Originally Posted by
SmilingBoy
The main reason it makes sense for companies hedge is to stop them from going bankrupt.
Now that's a flawed statement.
Originally Posted by
SmilingBoy
The price at which they hedged the fuel should not have an impact on their marginal cost, as at any moment they can sell or buy fuel at the market price on the spot market. Therefore, the correct marginal cost which should be taken into account for pricing purposes is the current spot market price. Hedging is just speculation, and results in a windfall profit or windfall loss that is sunk, and should not affect prices. The only other thing it affects is the probability of bankruptcy which decreases if the hedging strategy is good.
We had that (fruitful) discussion before... I still tend to believe that companies will pass on their hedging costs to their customers.... and a windfall loss due to (dumb) future hedging is nothing but cost of hedging.