Asia Airlines Hedging Big Part of Fuel Use

WorldEnergyNews.com
Monday, April 14, 2014
Photo: Star Alliance

Top Asian airlines are hedging a substantial portion of their jet fuel usage this year, a Reuters survey showed, signaling they expect prices of the fuel to be firm and indicating sustained pressure on their profit margins.

Jet fuel makes up at least 30 percent of most airlines' overall operating costs and an effective hedging strategy is crucial as heightened competition forces carriers to cut fares and operate on thin margins.

While there should be sufficient supply of jet fuel in Asia this year to meet buoyant demand driven by healthy passenger traffic, airlines are unlikely to benefit from lower prices.

Jet fuel prices are market based - unlike diesel, kerosene and some other fuels which are subsidized in nations such as China, India and parts of Southeast Asia - and users pay rates that are closely linked to crude oil prices.

Geopolitical tensions are adding to the uncertain operating environment. Industry body International Air Transport Association (IATA) said last month that airlines globally expect to make $1 billion less profit this year than previously hoped, as the Ukraine crisis pushes up oil prices.

And research firm S&P Capital IQ said in a report last quarter that earnings of flag carriers, especially top-tier airlines, will be pressured by intense competition from low-cost carriers and relatively firm jet fuel prices, even as the Asian airline industry's overall profits for 2014 rise.

Japan Airlines (JAL), Asia's second-biggest airline by market value, is hedging about 40 percent of its fuel consumption in the 2014 financial year, similar to volumes seen in the previous year, a spokesman of the airline said.

"Hedging helps us to reduce the risk of volatile and potentially rising fuel costs in the long term. This hedging will be operated monthly," the spokesman said in an email.

ANA Holdings Inc's hedge ratio for its 2014 financial year is 45 percent, similar to the 2013 and 2012 financial years, said a spokesman for Japan's largest carrier.

Korean Air Lines generally keeps its hedging volumes around 30 percent of its annual fuel consumption and this year is no exception, a spokesman said.

The spokesmen of JAL, ANA and Korean Air declined to divulge price details of their hedges.

CATHAY, SIA
Consulting firm Energy Aspects estimates Asia's overall availability of jet fuel at nearly 2.491 million barrels per day (bpd) in the fourth quarter of 2014 versus demand of 2.412 million bpd. The last quarter of a year is typically the busiest for airlines due to holiday travel.

Brent crude has averaged $108 a barrel so far this year against 2013's average of $109. And jet fuel JET-SIN has averaged $121.20 a barrel this year compared to $126.62 last year and $125.95 the year before.

Airlines may hedge a big portion of the fuel purchases during the times they believe oil prices will be firm but they'll refrain from boosting hedging volumes substantially. A plunge in prices, though, will draw them out as they will seek to protect against future rises in prices.

Cathay Pacific Airways, which consumed 39.5 million barrels of fuel in 2013, did just that in April 2013 when it took advantage of a brief drop in fuel prices to extend fuel hedging into 2016, the Hong Kong airline disclosed with its earnings in March this year.

"We are currently about 25 percent covered for 2014 and the first half of 2015 at Brent prices of more than $94 to $95 a barrel, and about 11 percent for the second half of 2015 and the first half of 2016," its spokesman said.

"Our hedging coverage changes over time and depends on different levels of Brent oil prices," he said, adding that the airline's hedging coverage ranges from 10 to 60 percent for the next 12 months.

Singapore Airlines, Asia's biggest airline by market value, which hedges between 20 and 60 percent of its fuel requirements, went for the cap of 60 percent for the second half of its financial year that ended in March at $118 a barrel of jet fuel prices, a spokesman said.

The airline will provide guidance on its hedging strategy for the 2014 financial year when it releases annual results on May 8, the spokesman added.

Australia's Qantas Airways, Indonesia's Garuda , Malaysian Airline and Thai Airways did not comment on their hedging positions when contacted.

Chinese carriers, among the biggest in Asia by revenue, haven't hedged their fuel buys for the past several years after suffering losses on their hedges from extreme oil price volatility in 2008, said Kelvin Lau, analyst at Daiwa Capital Markets.

China Eastern Airlines confirmed it is not undertaking fuel hedging currently. China Southern Airlines could not be reached for comment.

