RBI permits airlines to hedge price risk on aviation fuel

Mumbai: In a major relief to the loss making aviation industry, the Reserve Bank of India has allowed airlines to hedge their price risk on Aviation Turbine Fuel in international commodity exchanges.
In its annual monetary policy review, the central bank decided to permit ‘actual users’ of Aviation Turbine Fuel to hedge their economic exposures in the international commodity exchanges based on their domestic purchases. Fuel cost constitutes to one third of the total operational cost of the airline. Federation of Indian Airlines has welcomed the move stating that this will moderate the extensively priced ATF in India. Domestic ATF prices are 65 per cent higher compared to international benchmarks. Currently, Air India has already started hedging up to 25 per cent of its international fuel uplift. With the relaxation, AI would be able to extend its hedging after seeking necessary approvals from the board for the domestic uplift also.
AI uplifts 45 per cent of its fuel requirement domestically and 55 per cent internationally. Kingfisher Airlines said the move would help the aviation industry to control costs.
Though the industry has witnessed huge growth in passenger traffic in recent years high fuel costs, wage inflation and high airport charges have rendered the industry losing over Rs 2,000 crore annually.
25/04/07 Indulal PM/Hindustan Times

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Categories: General Aviation Apr 2007