AirAsia clarifies fuel-hedging position
Tags :
Southeast Asia,
AirAsia
AirAsia stated it has “never speculated on fuel prices in the past and will not speculate on fuel prices going forward”.
The airline stated it’s fuel-hedging strategy has “always been to hedge fuel requirements whenever an attractively priced structure is available”, going on to say that “fuel hedging is an important component of our strategy as it provides us with clarity over our cost structure; this will allow us to manage our seat inventory better and aids route development. We are averse to risks and therefore believe in mitigating those risks by removing variability and uncertainties from our business whenever suitable opportunities arise. Prior to a trade being executed, one would have assessed the current operating and market conditions before choosing the appropriate hedge. Therefore, the decision to hedge begins with a view.”
At the time that the airline undertook its hedge in Jul-07, the airline had a view that oil prices of above USD90/barrel will be a result of “excessive speculative market action in that commodity”.
“Fuel price volatility intensified in the later part of the second half of 2007 due to higher fuel consumption projections, supply disruptions, geopolitical risk concerns, and the weakening of the US Dollar. Due to the high volatility in oil prices, we are of the view that adopting a static hedged approach (through fixed/plain vanilla swaps) at current price levels would involve taking excessive risks. If one were to opt for a fixed swap now and should fuel prices retrace subsequently, we would be left with effectively an obligation to purchase expensive fuel with no room to manoeuvre out of the position. Therefore, we opted for a dynamic approach and layered fuel hedge structures. We are confident that this is the most suitable approach to manage the high volatile fuel prices and will continue to apply this strategy in the future”.
AirAsia continued on to sat that it approaches the fuel hedging subject “carefully” and that it has “maintained a conservative stance which has resulted in positive contributions from our past fuel hedges. This has ultimately benefited the Company in reducing the total fuel bill and hence enhance our ability to offer low fares to our guests”.
Over the past two months, foreign funds have been reducing their exposure in airline stocks. In fact, the majority of prominent LCCs around the world have experienced heavy sell downs. Based on this, AirAsia stated it would be “inappropriate to lay the blame on our fuel hedges as the reason for the decline in the Company’s share price”.
“We believe that the recent sell down of AirAsia shares are overdone. The Company’s fundamentals are in the best position ever, market demand continues to be robust and we will be launching lucrative routes such as Kuala Lumpur to Singapore and Kuala Lumpur to Guangzhou. With this fuel hedge in place, and assuming that the strong demand and pick-up rate that we are seeing is sustainable, the Company is in a sound position to deliver strong profit growth for the financial year - barring any unforeseen events and circumstances.”
(c) Centre for Asia Pacific Aviation. Date posted: 16-Jan-08.
Other AirAsia News |
AirAsia clarifies fuel-hedging position 