(By Seng Li Peng; Additional reporting by; Siva Govindasamy and Jane Xie in SINGAPORE and Fang Yan in BEIJING; Editing by Manash Goswami and Muralikumar Anantharaman)

Maritime Reporter August 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Dann Marine Repowers With Cummins Tier 3 Engines

Dann Marine Towing, LC., is a fifth generation family owned and operated tugboat company based in Chesapeake City, MD. The model-bow twin-screw tug Sea Coast was

Sulzer Shareholder has 5 pct Dresser-Rand Stake

Russian billionaire Viktor Vekselberg's Swiss investment firm Renova Group said on Friday it had a 4.99 percent stake in U.S.-based Dresser-Rand, which might become the object of a takeover battle.

MAN-Powered Cargo Vessel Meets Tier III

Classification society awards SCR system emissions certificate. MAN Diesel & Turbo has been awarded a Tier III - compatibility certificate by the DNV- GL classification

Finance

Exxon: U.S. to Allow Wind Down Ops in Russian Arctic

U.S. oil major Exxon Mobil said on Friday the U.S. Treasury Department granted it a license to wind down operations on a drilling well in the Kara Sea in the Russian Arctic.

Sulzer Shareholder has 5 pct Dresser-Rand Stake

Russian billionaire Viktor Vekselberg's Swiss investment firm Renova Group said on Friday it had a 4.99 percent stake in U.S.-based Dresser-Rand, which might become the object of a takeover battle.

Source: Siemens Offering $6.1 bln for Dresser Rand

Germany's Siemens plans to offer more than $6.1 billion, or $80 per share, for U.S. compressor and turbine maker Dresser-Rand, Germany's Manager Magazin said on Friday.

Energy

Antwerp Port Seeks Inputs on Setting-up LNG bunkering

By the beginning of 2016 the port of Antwerp will have an LNG bunkering and filling station for barges. The procedure for construction of the station is currently under way.

Dann Marine Repowers With Cummins Tier 3 Engines

Dann Marine Towing, LC., is a fifth generation family owned and operated tugboat company based in Chesapeake City, MD. The model-bow twin-screw tug Sea Coast was

Exxon: U.S. to Allow Wind Down Ops in Russian Arctic

U.S. oil major Exxon Mobil said on Friday the U.S. Treasury Department granted it a license to wind down operations on a drilling well in the Kara Sea in the Russian Arctic.

Fuels & Lubes

Dann Marine Repowers With Cummins Tier 3 Engines

Dann Marine Towing, LC., is a fifth generation family owned and operated tugboat company based in Chesapeake City, MD. The model-bow twin-screw tug Sea Coast was

Russia: Exxon Still Drilling in its Arctic

ExxonMobil is still drilling in the Russian Arctic, a Russian minister said on Friday, in move that if confirmed will anger Washington after the U.S. administration

MAN-Powered Cargo Vessel Meets Tier III

Classification society awards SCR system emissions certificate. MAN Diesel & Turbo has been awarded a Tier III - compatibility certificate by the DNV- GL classification

News

Vessel Discharge Legislation Awaits Congressional Nod

The American Waterways Operators, a 350-member trade association representing the U.S. tugboat, towboat and barge industry, hailed the House introduction of

Seagull Maritime Response on Safety, Security

Key areas of concern for seafarer safety and security in both marine and offshore operations have triggered the release of six new and one supplementary titles

Antwerp Port Seeks Inputs on Setting-up LNG bunkering

By the beginning of 2016 the port of Antwerp will have an LNG bunkering and filling station for barges. The procedure for construction of the station is currently under way.

Intermodal

PierPass' New President Responsible for Ports of LA & Long Beach

New president John Cushing’s role gives him responsibility for PierPass programs to relieve congestion and improve air quality at the Ports of Los Angeles and Long Beach.

USDOT Award Tiger Vl Maritime Grants

American Association of Port Authorities
 (AAPA) say that after evaluating 797 applications totaling requests for $9 billion for FY 2014 Transportation Investment

FMC Public Forum on US Port Congestion

Federal Maritime Commission (FMC) Chairman Mario Cordero will hold a forum titled, "U.S. Port Congestion: Examining Causes, Impact on Stakeholders, and Exploring Possible Solutions" on Monday,

 
 
Naval Architecture Navigation Pod Propulsion Port Authority Salvage Ship Repair Ship Simulators Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2140 sec (5 req/sec)