Airlines are locking in cheap oil for the next few years, taking advantage of what could end up being a temporary period of low prices.
Reuters reports that some of the largest airlines are stepping up their hedging programs in a big way for the first time since prices started to collapse in mid-2014. Last week, several airlines secured hedges for oil at low prices for 2017, 2018, and even 2019, although the exact companies were not disclosed. Still, Reuters says it was the most active hedging activity from the airline industry in more than a year.
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That comes after several airline companies – including Southwest and United Continental Holdings – hedged oil prices last summer when oil prices rose to $60 per barrel, an unfortunate bit of timing given that prices proceeded to fall in subsequent months. However, with crude oil below $40 today, most airlines see very little room on the downside. That has them scrambling to secure several years’ worth of oil supplies at cheap prices.
If crude oil bounces off of today’s lows, and rises to $50, $60, or $70 per barrel, for example, many of these airlines will be protected.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com