United may not be alone with fuel hedge loss

Airline bets that oil prices would rise looked like a no-brainer this summer. But with oil prices falling, those hedges against rising fuel costs are getting expensive.

United Airlines said on Wednesday it is on track to lose $544 million on fuel hedges this quarter. That included $72 million in realized losses and another $472 million in unrealized losses. Those positions forced United to put $400 million into restricted cash for the parties on the other side of its oil price bets.

Other airlines have not disclosed their hedging losses or gains for the third quarter, but it is likely that United was not alone in underestimating oil’s dramatic fall. Oil settled at $97.16 a barrel on the Nymex Wednesday, down from a July peak of $147.

Business Week