Airlines Depend On Hedging, Fuel Surcharges As Oil Surges: Report

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  • Amid Russia's invasion of Ukraine, the oil price has surged to its highest level since 2008. This oil price increase comes as many carriers are forced to fly longer routings to avoid Russian and Ukrainian airspace, reported Reuters.
  • The price surge is another addition to airline costs when the carriers have already struggled to recover from a pandemic-related dip in demand.
  • On Saturday, Malaysia's AirAsia, Capital A Berhad AIABF, introduced fuel surcharges on tickets for the first time since 2015.
  • Chinese airlines also raised fuel surcharges on domestic routes, its aviation regulator said, while Emirates, Japan Airlines Co Ltd JAPSY, and ANA Holdings Inc ALNPY raised their surcharges recently, the report added. 
  • Some carriers are fully unhedged, like Wizz Air Holdings PLC WZZAF) and U.S. majors United Airlines Holdings Inc UALAmerican Airlines Group Inc AAL, and Delta Air Lines Inc DAL, though the latter owns an oil refinery, the report noted.
  • Others have oil hedges that will help offset portions of the price increase, like Air France-KLM AFRAF, which has hedged 72% of oil consumption for the first quarter and 63% for the second quarter at $90 a barrel.
  • Air New Zealand Ltd ANZFF has hedged 1.34 million barrels of oil in the current half ending June 30 and 707,500 barrels in the following half-year period. The carrier also raised international fares by about 5%, citing rising oil prices and general cost inflation.
  • Cathay Pacific Airways Ltd CPCAY hedged more than 60% of its expected first-quarter consumption and about half of its second-quarter consumption.
  • EasyJet PLC ESYJY airline 60% hedged for fuel in the financial year ending on September 30 at around $504 per metric tonne.
  • Deutsche Lufthansa AG DLAKY is 63% hedged in 2022 at a break-even price of $74 a barrel.
  • Qantas Airways Ltd QABSY has more than 90% of its fuel hedged in the current half and has a lower level of hedges in place for the following half-year period.
  • Ryanair Holdings plc RYAAY is 80% hedged on fuel out to 2023. However, rising prices will still cost the airline group around 50 million euros ($54.22 million) over the next 12 months, the reported quoted CEO Michael O'Leary.
  • Singapore Airlines SINGY has hedged 30% of its oil needs at an average Brent price of $57 a barrel for the six months ending March 31. It had also hedged 40% of its needs at an average price of $60 for the following five quarters.
  • Price Action: UAL shares are trading lower by 3.54% at $35.41, AAL lower by 3.08% at $14.14, DAL lower by 3.22% at $33.41, and RYAAY lower by 3.96% at $83.32 during the premarket session on Monday.
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