28 November 2008
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Johannesburg — OIL prices have caught many airlines off guard. Prices exploded in the first half of the year, reaching $147 a barrel in July, before collapsing to about $51 a barrel .
One tool airlines have to protect themselves is hedging. But this can be a double-edged sword. Comair and SAA hedged part of their fuel requirements as prices rushed up , and were left exposed when prices fell as fast as they rose.
Others, such as 1Time and Mango, which had not hedged early in the year, felt the pain as the price climbed but are smiling now as prices fall. The question is where to now?
Some say this is as good as it gets - Mango CEO Nico Bezuidenhout believes oil will not get cheaper.
Easy oil has been depleted, and it is becoming increasing difficult to extract .
Bezuidenhout points to the Canadian oil sands project. Production costs can run to $40 a barrel - not far from the oil price . We certainly won't see oil at $10 -$20 a barrel again.
Airlines could do worse than hedge at these levels.
The Bottom Line is Edited By Edward West
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