Originally Posted by Konsultant
I think this more of an airline greed. Don't the airline buy the "futures" contracts for fuel? So why should pax be slapped with instanteneous hike in fuel surcharge. I think fuel surcharges should be phased in gradually, possibly tied to the oil price.
To buy futures contracts and start a hedging operation, airlines require a lot financial leverage. The only North American airlines with this type of leverage are ACE Aviation, Southwest Airlines, Westjet Airlines, and JetBlue. All the other airlines must buy on short term or spot price because they do not have the financial leverage.
So far, only Southwest has consistently utilized hedging activities and they are the belle of the Wall Street ball for it. JetBlue slacked off the hedging activities because they are using the financial leverage to buy aircraft (at least 2 aircraft per month). Westjet has no hedging activities for the same reason (buying aircraft). Air Canada activated their hedging desk this month. It will take them about 12 months to acquire enough contracts to have a meaningful price collar on their fuel requirements. FYI Southwest's price collar means they buy fuel at any equivalency of about $36 per barrel of oil.