Mumbai: Domestic carriers are once again looking at entering into hedging contracts for purchasing aviation turbine fuel, or ATF, as crude prices have dropped to below $100 a barrel for the first time since April.
“Oil prices are showing a downward trend. This could be a potential entry point from a hedging perspective. We are seriously looking at it,” said Sudheer Raghavan, chief commercial officer of Jet Airways (India) Ltd, country’s largest private carrier with 44 domestic and 20 international destinations. “We have not taken a decision on appointment of bankers for hedging and the quantity of fuel to be hedged.”
ATF accounts for 45% of the operating cost of these carriers, which are expected to post a combined loss of $2 billion for fiscal 2009, primarily due to high fuel prices.
Domestic carriers such as Jet Airways and National Aviation Co. of India Ltd, or Nacil, which operates Air India, had considering hedging when oil prices were around $60 a barrel. Though Nacil had started hedging 10% of its annual international uplifts (around 30,000 barrels), it discontinued it after oil prices rose. ATF rates for domestic operations are priced 70-90% higher than international benchmarks.
“We are now planning to have a relook at hedging of ATF... and (ICICI Bank Ltd) is helping us in hedging our international uplifts,” said a Nacil executive on condition of anonymity. Nacil would initially hedge 10% of international uplifts, but will later go up to 25%. “We will either be hedging jet fuel futures on the international market or on the Multi Commodity Exchange of India Ltd.”
Delhi-based low-fare carrier SpiceJet Ltd has appointed Karvy Comtrade Ltd, a commodity brokerage firm, to advise it on strategies to hedge ATF on MCX platform. “We are examining the possibility since jet fuel is one of largest elements in operating costs,” said SpiceJet chief financial officer Parthasarathi Basu.
The UB Group’s Kingfisher Airlines Ltd also plans to hedge jet fuel with the help of oil marketing companies. “Certainly we would be looking at hedging ATF. We will seek help from oil marketing companies to hedge ATF for us,” said Ravi Nedungadi, chief financial officer of UB Group.