Buttle's World

26 July, 2008

Don’t Blame the Speculators

Filed under: Posts — clgood @ 20:32

I’m going to find a way to send this article to the AOPA. It’s a good read for anybody who thinks “speculators” are a bad thing.

Executive summary: They’re a very good thing.

Update:

Here’s why speculators actually make oil cheaper.

Even the comments to that article are instructive:

If you replace “speculation” with “forward-looking price” it will help resolve some of the intentional confusion Harry Reid and other disingenuous persons have been spreading. Actually, when an airline sells tickets for a plane flight, it is speculating on actual future demand for those seats. It often overbooks, speculating that not everyone will show up and demand will be slightly less than what has been signaled through the initial orders.

Often, this works and the airline has reduced the risk of flying with 15% less passengers due to the expected last-second cancellations. They’ve provided passenger liquidity and have hedged their risk. Had they been prohibited by Congress from speculating on the market for seats, they would have no choice but to pass that cost directly on to you. Curious, how speculation is always bad when it’s someone else, but it’s ok for an airline CEO, or for that matter, all of us.

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