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Factbox – Airline hedging and surcharges compensate for some oil price pain

A Malaysia Airlines plane carrying the first group of tourists arrives at the airport as Langkawi reopens to domestic tourists amid the coronavirus disease (COVID-19) pandemic in Malaysia
A Malaysia Airlines plane carrying the first group of tourists arrives at the airport as Langkawi reopens to domestic tourists on September 16, 2021 amid the coronavirus disease (COVID-19) pandemic in Malaysia. REUTERS/Lim Huey Teng/Files

March 11, 2022

(Reuters) – Oil prices this week rose to their highest level since 2008 in the wake of Russia’s invasion of Ukraine, raising airline costs at a time when airlines were struggling to recover from a pandemic-related slump in demand.

Oil prices were already high due to tight global supplies, but Western sanctions against Russia, a major oil supplier, over its invasion of Ukraine sent prices skyrocketing. Northwest European jet fuel price on the spot market rose 85% since Feb. 25 to $1,649 a ton on Wednesday but fell back to $1,007 by Friday.

Malaysia Airlines said on Friday it will introduce a fuel surcharge for some markets from March 23 and manage capacity to mitigate unprofitable routes due to rising fuel costs.

Budget rival AirAsia introduced fuel surcharges on tickets for the first time since 2015 on March 5. Chinese airlines, meanwhile, raised fuel surcharges on domestic routes, and Emirates, Japan Airlines and ANA Holdings also recently imposed surcharges.

Some airlines have oil hedges that will help offset some of the price hike, but other airlines are completely unhedged, including US majors United Airlines, American Airlines and Delta Air Lines, although the latter owns an oil refinery.

Many airlines are also being pushed by the need to fly longer routes to avoid Russian and Ukrainian airspace.

Air France KLM

The airline has hedged 72% of oil consumption for the first quarter and 63% for the second quarter at $90 a barrel, with smaller amounts being hedged in the second half, it said in an earnings presentation on Feb. 17.

Air New Zealand

The airline has hedged 1.34 million barrels of oil in the six months ended June 30 and 707,500 barrels in the following half year, it said in an earnings presentation on February 24. At the end of February, it increased international tariffs by around 5%. citing rising oil prices and general cost inflation.

Cathay Pacific Airways

The Hong Kong airline has hedged all of its consumption in the first quarter and about half of its expected consumption in the second quarter, it said on Wednesday. It has also hedged smaller amounts until the end of 2023.

easyJet

The European carrier has hedged fuel 60% at about $504 a tonne for the fiscal year ended Sept. 30, it said Jan. 27.

IAG

The British Airways owner has been hedged against volatile crude oil prices for two years, chief executive Luis Gallego said on February 25. For the whole of 2022 he has hedged around 60%.

Based on a fuel price scenario of $900 a ton, the company would pay $690 a ton in the first quarter after hedging 70% of its fuel and foreign exchange, an earnings presentation published Feb. 25 shows. In Q2, the price would surge to $750 after 65% of fuel and FX were hedged.

Lufthansa

The German airline is 63% hedged in 2022 at a break-even price of $74 a barrel, it said in an earnings presentation on March 3.

QantasAirways

The Australian carrier has hedged more than 90% of its fuel for the six months ended June 30, Chief Executive Alan Joyce said on Tuesday, adding that it has also hedged 50% of its fuel for the following quarter.

Ryanair

The low-cost airline is 80% hedged into 2023, but rising fares will still cost the group about 50 million euros ($54.2 million) over the next 12 months, Chief Executive Michael O’Leary said on March 2 and added that Ryanair would not introduce fuel charges for the summer.

Singapore Airlines

The airline hedged 30% of its oil needs at an average Brent crude price of $57 a barrel for the six months ended March 31, it said in an earnings presentation in November. It also had hedged 40% of its needs at an average price of $60 for the following five quarters.

WizzAir

The European low-cost carrier said on Monday it had zero-cost hedges covering its fuel costs for the next four months.

For March it has met half of its needs with a price cap of $1,172 per tonne and 40% of its needs for the first quarter through the end of June at $1,142 per tonne. Your fiscal year ends on March 31, 2023.

($1 = 0.9223 euros)

(Reporting by Jamie Freed in Sydney; Additional reporting by Stella Qiu in Beijing, Liz Lee in Kuala Lumpur and Kate Holton and Paul Sandle in London; Editing by Gerry Doyle, Josephine Mason and David Goodman)

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DUSTIN JONES

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