Page 31 - AAA NOVEMBER - DECEMBER 2013 Online Magazine

FEATURE FUEL PRICING

jet fuel from the international market what is required each month. “A problem for oil. The days of relatively inexpensive
and is also not ruling out plans of taking after a tanker was brought into a port like aviation fuel are over. A professionally
cautious steps towards hedging against Chennai (in southern India) was of storage managed fuel hedging program can help
fuel prices. “We have plans to import ATF and transportation of the fuel imported,” aircraft operators of any size reduce
directly from overseas markets as prices the Air India official said. “Hedging for fuel the financial impact of rising fuel costs
are considerably low compared to Indian lifted abroad solves all such problems.” and control their fuel bill. Considered
rates,” a SpiceJet spokesman told AA&A. Fuel prices are likely to keep rising unnecessary by many operators in the
“Currently, jet fuel expense account for for years to come. The increasing energy past, fuel hedging has become a survival
about 40% to 45% of the airlines total costs, demands of China and India, and continued tool,” Watson added.
and even if we can save one% through unrest in the Middle East, are major However, Sushi Shyamal, partner,
import or hedging, it will be huge.” contributing factors to the increase. While Ernst & Young India, has warned against
However, the small airlines like there will be temporary price declines, un-considered fuel hedging as it “needs
Spicejet lack the adequate infrastructure energy market fundamentals point to careful planning”. “Airlines would like
for fuel storage facilities and have to an upward price trend until significantly to hedge only when they anticipate rising
depend on suppliers for storing the more oil is found, extracted and refined. prices. Hedging carries its own risks.
fuel. So the Airports Authority of India According to petroleum industry If an airline enters fixed hedge today
(AAI) is looking at providing common experts, an additional US$100+ billion and fuel prices (move down) later, it will
infrastructure for supplying ATF across all needs to be invested in oil exploration be saddled with a fixed high fuel price,”
major airports, based on an open access and infrastructure projects to meet future Shyamal said.
model, which can help create a win-win energy requirements. So sensible hedging can protect an
situation for all involved. India’s energy needs are growing at airline only for a quarter or two unless
“It is time we segregated ownership of more than 7% annually, and during the it is are a massive buyer, like Etihad. In
the ATF infrastructure at the airports and past three years China’s demand has the long run, rising fuel prices can only
the supply of ATF. This will help create a increased 65%, not to mention that the be countered by focusing on profitable
level playing field for companies desirous country currently uses nearly one-seventh routes and increasing yields, Shyamal
of supplying ATF to airlines at prices lower of the world’s total energy. According to advised. Fuel hedging involves investing,
than the current levels. For airlines, ATF Boeing, Asia Pacific airlines will need so financial risk is an inherent part of it –
is the single-biggest cost head and hence 12,820 new aircraft, valued at US$1.9 and not a core expertise of most airlines
every rupee saved is a rupee gained,” said trillion, over the next 20 years. And they either. Be it as it may, many airline
Amber Dubey, partner and head-aviation will all need more fuel. operators still feel, the risk is offset by
at global consultancy firm KPMG. Blair Watson of Vancouver-based PNW the value protected. Hedging looks here
Aviation Services, which offers fuel hedging to stay.
Quantity or quality consulting and program facilitation, is
Airlines feel the direct import of ATF is not of the opinion that, “Fuel hedging gives
economical since the smallest package aircraft operators an excellent way to
of jet fuel would be one tanker of 10,000 protect themselves financially against
kilo liter, which will be much more than the effects of increasing global demand
WWW.ASIANAIRLINES-AIRPORTS.COM NOVEMBER / DECEMBER 2013 ASIAN AIRLINES & AIRPORTS 31