Oil Prices

Have been reading about contangos and backwardations and how oil is being stored in storage tankers due to a combination of low leasing rates and expectations of a increase in oil prices.

Most of this obviously has to do with Hedging against future prices increases. Now one the biggest buyers of forward contracts are airlines they consume 1.1 million bpd.

In earlier times it was understandable why airlines would like to lock in petroleum prices as they used to publish air-ticket rates upto the end of the year. These were then circulated to travel agents, but now why would they need to hedge so much. Ticket Prices change on a almost hourly basis reflecting yields, it cannot be too difficult to plug in a variable for oil prices as a factor for price changes.

Inquiring minds wish to know?


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