Page 30 - AAA NOVEMBER - DECEMBER 2013 Online Magazine

FEATURE FUEL PRICING

Currently, jet fuel
expense account for
about 40% to 45% of
the airlines total costs,
and even if we can
save one% through
import or hedging,
it will be huge

Most European airlines are hedging at in 2007 when the program began. The needs for the remainder of 2013 hedged,
least 75% of their jet fuel needs, according results are evident. The Abu Dhabi-based and has hedged 65% of 2014’s needs and
to data from nine carriers compiled by airline reported net profit of US$42 million 35% of 2015’s requirements.
Bloomberg. Ryanair Holdings, Europe’s for 2012, up 300% from 2011. As the volatile oil prices added an
biggest discount airline, has hedged “In the turbulent oil markets of the last additional burden of over 1 billion rupees,
90% of its fuel requirements for the year five years, we have been able to manage the governing body of Air India Board
through March 2014. And in the last our risk and minimise oil price volatility cleared the proposal to enter into hedging
several years, U.S.-based Southwest has effectively by forward hedging most of ATF, the airline official said. “Hedging jet
reaped sweeter rewards from fuel hedging our fuel requirements, in both the short- fuel is one of the options that will help Air
than any other airline in the industry. and medium-term,” noted James Hogan, India in its turnaround plan,” G. Prasada
Similarly, Etihad Airways, the national president and chief executive officer of Rao, a spokesman for the state-run
airline of the United Arab Emirates (UAE), Etihad Airways. carrier, said, without elaborating on the
has built up its fuel hedging program over For Etihad, which has bought 24% airline’s hedging plans.
the last six years as a key tool to manage jet stake in Jet Airways, India’s leading Taking a cue, debt-ridden private
fuel price risk, allowing its management full service private carrier, hedging is airlines in the country are also planning
to plan effectively. Last year, the leading about creating a platform for certainty in to make a preemptive strike to gain
Middle Eastern carrier managed a fuel planning. “It’s not intended as a tool to control of the impact of the increasingly
hedging portfolio of around 23.8 million generate trading profits,” he said. Etihad complex energy markets. Low cost carrier
barrels, up from only 6.5 million barrels Airways currently has 80% of its fuel SpiceJet is contemplating direct import

COUNTING THE COST to CAPA Centre for Aviation, a Sydney-based consultant.
Fuel prices can have a significant impact on an airline’s “Unfortunately, airlines that are suffering from financial
bottom line, not least when the current state of the capital distress and would likely benefit from hedging, may not
markets has left many airlines strapped for cash. If jet be able to do so,” says Prof. David A. Carter, Prfinancially
fuel costs are not actively managed, an airline could not weak firms are unlikely to be able to find anybody that will
only exceed its forecasted budget, but could also reduce enter into a contract with them, for fear they might default.
its profit or increase its loss. High fuel prices and cut-rate “Further, creditworthiness is important when entering
fares have pushed multiple Indian carriers into losses into contracts with financial institutions who specialise in
even though passenger traffic more than doubled in hedging contracts,” he added. The bottom line: if you can
the past seven years. In total, Indian airlines lost some afford the fuel, you can afford to hedge. If you are strapped
US$1.65 billion in the year ended March 31, according for cash, be prepared to pay more. Unfair? It certainly
seems like it.

30 ASIAN AIRLINES & AIRPORTS NOVEMBER / DECEMBER 2013 WWW.ASIANAIRLINES-AIRPORTS.COM