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May 22, 2004
Why don't airlines hedge fuel costs?
The always perceptive Professor Ribstein over at Ideablog asks this question: Given the volatility or oil prices and the adverse impact of high prices on the business of running an airline, why don't airlines hedge their fuel costs?
The answer: Airlines generally are not, and never have been, particularly well-managed.
After a particularly unfulfilling experience in investing in airline stocks several years ago, Warren Buffett studied the industry and concluded, if one tabulates all of the airline industry's finances since the day the Wright Brothers in 1903, one will discover that, cumulatively, there has not been a single penny of profit. Mr. Buffett has also suggested that, in hindsight, shooting down the Wright Brothers on that beach would have been a reasonable financial, if not moral, move.
However, one airline -- Dallas-based Southwest Airlines -- is and always has been well-managed. And guess who has been hedging its fuel purchases? Read about it here.
Posted by Tom at May 22, 2004 08:12 AM
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