A profit warning by Air France-KLM is proving once again that volatile fuel prices continue to be one of the greatest threats to the airline industry. As it tries to unwind hedging contracts that accounted for roughly 90% of anticipated fuel consumption over the past 12 months, Air France-KLM says it could lose more than $260 million for the fiscal year ending March 31. Despite the loss, "It would be dangerous for airlines to think that fuel hedging is now out of fashion," says aviation consultant Olivier Fainsilber. "One of the lessons of the fuel price inversion is that the market is hugely volatile. The reversal is a wake-up call for airlines to look at hedging with a sharper lens."

Related Summaries