Many Asian airlines have scaled back their fuel -hedging plans this year, a move that could remove buying support for forward oil prices and put share investors at more risk if the market spikes up again.
Some corporate planners are betting that oil prices have peaked after four years of gains, taking heart from watching the US crude plunge from a record-high of $78.40 (Rs3,450) a barrel in July to below $50 (Rs2,200) in mid-January.
Others who were left exposed in 2006 took January’s slump as an opportunity to buy short-term price protection, now looking like an astute move after prices picked back up this month to a near $60 (Rs2,640) value that many analysts expect the Organization of the Petroleum Exporting Countries (OPEC) to defend.
Japanese carriers, usually among the more prudent in Asia for locking in future fuel bills, have been modest in their hedging this year.
Japan Airlines Corp. hedged 41% of its fuel for the business year from April onward, compared with a voluminous 89% for 2006. Rival All Nippon Airways chopped hedging to 65% this year from nearly 100% in 2006.Taiwan’s biggest carrier China Airlines has also halved its jet fuel hedging to 30% for the first half of 2007.
“If oil prices keep sliding, there is no need for aggressive hedging. Crude is sharply lower than last year and this helps to stabilize costs,” a source at China Airlines said.