Wednesday, January 14, 2015

Now the right price to hedge jet fuel?

Airlines prepare to hedge more jet fuel to lock in huge savings

SINGAPORE/BERLIN, Jan 14 (Reuters) - Global airlines, looking to lock in huge savings, are preparing to hedge more jet fuel to fix prices as they bet a slide in crude oil to six-year lows may peter out near $40 a barrel.

Some airlines have already stepped up hedging, especially after benchmark Brent crude slipped below $50 a barrel earlier this month, fuel traders and brokers said.

In Europe, airlines such as Aer Lingus and Ryanair are aiming to take advantage of the low oil prices to lock in fuel costs into 2016 and beyond. Thai Airways plans to hedge 100 percent of its fuel purchases this year.

"If you a sensible hedger, you have to look at this as an excellent opportunity," said Robert Campbell, head of oil products research at Energy Aspects.

Current crude output can't be sustained at these prices, Campbell said, and with "some increase in demand and some reduction in supply ultimately the price will be forced higher".

Jet fuel can account for between 20 and 50 percent of an airline's operating costs, and swings in oil prices can mean a huge boost or hit to profits. In December, the International Air Transport Association (IATA) said lower fuel prices could mean that airlines globally will report their strongest profit margins in more than five years in 2015.

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