Originally Posted by im sparticus
I think its funny they are reducing their hedging from 80% at present and when fuel was at its historical high, down to 30% for 2010 when fuel is at its historical lows, they still havent quiet grasped the concept of hedging have they.
Perhaps the fuel suppliers won't accept or even offer to hedge at current prices. In order to hedge there must be a point at which both sides of the table see some value in fixing a price. Usually the buyer hedges to provide some cost certainty and teh seller to lock in some guaranteed level of production.
Very rarely does the agreement have to do with the actual price because if that was the case then one side or the other would be locking in a less than optimal position because both parties generally have access to the same information and forecasts and react accordingly. Hedging is a "certainty" strategy, the ariline knows how to budget for fuel costs, the oil company builds in a baseline volume and price and knows what it has to achieve for the time period.