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Author Topic: Fuel prices on the rise...  (Read 2809 times)

brique

  • Former member
Re: Fuel prices on the rise...
« Reply #40 on: November 21, 2012, 02:51:47 AM »
Yes, the two methods will stack, but prices are near not all that favorable for a hedge in my mind.

Best way to save fuel is to fly shorter flights, as revenue doesn't scale with stage length.

Sorry to burst your bubble but the fee is not new. It has been in place since the feature was implemented and is based upon the LENGTH of time that you are hedging in that particular contract (basically a fraction higher than .6% per month). The main differrence is that the fee didn't seem as big when fuel was a lot cheaper. Now that it is in the stratosphere, it makes it SEEM like the percentage is higher, but its really the result of basic multiplication....

No, the fee for a 12mth 100% hedge was +7%-odd : but if you took 10% hedges, the fee was +0.7%-ish : now the fee is a flat rate 7.4% regardless of % hedged. Basically, the only way to keep the hedge fee down was to do 10x 10% hedges, then it made sense to hedge, now its not economic sense, regardless of fuel price, really : as we do not know how fuel will move, its all guesswork as its pretty random, then the bet is a yes/no one : bet correctly, you still may not win, until fuel moves up past the fee into savings territory, then it has to stay there until you recover the amount lost waiting for the movement, after that, you make the money. Bet wrong and your loss is immediate : the 7.4% of the fee plus however much it falls.

So, you got a yes/no bet with three outcomes : lose money, win but still lose money, win money : any gambler will tell you to avoid that bet.

« Last Edit: November 21, 2012, 02:54:58 AM by brique »

Offline schro

  • Members
  • Posts: 3079
Re: Fuel prices on the rise...
« Reply #41 on: November 21, 2012, 04:02:03 AM »
No, the fee for a 12mth 100% hedge was +7%-odd : but if you took 10% hedges, the fee was +0.7%-ish : now the fee is a flat rate 7.4% regardless of % hedged. Basically, the only way to keep the hedge fee down was to do 10x 10% hedges, then it made sense to hedge, now its not economic sense, regardless of fuel price, really : as we do not know how fuel will move, its all guesswork as its pretty random, then the bet is a yes/no one : bet correctly, you still may not win, until fuel moves up past the fee into savings territory, then it has to stay there until you recover the amount lost waiting for the movement, after that, you make the money. Bet wrong and your loss is immediate : the 7.4% of the fee plus however much it falls.

So, you got a yes/no bet with three outcomes : lose money, win but still lose money, win money : any gambler will tell you to avoid that bet.



Sorry. Try again.

As much as I'd disagree with the fee being that high, the hedging price as a percentage has always been based upon the duration of the hedge.

References -

http://www.airwaysim.com/forum/index.php/topic,973.msg212261.html#msg212261
http://www.airwaysim.com/forum/index.php/topic,39597.0.html
http://www.airwaysim.com/game/Manual/Office/Fuel/#Hedging

brique

  • Former member
Re: Fuel prices on the rise...
« Reply #42 on: November 21, 2012, 04:30:54 AM »
Sir :

I call your thread with this : http://www.airwaysim.com/forum/index.php/topic,43867.0.html

and raise you one Sami : http://www.airwaysim.com/forum/index.php/topic,41573.0.html

Actually, we are not arguing about the same thing ; its not about the fee in relation to length of contract ; its about a change in the fee for the amount hedged in the contract.

Talentz

  • Former member
Re: Fuel prices on the rise...
« Reply #43 on: November 21, 2012, 05:59:54 AM »
When does Sami plan on selling a deck of cards featured on him? I'll put myself down for a pair!




Talentz

Offline Sanabas

  • Members
  • Posts: 2161
Re: Fuel prices on the rise...
« Reply #44 on: November 21, 2012, 06:19:05 AM »
The fee was bugged. It was possible to avoid the 7.4% fee by taking out 10 small hedges. Now you can't.

But to say there's now no reason to hedge is silly. It's not about whether you might end up paying significantly over the actual price. It's about getting security. Fuel price is $500, and I'm very comfortable paying $550 and still making money? Excellent, full 12 month hedge, and I pay $537, guaranteed. If fuel jumps to 600+, it doesn't hit me. If fuel drops to $400, others get a benefit, but I'm still paying a reasonable price.

Alternatively, take out a 10% hedge once every 5 weeks. Now your fuel bill will change with the market, but you'll get 12 months advance notice. Fuel jumps from $500 to $700 overnight, some people will se a 40% jump in their fuel bill. But you'll see a 3% jump in yours. And know you've got another 3% jump in 1 month, and another 3% jump in one month after that. Much easier to plan for, much more time to change things if a $700 fuel price could cripple you.

Over the course of a game, fuel WILL trend upwards. If it's a linear, 7.4% per year for 20 years, it'll end up a little over 4 times the original cost. I think MT started at under $250, I could be wrong. It's now over $1000. So on average, it's increased more than 7.4% each year. So if you hedged 100%, every 12 months, you may well have come out ahead. Might be behind, might be a long way ahead/behind. Depends on timing of hedges, and timing and size of spikes. If you took out staggered, 10% hedges, then you almost certainly came out ahead.

Hedging isn't purely about a gamble on what prices will do. As a pure gamble, it's now much fairer, it's no longer a 50/50 bet about whether prices rise or fall. As a pure gamble, there's now actually a risk you lose. But still a good chance you win. Would need a very detailed map of fuel prices to work it out, but I suspect your expected value on the return for your gamble would be somewhere around break even, might be slightly ahead if price increase was close to linear, might be slightly behind if prices stayed mostly level, apart from a couple of big spikes. EV of break even is a better gamble than you'll find in any casino.

Add in the utility of hedging, and there are still very good reasons to use it.

 

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