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Asian airlines raise fuel hedge sizes
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AIRLINES in Asia are stepping up jet fuel hedge volumes after oil prices fell below US$100 a barrel this month, with some locking in fuel purchases as far out as 2016, suggesting airlines see oil prices bottoming.
Airlines have been cautious about fuel hedging since 2008, when several large carriers scrambled to lock in fuel needs as oil prices surged above US$100 a barrel for the first time — only to see them plummet to under US$50 by year-end as a global recession hammered travel demand.
But fuel traders at several regional banks have noted a widespread pickup in hedge interest as oil prices have dropped, and volumes could rise in the next quarter if oil prices keep falling, they said.
“Volumes increased when Brent crude was at US$100 a barrel, and they increased last week when (oil prices) fell further and now (airlines) are waiting for prices to drop to below US$95,” one trader said, speaking on condition of anonymity, as he was not authorized to speak with the media.
Jet fuel can account for anywhere between 20 and 50 percent of an airline’s operating costs, so swings in oil prices can hit their bottom line and influence fare prices.
Airlines have different hedging policies with Australia’s Qantas Airways hedging as much as 94 percent of its fuel needs for the first half of next year, while Singapore Airlines is hedged at around 52 percent for its 2014-2015 financial year.
The amount of hedging eased after the 2008 crisis but has picked up pace recently with prices on a downward trend.
Brent crude oil prices fell below US$100 a barrel on September 8 before sliding to a 26-month low of US$95.60 a barrel on Wednesday due to a soft global economic outlook.
Singapore jet fuel prices — widely used as a regional benchmark — have fallen from around US$125 a barrel in late June to about US$109 currently, and have averaged US$119.44 a barrel so far this year, down from last year’s average of US$122.86, Reuters data showed.
Many airlines are locking in contracts as far ahead as 2015 and 2016, a second trader said.
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