HEDGE (vb trans.). To secure oneself against loss on (a bet or other speculation) by making transactions on the other side so as to compensate more or less for possible loss on the first.

Hedge will be one of those words forever linked to the great financial crisis of 2008. The hedge funds were supposedly money-minting schemes whereby fantastically intelligent financial whiz kids write fantastically complex programmes to ensure they make a profit whatever the direction of the market.

That many hedge funds were spectacularly successful in the 2003-7 bull run and then spectacularly crashed in the current bear market indicates "hedging" may have had little bearing.

Hedging is rife too in the energy markets, widely used to attempt to control industrial costs and nowhere more starkly than in the aviation fuel market.

Ryanair has been a money-making machine since Michael O'Leary turned it into Europe's first full-time in-yer-face budget airline at the end of the last decade. A mercurial business genius, O'Leary's acumen in the airline industry cannot be challenged. Except when it comes to fuel hedging.

Hedging by airlines essentially takes one of two forms: contracting to forward-buy kerosene at a pre-determined price for future delivery or taking a financial contract out (that is placing a bet) on the movement in oil prices on a traded exchange. Either way, the outcome, financially, is effectively the same.

O'Leary used to say Ryanair didn't do hedging. That was until 2005 when, with the price rising through $50 a barrel, O'Leary's treasury team started to take heavy positions.

Highs and lows of Brent Crude

At the end of that financial year, despite being almost fully hedged, Ryanair's fuel bill had still increased by 59% and O'Leary declared that he would go into 2006-7 unhedged.

The price duly soared through $70 a barrel. Spooked, Ryanair rushed to lock in prices at up to $74 a barrel. The oil price flopped back to $50. O'Leary's record has not got better since. At the end of last winter with an oil price approaching $100 and looking like it must be peaking some time soon, O'Leary decided not to hedge Ryanair's fuel costs from April through to September 2008.

The rest, as they say, is history: oil hit $147 a barrel in July and Ryanair's fuel costs averaged $125 a barrel over the six months slashing profits during its traditionally busiest and most lucrative period. But that was not the half of it.

With profit margins cratering, he decided to buy September's kerosene delivery at $129 a barrel and locked in October, November and December at $124 a barrel. The oil price exited September at $100 a barrel, and of course ended the year having gone below $40.

Even the infamously jokey O'Leary struggles to find the humour in this, blaming shareholders who were demanding he took hedging protection for his self-confessed "screw-up".

The result was Ryanair's worst-ever Christmas trading quarter, a €102 million loss. Fuel costs in the period soared 71% despite the price of a barrel of crude trading many dollars lower on average than in the last three months of 2007.

That has cost Ryanair upwards of €150 million in lost profits - highly significant when Ryanair says its profits for the year are unlikely to top €80 million.

Of course O'Leary is not alone. British Airways has not moved its £3 billion forecast on its annual fuel bill since last summer - indicating that ill-advised hedging has meant it has not been able to take advantage in the 70% slide in kerosene prices.

EasyJet admits it has forward-bought much of this year's fuel at $109 a barrel and next year's at $92 though it claims to have offset much of its potential losses on the contracts by hedging on the foreign exchange to take advantage of the appreciating dollar against the pound.

So has O'Leary learned his lesson? It would appear not. For the rest of 2009 much of Ryanair's kerosene has already been bought at $65 a barrel - which, given O'Leary's record, suggests the price of crude is staying or going lower than the current level of around $40 a barrel.

And, of course, for every loser there is a winner. In this case it is the big oil companies and their traders who are the beneficiaries on the other side of the airlines' dunderhead bets. It is no coincidence, of course, that the oil giants have just been reporting their best ever year.