Air India may hedge jet fuel requirement

Mumbai: National carrier Air India may hedge a part of its fuel requirement for the first time in three years to guard its bottomline from any future fluctuation in the price of aviation turbine fuel. The spending on ATF is the biggest chunk — almost 40% — of an airline’s operating expenses.
“We have approval from the board to hedge nearly 25% of our fuel uplifts. If the prices are likely to increase, Air India would certainly look at hedging, at least a part of the uplift,” said an AI spokesperson in an email to ET. A senior Air India official said the company will take up the issue once again at its board meeting on Wednesday, where it will discuss ways to cut costs and rationalise routes.
Although airlines across the globe resort to fuel hedging — a contractual agreement to buy fuel in future at a pre-determined rate — Indian companies have largely refrained from it.
Air India was the first Indian airline to hedge its jet fuel requirements in March 2006. That time the company’s board set a hedging limit of 750,000 barrels a quarter. The company has not hedged its ATF requirements since then. Other domestic airlines started hedging their fuel needs only very recently, with Jet, Kingfisher and SpiceJet hedging a small portion of their requirements in 2009 due to the high volatility in ATF prices in the global market.
22/09/09 Mithun Roy/Economic Times

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Categories: NACIL Sep 2009