Asian airlines are hedging substantial portions of their fuel burn in expectation that prices will be firm and put pressure on profitability in the face low-carrier competition, a Reuters survey shows.
Enough jet fuel in Asia is expected for this year to meet buoyant demand in Asia driven by healthy passenger traffic, but airlines feel future lower prices are unlikely.
Jet fuel prices are market based, unlike diesel, kerosene and some other fuels which are subsidised by China, India and parts of Southeast Asia, though they track to crude oil prices.
International Air Transport Association (IATA) said last month that airlines globally expect to make US$1 billion less profit this year than previously hoped, as the Ukraine crisis pushes up oil prices.
Singapore Airlines hedges between 20 and 60 per cent of its fuel requirements, going for a cap of 60 per cent for the second half of its financial year ending March 31 at US$118 a barrel of jet fuel prices.
Japan Airlines (JAL) is hedging 40 per cent of its fuel consumption while ANA Holdings is hedging 45 per cent. Korean Air Lines is reportedly hedging 30 per cent of its annual fuel consumption.
Hong Kong's Cathay Pacific Airways, which consumed 39.5 million barrels of fuel in 2013, took advantage of a brief drop in fuel prices to extend fuel hedging into 2016.
Said a Cathay Pacific Airways spokesman: "We are currently hedging 25 per cent covered for 2014 and the first half of 2015 at Brent prices of more than $94 to $95 a barrel, and about 11 per cent for the second half of 2015 and the first half of 2016."
Research firm S&P Capital IQ said major airlines quarterly profits will suffer severe pressure from competition from budget carrier firm jet fuel prices.
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