Fuel hedges prove costly for airlines

Singapore: Asia-Pacific airlines have clipped their fuel hedges to save on steep premium costs as oil slid to three-month lows, but they need to keep a consistent ratio to safeguard against volatile price swings.
A likely slowdown in global travel and ballooning fuel costs, which have more than offset a series of fare and fuel tax increases and led to industry-wide losses in the second quarter, have forced many airlines to scrap routes.
Some have even been threatened by insolvency.
To keep themselves above water, regional airlines must salvage any possible costs or seek to book higher profits by trimming hedges, betting on sustained price falls rather than a rebound to new highs, some analysts said.
"Hedging gives you the ability to fix costs and/or profit margins, but it typically takes away potential for windfall profits for favourable price movements," said Fuel First Consulting official Gerard Rigby.
US oil futures have deepened their losses to three-month lows below $120 a barrel this week from a record of $147.27 last month, but were still around a fifth costlier than the start of the year.
The cost of jet fuel jumped almost 70 per cent over the past year to $144 a barrel in Singapore trading, though it came off the record of $181.65 a barrel reached last month.
08/08/08 Gulf Daily News, Bahrain

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Categories: Foreign Aug 2008, Indian Aviation- In General Aug 2008