(Corrects quote in paragraph 4 to say oil prices are one of the
biggest risks, not the biggest)
DUBLIN Jan 20 Taking out complex call options
or even buying a refinery are some of the measures airlines
should consider as they try to combat volatile oil prices, air
finance industry experts said.
Jet fuel can account for anywhere from between 20 and 50
percent of an airline's operating costs, and predicting oil
prices is a headache.
"No one knows where oil prices will be in six months, let
alone 10 years away," James Dempsey, Ryanair group
treasurer, told a conference hosted by Airline Economics on
"Oil prices are one of the biggest risk factors in the
Delta Air Lines bought its own refinery in 2012 to
address the risks from fuel prices.
Even though the refinery turned only a small profit for the
first time in the third quarter of 2013, over 60 percent of air
finance executives polled at the conference on Monday believed
this was a good move.
Some airline executives took a more cautious stance to such
a suggestion however.
"We'll keep an eye on how successful they are," Gerry
Laderman, senior Vice President for Finance and Treasurer at
United Airlines told Reuters on the sidelines of the conference.
Mike Corley, the chief executive of Mercatus Energy, an
independent energy hedging, trading and risk management advisory
firm, said airlines should take a more active approach to
hedging fuel costs.
He gave the example of call options, which can be expensive
but then protect airlines from rises in fuel prices, whilst also
letting them track falls in the oil price.
"Airlines are very good at mitigating risk across the
business but managing commodity price risk is often an area
where they fall short," Corley said.
However, some airlines, badly burned from hedging losses in
volatile oil markets, have scaled back hedging activities and
more may follow.
US Airways, which stopped hedging, is in the process of a
merger with American Airlines, leading some to question what
American's future hedging strategy will be.
"The U.S. industry right now is interesting," United's
Laderman said, pointing to American. "Are they now going to stop
(Reporting by Victoria Bryan; editing by Keiron Henderson and