Airlines set to save billions with fuel hedges amid $100 oil

Airlines with oil hedges are set to save billions of dollars on their fuel bills this year, the first such gains since the industry was ravaged by the coronavirus pandemic. Both Southwest and Air France-KLM said they stand to gain about $1b each from their hedging policies, a benefit that will at least partially cushion the companies against higher oil prices. British Airways parent IAG said its fuel hedging program was worth about E1.2b. Meanwhile, its fuel bill was up 45% from a year ago compared with a 150% increase in jet fuel prices. The hedging gains represent a turnaround in fortunes for a sector that lost a huge amount of cash on oil derivatives during the pandemic when demand collapsed as planes were grounded. The hit to the tune of billions of dollars saw many carriers pull back from dealing in the oil contracts, but in recent months the practice has resumed meaningfully. That comes as Brent crude trades around $100 a barrel and is on course for its highest annual average price since 2013. “Revenue certainty is part of the rationale for airlines hedging,” said Jay Stevens, vice president of market analytics at Aegis Hedging, which helps producers and consumer companies with their strategies. “But they really want to protect against the really bad scenario, which is where jet prices have been recently.” Jet fuel prices globally have been volatile this year, at times touching the equivalent of more than $220 a barrel in April and May in a key US pricing hub. They were still near $140 on Wednesday. Even so, the savings enjoyed by the airlines won’t be passed onto consumers given the overall elevated costs of fuel. The gains from the hedges are also realized slowly over time, so could decrease if oil prices fall. Story has more.<br/>