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There was a discussion on the economist podcast about this. 1. Passenger jets often take a bit of cargo, but even if they rejiggered, it'd only be half full of

There was a discussion on the economist podcast about this. 1. Passenger jets often take a bit of cargo, but even if they rejiggered, it'd only be half full of cargo. 2. Many companies already hedged the price of fuel so the oil glut isn't really helping them any. 3. Demand is unidirectional: medical supplies are made in a handful of countries (ie China) but there isn't a huge demand for air freight the other direction. See also the container problem. 4. The airline network is a complex emergent system. Passengers from one international flight often connect into another domestic one. Cancelling an international flight has unpredictable knock-on effects for downstream flights. 5. Cancelling a flight can lead to losing your 'slot'. Similar to how google will kill non performing ads, airports have a system to allocate arrivals / departures to airlines that factors in usage. If you shift a passenger jet flying EU to US into doing cargo hauls, that slot is jeopardized.

6gvONxR4sf7o 7y ago
> Many companies already hedged the price of fuel so the oil glut isn't really helping them any. It's really interesting that oil can be hedged against such a dramatic change. But not everything can be hedged in such a way. Do you have a simple explanation for what can and can't be hedged?
- roro159 7y ago
  What matters for the financial hedge is the existence of futures, which means the companies can buy something they know they will need at a known price months before they actually need it. The specifics of this operation differs depending on the actual financial instrument used, but the idea is the same, even on the opposite side (selling at a known price in the future).
  - TAForObvReasons 7y ago
    The futures contracts don't always guarantee delivery. "Cash-settled" instruments just pay out cash based on the market rate (with the expectation that the long party can purchase the oil at that price)
  - cma 7y ago
    It is already a sunk cost if they just bought futures, so shouldn’t keep them from flying. They can take delivery to fly, or sell for someone else to take delivery at the low price. The hedge must be more complicated to explain why they would stay grounded.
    - jldugger 7y ago
      Hmm. I don't think the hedge is that complicated, so maybe it's not particularly relevant after all. I was just thinking of it in terms of complementary goods -- normally we'd expect suppliers to increase output when the cost of an input drops, but in this case they already ate that cost so the effect would be damped. But maybe not? I suppose there's also a question of how long OPEC floods the market. But IDK, and you make a good point.
- benmanns 7y ago
  Anything with a futures contract on major exchanges can be very easily. CME has a list of futures contracts: https://www.cmegroup.com/trading/products/ https://www.cmegroup.com/trading/products/
- twomoretime 7y ago
  In this case they probably just signed a contract agreeing to pay $X/gallon for a period of time. You can hedge any commodity like that if a seller exists to agree.
  - alasdair_ 7y ago
    Except onions! :) https://en.wikipedia.org/wiki/Onion_Futures_Act https://en.wikipedia.org/wiki/Onion_Futures_Act
    - sueders101 7y ago
      And box office receipts. https://en.wikipedia.org/wiki/Box_office_futures https://en.wikipedia.org/wiki/Box_office_futures
- bluGill 7y ago
  Anything can be hedged with a few legal exceptions) . That is what insurance is, a hedge against bad events. There are companies who specialize in insurance for one off events - for a price . For oil it works better because well drillers want to be sure they get enough money to pay off the well so someone is willing to take the other side and there is thus competition on both sides resulting in good deals.
the8472 7y ago
Re 5.: At least the EU has suspended those rules. https://www.euractiv.com/section/aviation/news/coronavirus-eu-to-suspend-ghost-flights-rule-for-4-months/ https://www.euractiv.com/section/aviation/news/coronavirus-e...
- eastbayjake 7y ago
  The US suspended those rules on March 11: https://thepointsguy.com/news/coronavirus-slot-restriction-suspension-faa/ https://thepointsguy.com/news/coronavirus-slot-restriction-s...
  - kube-system 7y ago
    And planes are mainly being parked, not reused for cargo. Probably because of the capacity and fuel price issue.
    - gwright 7y ago
      Well, if the price for cargo delivery keeps going up I would expect that it would become profitable to un-park some of those planes.
      - kube-system 7y ago
        Maybe. It sounds like the routes in demand are long haul flights, which I don't think a lot of narrow-body jets are capable of doing. Most jet airliners are narrow-bodies.
r00fus 7y ago
> 3. Demand is unidirectional: medical supplies are made in a handful of countries (ie China) but there isn't a huge demand for air freight the other direction. See also the container problem. This has got to change. Why is everything made in China? Anyone not coming to grips with the national security implications of not creating critical equipment in your own country (or region) is praying for doom.
- Aloha 7y ago
  I'm not sure why this is being downvoted, its a valid comment. Any stretched out supply chain for critical path items is at risk in any disruptive event. Globalization of your supply chain is fantastic at making stuff cheaper - but not at making the supply more durable.
  - chrischen 7y ago
    Well the problem is that the critical equipment was not stockpiled... even if we could manufacture that we’d still have the problem of doing it quickly as the current ventilator shortage is showing. In fact one of the reasons things are made in China is not just that it’s cheap, but they have a large human workforce that can be adapted to quickly make or assemble all sorts of low complexity items.
    - hhs 7y ago
      > In fact one of the reasons things are made in China is not just that it’s cheap, but they have a large human workforce that can be adapted to quickly make or assemble all sorts of low complexity items. This could be a chance to build new business models to help people retrain.
      - s1artibartfast 7y ago
        Nobody in the US wants to do these chinese jobs. I dont blame them
    - Aloha 7y ago
m4rtink 7y ago
As for 5. - this has been suspended for 4 months in Europe, so that airlines can stop running empty flights & still keep their slots: https://www.euractiv.com/section/aviation/news/coronavirus-eu-to-suspend-ghost-flights-rule-for-4-months/ https://www.euractiv.com/section/aviation/news/coronavirus-e...
econcon 7y ago
And AliExpress sale?

