Oil decline erodes airline fuel hedge value

CHICAGO (Reuters) – Major U.S. airlines are cheering the jaw-dropping decline in fuel prices, but at the same time are wincing that some of the insurance they bought to hedge against fuel spikes seems to have been a waste of money.

To some degree, top carriers all are struggling to blunt the impact of potential fuel price rallies without losing money on hedges if fuel falls more than expected.

Worthless fuel hedges led to huge accounting losses for major airlines in the third quarter. It is likely to happen again in the fourth quarter and could repeat in 2009 because airlines buy their hedges months in advance.

Reuters