The US airline industry has written to Barack Obama arguing that the oil prices should be more heavily regulated:
“A repeat of last summer’s astronomical crude-oil prices will bring the nation’s economic recovery to a painful halt,” said Glenn Tilton, chairman of the Air Transport Association (ATA), in a June 11 letter to President Barack Obama. Tilton is also chief executive of United Airlines parent UAL Corp.
“Businesses that spend billions of dollars on fuel each year, already dealing with the impacts of decreased consumer spending, are especially vulnerable,” Tilton said in the letter.
Airlines have long complained that speculators are pushing up the price of oil. But they are not averse to playing the market themselves. The Reuters story points out that while airlines welcomed oil’s fall from its steep heights last year, many (Cathay Pacific, Air France-KLM, EasyJet and Thai Airways to name just a few) also missed out on the benefits of that price fall because they had hedged while prices are higher. In the US, Southwest last year benefited from pinning 80 per cent of its fuel price at $61 while the market prices moved towards $147; but this year its results have been hit by marking-to-market its extensive hedges.
Despite this, hedging is on the increase across all industries as commodity prices have risen again in the past few months. Greenwich Associates said this month it had seen hedging increase from 45 to 55 per cent of companies since 2007, while Citigroup had seen hedging rise by 200 to 300 per cent in this quarter, compared to the previous quarter.
Related links:
Airlines renew call for rules on oil speculators (Reuters, 19/06/09)
Companies in scramble to hedge commodity exposure (FT, 02/06/09)
