Pratt Geared Turbofan Blazes Trail Of Disruption
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That doesn't mean they always hedge right
If you buy insurance, but subsequently didn't have an accident, did you "lose" that premium you paid? Not really, that premium bought protection during the coverage period.
Hedging is somewhat analogous. If you purchase (say) option contracts for future delivery at price 'X' and subsequently the price is actually below 'X', then you've "lost" the premium you paid for those contracts, but you were also "protected" against potentially crippling price increases during the contract period.
That protection against dramatic price increases is the important part. For most airlines, when there's risk of higher oil prices it's better to pay $$$$ for some amount of protection, even if they end up eating the high cost of the hedge if the actual price is lower than the contracted strike price.
So the key is to find the best hedging strategy depending on each airline's specific situation. Delta, for example, still enjoyed record profits due to lower fuel prices even with the large cost of hedging.
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tdracer,
Five years may be an underestimation if Saudi Arabia decides to pump as much oil out of their patch as possible, regardless of price obtained, rather than leaving it in the ground and getting nothing in the future.
Everything Has Changed: Oil, Saudi Arabia, And The End Of OPEC | Seeking Alpha
peakay4,
Delta's situation may be a little more complicated than other airlines in that they own their own refinery, meaning any hit they may have experienced on hedging is lightened by producing jet fuel from their internal refinery operation.
TD
BTW, my person crystal ball says that fuel prices will stay relatively low for at least the next five years
Everything Has Changed: Oil, Saudi Arabia, And The End Of OPEC | Seeking Alpha
peakay4,
Delta, for example, still enjoyed record profits due to lower fuel prices even with the large cost of hedging.
TD
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Besides, the premise is silly; it's better to sell one barrel of oil for a trillion dollars than a trillion barrels at one dollar each.
Five years may be an underestimation if Saudi Arabia decides to pump as much oil out of their patch as possible, regardless of price obtained, rather than leaving it in the ground and getting nothing in the future.
Everything Has Changed: Oil, Saudi Arabia, And The End Of OPEC | Seeking Alpha
Everything Has Changed: Oil, Saudi Arabia, And The End Of OPEC | Seeking Alpha
As I commented earlier in answer to another question, I wouldn't claim to know enough to try to predict what oil prices will do in the next few years, but it certainly does make for interesting reading and I think we are in for some version or another of "interesting times".