Originally Posted by aeromedic
They just HAVE TO rein the costs of fuel. Their hedging strategy has failed dismally during a period of falling oil prices and high AUS$.
If this board get an alliance with Emirates that DOES NOT include access to cheaper fuel, then the losses will continue.
Is there no end to the mistakes and ill-conceived plans of this board?
Hedging does not rein in the cost of fuel, it just makes it more constant. In general you agree to buy X units for $Y. So if the price of fuel drops it costs you more than the spot price. And if the price rises you get it for less.
BUT
The person selling you the fuel knows this game as well. So they add a premium to cover their risk. Nobody wants to sell you fuel at less than market rate so hedging effectively is you finding the person who will take the greatest amount of uncharged for risk on fuel prices.
The key advantage of hedging is NOT reduced cost but cost certainty allowing more effective budgeting (ticket prices, yield calcs etc that you base decisions on) and management decision making.