Airlines cut fuel hedges on price volatility

Asia-Pacific airlines will likely trim or maintain their fuel hedges at already reduced levels in the months ahead, as risk management costs surge on increased market volatility, Reuters reported.

But a decline in oil prices offer carriers a window of opportunity to boost their exposure, as seen from the increase in hedging volumes by European airlines, and to a lesser extent, Asian carriers, in late May.

Caution pervades the industry after Japan Airlines' hefty hedging losses and subsequent US$25 billion bankruptcy earlier this year, and some carriers suffered hundreds of millions of dollars in hedging losses from crude's unprecedented volatility in 2008.

"The market has turned volatile again, and higher volatility means higher option premium costs," said Kelvin Lau, an analyst with Daiwa Institute of Research in Hong Kong.

"As a result of the rising premiums, we believe most airlines will not hedge actively in the coming months - most would maintain the status quo in terms of their exposure."

Most of Asia's largest carriers that fly international routes, such as Singapore Airlines, Cathay Pacific Airways and Qantas Airways, hedge some of their fuel needs - at lower levels versus the previous year - but most still do not.
(Source:www.cargonewsasia.com)