Source: http://www.forbes.com/equities/2008/08/11/oil-airlines-ryanair-markets-equity-cx_ll_0811markets18.html?partner=airlines_newsletter Oil Prices Cut European Carriers Both Ways Lionel Laurent, 08.11.08, 4:20 PM ET LONDON - Just when the Euroepan aviation sector was hunkering down and getting ready for $200 oil, it now faces a new dilemma: what to do with crude now tumbling towards $110 per barrel. This may seem an unusual thing to worry about, given the intense headache that record fuel bills are bringing to carriers like British Airways and Ryanair. But a rapid unraveling of oil could have unintended consequences: fuel hedging strategies could turn out to have been too conservative, wasting carriers' money, while the pace of much-needed consolidation might slow down as struggling players struggle a little less. "If oil falls, it does seem that some of the hanger's-on will be hanging on a bit longer," said Geoff van Klaveren, analyst with Exane BNP Paribas. "For the long-term profitability of the industry, we need some of the weaker players to exit the market." European Brent crude fell to $110.06 per barrel, from $112.43, during late trading on Monday. Oil prices have fallen more than $30 in less than two months, as the global economy slows down and demand weakens. Falling oil could be particularly bad news for low-cost Irish carrier Ryanair, at least in the short term. Firstly, a lot of its endangered rivals could benefit from the lifeline: companies like Sky Europe, Flybe and Jet2. Secondly, it could pay the price of over-cautious hedging in the futures market in the coming months. Ryanair did not do any fuel hedging for the three months up to July, leaving it exposed to the rise in the spot price of oil; its quarterly profits fell a whopping 85.0% as a result. Although Ryanair has learned its lesson, it was too late: it is now hedged for the next two quarters at $129 per barrel and $124 per barrel, prices which may have seemed cheap in July but are now well above the spot market. Even though Air France-KLM, Lufthansa and British Airways are all well hedged at good prices--between $74 and $90--falling oil could be bad for them also. Sliding oil means sliding demand, and that could point to falling numbers passengers, empty flights and shrinking sales. <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> If you wish to unsubscribe from the AIRLINE List, please send an E-mail to: "listserv@xxxxxxxxxxxxxxxxx". Within the body of the text, only write the following:"SIGNOFF AIRLINE".