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Global Jet Fuel Prices Overview

A Platts.com News and Data Feature


US airlines loosen belts on costly hedges as jet fuel turbulence wanes


August 28, 2014 -- By Matthew Kohlman in Houston, David Elward in London, Su Yeen Cheong in Singapore


Chart: Jet Kerosene 54 USGC Prompt Pipeline


Several years of steady jet fuel prices have led US airlines to lighten their hedging loads, punctuated by the world's largest airline doing entirely without what is essentially insurance on its biggest cost.


Newly merged American Airlines said it had sold off its hedging contracts by the end of the second quarter.


Analysis continues below...


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Many had expected this move, as one part of the merger, US Airways, had gone without hedging since 2008.


Most other US airlines have not cut hedging altogether, but have cut back, according to an analysis of second-quarter earnings reports and other documents.


Sources said US airlines already reduced hedging volumes and lengths in recent years to about 30-40% of fuel consumption no more than 18 months out.


But United Airlines reported hedging only 21% for the rest of 2014, 19% for 2015 and 1% for 2016 consumption.


Southwest Airlines said it hedged only 25% of fuel cost for 2014.


It famously loaded up on hedges more than a decade ago and outpaced rivals more exposed to jet fuel prices that spiked to a third of a typical airline's cost.


JetBlue Airways hedged only 15% of its second-quarter fuel consumption.


Delta Airlines may be the outlier, with an aggressive hedging strategy sources said that helped deliver jet fuel prices 10-15 cents/gal below the competition last quarter.


Globally, other airlines appear to be either starting, increasing or reducing hedges, but still keeping a higher percentage of fuel costs hedged than US airlines.



Delta Airlines may be the outlier, with an aggressive hedging strategy sources said helped deliver jet fuel prices 10-15 cents/gal below the competition last quarter.


"We have certainly seen some North American carriers reduce the overall percentage of fuel they are hedging," said Mike Corley, president of Mercatus Energy, an independent energy hedging advisory firm.


"One CFO told me that the primary reason he can justify it is that such a large percentage of their revenue and profits are now coming from baggage fees, change fees, etc., as opposed to actually operating planes," said Mike Corley, president of Mercatus Energy, an independent energy hedging advisory firm.


"Another said that their board doesn't see it as being as necessary as it was a few years ago given the decline in price volatility," he added.


Platts data showed that spot market prices in the benchmark Gulf Coast, where half of US jet fuel is produced, averaged $2.88/gal year to date as of August 21.


The average leaped from $1.67/gal in 2009 to $2.15/gal in 2010, $3/gal in 2011 and $3.05/gal in 2012, before dipping to $2.92/gal in 2013.


The standard deviation, a statistical measure in which a higher number means more volatility, went from 27 cents/gal in 2009 to 15-18 cents/gal in the next four years and only 6.2 cents/gal in 2014.


In 2008, when oil prices peaked and then crashed, Gulf Coast jet averaged $2.96/gal with a standard deviation of 78 cents/gal.


That volatility helped prompt mergers that turned American, Delta, United and Southwest into the world's four largest airlines by passengers carried in 2013.


Article continues: Europe maintains risk strategy







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