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Factbox – Airlines are using hedging and fuel surcharges to offset oil spill pain

FILE PHOTO: Airasia planes are parked at Kuala Lumpur International Airport 2 amid the outbreak of the coronavirus disease (COVID-19) in Sepang
FILE PHOTO: Airasia aircraft are parked at Kuala Lumpur International Airport 2 amid the outbreak of the coronavirus disease (COVID-19) in Sepang, Malaysia October 6, 2020. REUTERS/Lim Huey Teng

March 7, 2022

(Reuters) – Oil prices have risen to their highest levels since 2008 following Russia’s invasion of Ukraine, raising costs for airlines at a time when airlines are struggling to recover from a pandemic-induced demand slump.

Some airlines have oil hedges that will help offset part of the fare hike, while Malaysia’s AirAsia on Saturday introduced fuel surcharges on tickets for the first time since 2015.

Other airlines are completely unsecured, including European low-cost airline Wizz Air and US majors United Airlines, American Airlines and Delta Air Lines, although the latter owns an oil refinery.

The rise in oil prices comes as many airlines are forced 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 current half ended June 30 and 707,500 barrels in the following half-year period, it said in a February 24 earnings presentation. She had unrealized gains on the hedges of approximately $31 million as of date.

Cathay Pacific Airways

The Hong Kong airline had hedged more than 60% of its expected consumption in the first quarter and about half of its consumption in the second quarter, as well as smaller amounts in the coming quarters through 2023, at the time of the interim results last August. Cathay will announce its full-year results on Wednesday.

easyJet

The European carrier has hedged the fuel 60% at around $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, with around 60% hedged in the first year, chief executive Luis Gallego said on February 25.

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 secured more than 90% of its fuel in the current half ending June 30, it said in an earnings presentation on February 24. It has also taken out hedges for the following half year, but gave no details.

Ryanair

The low-cost carrier is 80% hedged into 2023, but rising fares will still cost the airline group around 50 million euros ($54.22 million) over the next 12 months, Chief Executive Michael O’Leary said on March 2. March and added Ryanair introduce no fuel charges for the summer.

Singapore Airlines

The airline has hedged 30% of its oil needs at an average Brent 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. On Monday it said there were no updates to the guidance in November.

($1 = 0.9223 euros)

(Reporting by Jamie Freed in Sydney. Editing by Gerry Doyle)

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Caroline Bleakley

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