Oil's Ascent To Ground Airlines Again

Don’t look now, but oil is barreling toward familiar (higher) territory for the second consecutive summer. Crude prices have skyrocketed 130% since last winter, and the summer driving season isn’t yet in full gear.

Airlines have cruised since the March 9 stock market low, but brewing headwinds–like oil’s breakneck push higher–could force stocks to lower altitudes.
Oil has heated up to a seven-month high, and major carriers like Delta Air Lines ( DAL – news – people ) and UAL ( UAUA – news – people ) are feeling the burn. While oil’s precipitous drop from $147 per barrel last summer did breathe new air under their wings, some carriers are still paying the price for their hedged positions.

When jet fuel prices nosedived from more than $4.30 per gallon in July 2008 to lows around $1.40 in March, airlines were still paying elevated prices locked in with hedged contracts. As a result, they booked huge losses, causing some resistance to continually hedging fuel costs.

Three months of surging prices later, airlines are in the same predicament, battling a variable cost that’s been anything but predictable.

Forbes