As I dabble in the futures business, I'm a bit embarrassed not to know the answer to this question, but how much do airlines use commodity futures to lock in fuel costs? None? A little? Extensively? A little background for commodity futures novices... A futures contract is an agreement to buy or sell a predetermined amount of a particular commodity at a future date (hence the name). For example, at the Chicago Board of Trade, agricultural commodities such as wheat, corn, oats, and soybeans are traded in increments of 5,000 bushels per contract. If a farmer sells one September corn futures contract, he is entering into an obligation to sell 5,000 bushels of corn in September at a certain price. Farmers use futures to lock in current prices for their crop (which hasn't been harvested yet) and to prevent huge price swings. While the price of corn could go up before September delivery, the farmer who sells the futures contract today is giving up those potential gains for the peace of mind of not having to worry about falling prices. He's locked in. The main reason your Corn Flakes don't cost $2 per box one week and $6 the next is due to the futures markets. In addition to agricultural commodities, there are futures contracts traded in almost every conceivable product: currencies, gold, pork bellies, orange juice (remember Trading Places? ), etc. Which brings us to a popular contract, crude oil. Right before the current "situation" in Iraq, crude oil futures reached almost $40 per barrel. The airlines did their usual crying about how the higher prices would hurt their already precarious financials. However, in recent weeks, the price of crude oil futures has gone done to the low 20s, and that's including contracts with delivery going all the way out to 2004 and beyond. Of course, you don't hear United or American saying how they will save many tens of millions based on these lower prices. My question is, do airlines (and to a lesser extent, companies with high fuel costs, such as UPS) buy crude oil futures to mitigate some of the volatility in the oil markets? It would seem that the prudent thing to do is lock in lower prices via the futures market and insulate yourself from some uncertainty. However, I can also see how in a competitive marketplace it may not be in United's best interest to have overall smooth pricing. If other carriers buy their fuel on a more short-term basis and the price is very low, they would be able to offer better prices than United. (Of course, this strategy would backfire if something happened to spike the price of oil.) I believe some companies have experimented with having a base price and then adding a fuel surcharge based on the current price of oil, but I was wondering to what extent airlines use commodity futures to smooth out their fuel costs.