(Corrects jet fuel demand and supply forecast numbers in
* Fuel accounts for at least 30 pct of airlines' costs
* Jet fuel average prices hold above $120
* No let up in margin pressure for flag carriers
By Seng Li Peng
SINGAPORE, April 15 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
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.
Consulting firm Energy Aspects estimates Asia's overall
availability of jet fuel at 2.412 million barrels per day (bpd)
in the fourth quarter of 2014 versus demand of 2.491 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
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
China Eastern Airlines confirmed it is not
undertaking fuel hedging currently. China Southern Airlines
could not be reached for comment.
(Additional reporting by; Siva Govindasamy and Jane Xie in
SINGAPORE and Fang Yan in BEIJING; Editing by Manash Goswami and