6gvONxR4sf7o 7y ago

> Many companies already hedged the price of fuel so the oil glut isn't really helping them any. It's really interesting that oil can be hedged against such a dramatic change. But not everything can be hedged in such a way. Do you have a simple explanation for what can and can't be hedged?

roro159 7y ago
What matters for the financial hedge is the existence of futures, which means the companies can buy something they know they will need at a known price months before they actually need it. The specifics of this operation differs depending on the actual financial instrument used, but the idea is the same, even on the opposite side (selling at a known price in the future).
- TAForObvReasons 7y ago
  The futures contracts don't always guarantee delivery. "Cash-settled" instruments just pay out cash based on the market rate (with the expectation that the long party can purchase the oil at that price)
- cma 7y ago
  It is already a sunk cost if they just bought futures, so shouldn’t keep them from flying. They can take delivery to fly, or sell for someone else to take delivery at the low price. The hedge must be more complicated to explain why they would stay grounded.
  - jldugger 7y ago
    Hmm. I don't think the hedge is that complicated, so maybe it's not particularly relevant after all. I was just thinking of it in terms of complementary goods -- normally we'd expect suppliers to increase output when the cost of an input drops, but in this case they already ate that cost so the effect would be damped. But maybe not? I suppose there's also a question of how long OPEC floods the market. But IDK, and you make a good point.
benmanns 7y ago
Anything with a futures contract on major exchanges can be very easily. CME has a list of futures contracts: https://www.cmegroup.com/trading/products/ https://www.cmegroup.com/trading/products/
twomoretime 7y ago
In this case they probably just signed a contract agreeing to pay $X/gallon for a period of time. You can hedge any commodity like that if a seller exists to agree.
- alasdair_ 7y ago
  Except onions! :) https://en.wikipedia.org/wiki/Onion_Futures_Act https://en.wikipedia.org/wiki/Onion_Futures_Act
  - sueders101 7y ago
    And box office receipts. https://en.wikipedia.org/wiki/Box_office_futures https://en.wikipedia.org/wiki/Box_office_futures
bluGill 7y ago
Anything can be hedged with a few legal exceptions) . That is what insurance is, a hedge against bad events. There are companies who specialize in insurance for one off events - for a price . For oil it works better because well drillers want to be sure they get enough money to pay off the well so someone is willing to take the other side and there is thus competition on both sides resulting in good deals.

the8472 7y ago

Re 5.: At least the EU has suspended those rules. https://www.euractiv.com/section/aviation/news/coronavirus-eu-to-suspend-ghost-flights-rule-for-4-months/ https://www.euractiv.com/section/aviation/news/coronavirus-e...

eastbayjake 7y ago
The US suspended those rules on March 11: https://thepointsguy.com/news/coronavirus-slot-restriction-suspension-faa/ https://thepointsguy.com/news/coronavirus-slot-restriction-s...
- kube-system 7y ago
  And planes are mainly being parked, not reused for cargo. Probably because of the capacity and fuel price issue.
  - gwright 7y ago
    Well, if the price for cargo delivery keeps going up I would expect that it would become profitable to un-park some of those planes.
    - kube-system 7y ago
      Maybe. It sounds like the routes in demand are long haul flights, which I don't think a lot of narrow-body jets are capable of doing. Most jet airliners are narrow-bodies.

r00fus 7y ago

> 3. Demand is unidirectional: medical supplies are made in a handful of countries (ie China) but there isn't a huge demand for air freight the other direction. See also the container problem. This has got to change. Why is everything made in China? Anyone not coming to grips with the national security implications of not creating critical equipment in your own country (or region) is praying for doom.

Aloha 7y ago
I'm not sure why this is being downvoted, its a valid comment. Any stretched out supply chain for critical path items is at risk in any disruptive event. Globalization of your supply chain is fantastic at making stuff cheaper - but not at making the supply more durable.
- chrischen 7y ago
  Well the problem is that the critical equipment was not stockpiled... even if we could manufacture that we’d still have the problem of doing it quickly as the current ventilator shortage is showing. In fact one of the reasons things are made in China is not just that it’s cheap, but they have a large human workforce that can be adapted to quickly make or assemble all sorts of low complexity items.
  - hhs 7y ago
    > In fact one of the reasons things are made in China is not just that it’s cheap, but they have a large human workforce that can be adapted to quickly make or assemble all sorts of low complexity items. This could be a chance to build new business models to help people retrain.
    - s1artibartfast 7y ago
      Nobody in the US wants to do these chinese jobs. I dont blame them
  - Aloha 7y ago

m4rtink 7y ago

As for 5. - this has been suspended for 4 months in Europe, so that airlines can stop running empty flights & still keep their slots: https://www.euractiv.com/section/aviation/news/coronavirus-eu-to-suspend-ghost-flights-rule-for-4-months/ https://www.euractiv.com/section/aviation/news/coronavirus-e...

econcon 7y ago

And AliExpress sale?