Airlines: Regulate oil speculators


Delta Air Lines and AirTran Airways are renewing their push for stronger regulations to limit oil speculation.

They say such speculation contributes to huge swings in oil prices and financial losses for airlines — not just when prices go up but also when they plummet and carriers are stuck paying higher prices due to hedging contracts.
Travelers and workers are hurt in the process by flight and job cuts, the airlines say.

Airlines — which often oppose new regulation of their own industry — want the Commodity Futures Trading Commission and Congress to limit the positions of speculative traders to prevent them from disproportionately controlling commodities markets and close loopholes.

They point to the effects of oil prices on consumers’ costs at the gas pump and for heating and air conditioning.

Airlines are cutting flights and jobs, making moves “they otherwise wouldn’t have done if not for oil price volatility,” Castelveter said.

Delta general counsel Ben Hirst testified in support of tougher regulation of the oil futures market at a hearing by the Commodity Futures Trading Commission last week. Representing the Air Transport Association, a major airline industry lobbying group, Hirst told the commission that the airline industry “has been devastated in the past two years by the high price of fuel and volatility in oil markets,” which have “destroyed some airlines and deeply damaged the rest.”

Fuel is typically an airline’s single largest expense, equivalent to about 40 percent of revenues, he said.

Atlanta-based Delta, like other airlines, suffered when oil prices went up, but also when oil prices went down and it lost $1.7 billion on fuel hedges — or contracts to buy fuel at pre-set prices. Hirst said the “oil price bubble” cost Delta $8.4 billion in total since mid-2007, including fuel expense and hedge losses, leading the company to cut flight capacity by 10 percent and eliminate 10,000 jobs.

Castelveter said because airlines plan flight schedules months in advance but don’t know if oil prices are headed up or down, “that makes it very difficult to plan.”

AirTran last week sent an e-mail message to frequent fliers asking them to contact Congress through the web site of the Stop Oil Speculation Now coalition organized by the Air Transport Association.

CME Group, which operates major trading exchanges, said in its testimony to the Commodity Futures Trading Commission that limiting speculators’ access to the futures markets will impede hedging. But it said it is prepared to respond by administering its own limits.

Jeffrey Sprecher, chief executive of the Atlanta-based IntercontinentalExchange, in his testimony said limits should be set and administered by the commission, rather than by a competitor. He also cautioned that regulations not carefully tailored to address problems can lead to greater price volatility.

Delta’s Hirst acknowledged that speculators “play a valuable role by providing the liquidity needed for hedging.” He said the commission should “ensure there is enough speculation in the market to provide liquidity, but no more than that.”