Read the article below and answer the following questions

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Airline losses from hedging against oil price fluctuations amount to over $4.7 billion

European airlines have lost more than $4.7 billion as a result of fuel hedging, almost a year after the International Air Travel Association (IATA) warned the practice could bring down profits.

The affected airlines are Lufthansa, IAG, Ryanair, and Air France, according to La Informacin.

The airlines had protected themselves to varying degrees against future fluctuations in oil costs and suffered proportional losses.

IAG was the most affected airline, losing over $2 billion.

Meanwhile, Air France was less affected with a loss of almost $708 million as it relied less on fuel hedging.

Lufthansa lost almost $1.4 billion the loss comes after reports last year revealed the German airline was losing $1 million a minute due to the pandemic and was given a $10 billion bailout from the German government.

Meanwhile, Ryanair announced it would cut 3,000 jobs in May 2020.

The losses have been largely related to the coronavirus pandemic as airlines have been unable to use their fuel due to travel restrictions and so excess fuel has piled up even further.

To manage how much they are affected by oil price fluctuations, airlines with long-term contracts of up to 24 months purchase fuel at low prices on the futures market.

In this way, they manage to guarantee their fuel needs for a large part of the year.

They then agree with the insurers on a price range for the rest of the fuel they will need that year, with the insurers covering the difference in price should the cost of fuel exceed that threshold.

In November, IATA said a total of $157 billion in losses could be expected across the airline industry in 2020 and 2021, marking the worst year in aviation history.

As travel restrictions continue in 2021, IATA announced in January that the outlook for airlines was not good as demand and traffic continued to fall.

"To say that 2021 has not gotten off to a good start is an understatement. The financial outlook for the year is worsening as governments tighten travel restrictions," IATA Director General and CEO Alexandre de Juniac warned.

Europa Press reported that international demand fell 85.6% in January 2021 compared to January 2020, a worse drop than December 2019 to December 2020.

However, losses related to fuel hedging are not a new phenomenon even back in 2015, Delta Airlines announced it had lost $700 million over just one quarter.

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(1) Explain using forward or futures hedging as to why and how airlines had made the hedging, and why and how this hedging led to losses.

(2) Explain using option hedging as to what will be the consequences to the company if they use option hedging instead of forward or futures hedging to reduce loss.