Thursday, July 10, 2008

US Airline industry embarrasses itself by blaming woes on oil speculators

Most of the major US airlines sent round an open letter blaming the skyrocketing oil prices and resulting economic consequences on
"Speculators [who] buy up large amounts of oil and then sell it to each other again and again" (here is the letter in full)
They have even supported a very serious looking website called "Stop Oil Speculation Now (or SOS NOW)". The ludicrous argument by the airlines is that when speculators enter the market they sell the oil to each other with no intention of delivery with the only consequence is driving up the price. This is an absolute lie.

The airlines are the first to tell the markets about their financial genius when they successfully hedge against fuel increases and save $$$$ in fuel costs. Hedging can only occur because there are speculators in the market that are prepared to bet the other way. If you remove speculators, then hedging disappears and the airlines will have no facility at all for planning ahead of time for fuel purchases. They will have to do what you and I do - turn up to the pump and pay the price on the day. There is no one in the airline industry that wants to do this and therefore remove speculators and hedging.

If speculators disappeared then it would dramatically increase the uncertainty for airlines in fuel prices resulting in increases in prices rather than decreases.

This is a blatant and almost pathetic smokescreen to cover up efforts to beg for government support/handouts and set up someone else to blame when the chapter 11 bankruptcy filings start.

Thanks to Mark Ashley at the Upgrade:Travel Better blog where I first saw this story. He has some good analysis of this in his post which I encourage you to read.

Shame on you airTran, Alaskan, American, Continental, Delta, Hawaiian, JetBlue, Midwest, NWA, Southwest, United and US Airways.

thanks to frunt on flickr for the image

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