Collars make a comeback for Asian fuel hedging
In 2008/09 airlines suffered large losses from their hedging programmes, some of which involved taking highly leveraged positions on the downside to pay for upside protection. With unrest in the Middle East in 2011 pushing prices higher and hedges getting more expensive, carriers face similar market dynamics to 2007/08. What lessons have they learned in managing positions this time around?
During the last market bull-run, oil prices steadily climbed to more than $140 per barrel by mid-2008, with some commentators at the time believing that prices could be driven as high as $200 a barrel. Airlines were faced with a dilemma in managing their fuel costs, which on average account for about 40% of operational costs for major carriers and can be as high as 70–80% for budget airlines. Oil prices were set to continue to rise, but volatility and the rising price made hedging against
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