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Ophir · April 15th, 2005, 15:50

Another major benefit hedging has is that is stablizes and secures prices for budgeting purposes in the future. You might by a option on fuel for some large quantity and over the course of the next year, you are guaranteed of that price. Now for the supplier the price will go up and down, but for the airline it stays the same. Being able to absolutely lock in a price, even if it may be slighty high, is an incredibly stablizing force when it comes to budgeting.

An example: I bought an extended warranty for my car. It cost $2500 for zero deductible up to 100,000 miles. I currently have 42,000 miles on it. This covers everything, brakes, oil changes, the whole nine yards. So what I have done is paid up front for all my maintanence for next few years (a lot of years actually becuase I don't drive that much). Plus I can sell the warranty with the car or cash out, so it is added value. My thoughts were that I have an expensive car and I would like to lock in the price of the ownership of that car for a long time since I won't be making much money in the next few years. So it made sense to me.

April 15th, 2005, 15:50	#6
Ophir Senior Member Join Date: Mar 2002 Location: was Ophir, CO, now in SLC! Posts: 1,481	Re: Hedging Another major benefit hedging has is that is stablizes and secures prices for budgeting purposes in the future. You might by a option on fuel for some large quantity and over the course of the next year, you are guaranteed of that price. Now for the supplier the price will go up and down, but for the airline it stays the same. Being able to absolutely lock in a price, even if it may be slighty high, is an incredibly stablizing force when it comes to budgeting. An example: I bought an extended warranty for my car. It cost $2500 for zero deductible up to 100,000 miles. I currently have 42,000 miles on it. This covers everything, brakes, oil changes, the whole nine yards. So what I have done is paid up front for all my maintanence for next few years (a lot of years actually becuase I don't drive that much). Plus I can sell the warranty with the car or cash out, so it is added value. My thoughts were that I have an expensive car and I would like to lock in the price of the ownership of that car for a long time since I won't be making much money in the next few years. So it made sense to me.