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 May 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Matson Completes Horizon Lines Acquisition

Matson, Inc. has completed the acquisition of Horizon Lines, Inc. which includes Horizon's Alaska operations and the assumption of all non-Hawaii business liabilities.

Wärtsilä Acquires L-3 MSI

Wärtsilä completes acquisition of L-3 Marine Systems International    Wärtsilä Corporation announced that its acquisition of the Germany based L-3 Marine Systems

BWTS Newcomer Sees Early Success

Norwegian manufacturer of ballast water treatment systems MMC Green Technology reports it has sold more than 70 systems since going commercial with its MMC BWMS two years ago,

Finance

US Oil Contango Vanishing as Supply Glut Shifts Abroad

The U.S. oil market is on the brink of returning to a more bullish footing known as backwardation for the first time in six months, with the discount for prompt

Mexico Removes Bid Limit on Shallow Water Oil Tenders

Mexico's oil regulator voted on Friday to relax previously established rules on bidding terms and contracts that form the first step in an historic sector opening

Wärtsilä Acquires L-3 MSI

Wärtsilä completes acquisition of L-3 Marine Systems International    Wärtsilä Corporation announced that its acquisition of the Germany based L-3 Marine Systems

Energy

Kongsberg Contracted to Support FLNG Conversion

Kongsberg Maritime secures position in the LNG market with electrical and automation contract for Golar Hilli FLNG   Keppel Shipyard in Singapore and Black & Veatch in the U.

Statoil Awarded Licenses Offshore Nicaragua

Statoil informs it was today awarded four licenses offshore the Nicaraguan Pacific, covering an area of about 16,000 km2 in the largely unexplored Sandino Basin.

US Oil Contango Vanishing as Supply Glut Shifts Abroad

The U.S. oil market is on the brink of returning to a more bullish footing known as backwardation for the first time in six months, with the discount for prompt

Fuels & Lubes

Crowley’s 2nd LNG ConRo Ship Ahead of Schedule

Shipbuilder VT Halter Marine, Inc. announced construction has started early for the second liquefied natural gas (LNG)-powered ConRo ship, Taíno, for Crowley Holdings, Inc.

Overnight Cruise Ship Visits Suspended in White Bay

The New South Wales (NSW) Port Authority has suspended all overnight cruise ship visits to White Bay until the NSW Environment Protection Authority (EPA) has regulated

Fluxys LNG Launches Zeebrugge Capacity Consultation

Belgian gas infrastructure operator Fluxys said on Thursday it was launching a market consultation to assess demand for additional capacity at the Zeebrugge liquefied natural gas terminal in Belgium.

News

Unicom Selects the Ecochlor BWTS for 10 Tankers

Ecochlor, Inc. announced that Unicom Management Services (Cyprus) Ltd. (Unicom), acting for SCF Group, signed a 10-vessel agreement for the Ecochlor Ballast Water Treatment System (BWTS) in Limassol,

Wage Row Between Argentine Crushers, Companies Reaches Crunch Point

Pressure grew on Friday for a resolution to wage talks between exporters and striking crushers in Argentina's Rosario grains hub, with another powerful union threatening

Kongsberg Contracted to Support FLNG Conversion

Kongsberg Maritime secures position in the LNG market with electrical and automation contract for Golar Hilli FLNG   Keppel Shipyard in Singapore and Black & Veatch in the U.

Intermodal

Vale to Ship Coal Along Mozambique Nacala Corridor

Brazilian miner Vale SA  plans to start exporting coal along the Nacala rail and port corridor in Mozambique and Malawi in the third quarter after heavy rains damaged the rail line,

Panalpina Acquires Egyptian Agent Afifi

Switzerland-based supply chain solutions provider Panalpina is to acquire its Egyptian agent Afifi, a family-owned company specializing in freight forwarding, customs clearance and logistics.

Asia-N.Europe Box Rates Hit 6-Year Low

Shipping freight rates for transporting containers from ports in Asia to Northern Europe fell 23 percent to $342 per 20-foot container (TEU) in the week ended on Friday,

 
 
Maritime Security Naval Architecture Navigation Pipelines Pod Propulsion Port Authority Salvage Ship Electronics Sonar Winch
rss | archive | history | articles | privacy | 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: 0.4760 sec (2 req/sec)