... and for many other airlines?

There is a story in today's Financial Times, that nearly all of United's cuts in wage costs have been eroded by increases in oil prices and that consequently, it is looking increasingly likely that it will not meet the financial milestones dictated by its debtor-in-possession funding.

It also highlights American Airlines as being very vunerable since it has previously hedged only 40% of its future fuel costs for the first quarter and only 32% for the full year. Clearly it is banking on oil prices falling during the year. In contrast, however, Southwest is apparently 100% covered for the first quarter at US$24 per barrel (I think the current oil price is close to US$40!) and is 84% covered for the entire year at US$23.

It is interesting to see how hedging against future fuel costs can sometimes pay dividends. BA, for example, hedged more than 50% of its total fuel costs in 2002, which meant that when fuel costs for other airlines were increasing, BA managed to reduce its total fuel costs in 2002 by more than 30%.

Anyway, it will be interesting to see what the impact of the higher oil prices will be on the industry. Apparently US and European airlines are lobbying their governments to try and reduce the involved costs... they may need to... otherwise there may be far fewer airlines flying if oil prices stay as high as they now are!