This is a subject that has interested me to the point where it has become my career goal. First of all, very few of the airlines in the United States has subscribed to this type of "defensive pricing activity". One of these airlines is Delta which has had a tremendous success in cost savings using this concept. I do not believe that AA
has this program, however on the international front, Lufthansa, British Airways, Air France and Japan Airlines have been very strong players in this field because of their susceptibility to violent pricing spikes due to their locales. The concept of hedging by using a forward negotiated fixed price is a dual edged sword as the airlines have now found out. This idea leaves open the idea of "betting on the future" and is a topic very difficult to ascertain because of sporadic market events. However,
by investing in the futures markets in contracts such as Crude Oil Futures, which are traded on the NYNEX in NYC, the airline's professional traders dedicated to this field have a MUCH higher probability in attaining the desired results that reflect on an airline's bottom line. To be more specific, there are now very high powered software packages that have become available in the past few years that players such as OPEC, Oil Companies and even individual traders can use to take advantage of any price moves that may come about without having to own or be contractually bound to the product. This is an everyday occurence, and this concept is known within its field as Technical Analysis of the Futures Markets. As some of you stock traders may know, it still uses the same bar charts as before but now with the great assistence of various studies that have their own inherent formulas which uses pricing over different periods of time that promote true speculating rather than betting, to capture the next price move to one's profitable advantage. For example, the various studies that are used are the following: Exponential Moving Averages,Parabolic Studies, Relative Strength Index Studies, Stochastics Indicators, Moving Average Convergence/Divergence Studies and Volume Analysis all converging into one major trading plan that heavily compliments the old fashioned bar chart into a formidable force for profitability. Intensive training is required which is available in both Chicago and New York City at the various Futures Exchanges as well as the New York Institute of Finance. The days of betting is totally over in the crude oil markets. In order to remain alive in a business which is highly reliable upon a price weighted commodity such as fuel oil, a company must subscribe to a business plan which is highly technical in nature and which can be proven and acted upon immediately on a moment by moment basis by utilizing the above mentioned criteria. All of the aforementioned airlines, should be complimented highly for their business prowess, especially for Delta who initiated this pricing practice years before any USA based airline.
In my opening sentence, I mentioned that I am making this my career goal. This is a relatively new field that would interest those who have a very high sense of self discipline in not deviating away from set trading rules and who are excellent in number crunching. It is a very quickly paced enviornment requiring that the trader/hedger be adaptable to changing market conditions whether it be on a technical level or on a fundamental basis. I have now been "paper trading" for about a year with the coaching of an experienced technical futures trader (another a.net user) with good success. As I enter college next September, I only anticipate on getting more proficient in this field to the extent that this area of expertise will be a source of substantial gain. For those of us that aspire to be in the airline business but on a different level, the above concept could be an interesting idea to consider for future employment.
Best to all,