More on airline fuel cost hedging: Air New Zealand takes hit

Michael Giberson

As Lynne was saying yesterday with respect to Southwest Airlines losses of $117 million related to its fuel cost hedging operations, Air New Zealand is discovering with hedging that “sometimes you get the bear, sometimes the bear gets you.”

Platts reports Air New Zealand told the Australian stock exchange that “unbooked hedge positions for its 2009 financial year, which runs from April 2008 to March 2009, stood at $126.39 million.” That loss is up from the $81 million report of unbooked losses reported in October for 2009, and the air carrier’s hedging position for 2010 is also in the red.

Which doesn’t mean that the hedges were not a good idea at the time they were entered into, of course. The article also points out that “unbooked hedging losses can vary considerably from final booked losses, particularly if futures prices change significantly between the time mark-to-market is done and the contracts expire.”

The Platts story provides several details about Air New Zealand’s complex hedging strategy which relied on trading jet fuel options in Singapore and crude oil futures on the NYMEX.

Previously here: Does hedging against fuel price movements increase airline value?

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