Hertz Would take on Additional Risk if they start Hedging Fuel

Source Article
Hertz Looks Into Fuel Hedging to Lock In Prices, Control Costs - www.bloomberg.com (See Article)

Implications:
1) Fuel Costs are an easily passed-though item to the consumer

2) Hedging increases potential losses in exchange for incremental expense control

3) This is an unnecessary complication to a straightforward expense model

Analysis:
Hertz's announcement that it's going to look into fuel hedging as a way to control costs makes very little sense from an operational point of view.

One of the most widely known and publicized consumer price categories is "What a gallon of Gasoline costs". This should be an easily passed-through to the consumer expense.

Instead of predicting usage and betting on which way the price is going to move, it seems Hertz would be better served by making an advantageous national fleet deal with a supplier. Hertz could take a set discount from retail, or a % markup over "Rack" prices in the specific markets.

It's easy, you still get a discount as opposed to the consumer, and you can pass the costs through at the prevailing retail costs to the customer. Easy and predictable.

Additionally, the oil and Motor Fuels markets have not been behaving in easily predictable ways, certainly not in response to traditional supply and demand curves. Even distribution firms who are in the market with experts every day haven't been able to win at hedging this past year.

It seems fuel hedging is a complication that Hertz should try to avoid.