Business

Monday November 2, 2009

Lower jet fuel prices a help for airlines amid tougher environment

By LEE KIAN SEONG


PETALING JAYA: The current jet fuel price of about US$85 per barrel is expected to have minimal impact on most airlines largely due to their hedging policies.

An analyst with a local research house said the current price of jet fuel was still much lower compared with the record high of US$179 per barrel recorded in July last year.

“AirAsia Bhd is currently fully dependant on spot prices while Malaysia Airlines Bhd was hedging its fuel at US$100 per barrel,” he said.

Another analyst agreed, saying that current jet fuel prices had little impact on most airlines as they were competitively hedged at US$100 per barrel.

“The mark-to-market losses has actually narrowed compared with the first quarter when prices were about US$35 to US$37 per barrel,” he said. However, he said, it was hard for airlines to benefit much from hedging policies due to the current operating landscape.

“Airlines are struggling to maintain the low fares to attract passengers,” he added.

“The premium between jet fuel prices and crude oil prices was narrowing to between US$3 and US$4 currently, which is a positive sign in the near term.”

TA research analyst Chin Swee Tyng said the soaring jet fuel price would definitely have an impact on airlines, especially those without a proper hedging strategy, as the higher energy price would indirectly raise their operating costs.

That would hurt yields and result in lower margins.

“Jet fuel accounts for more than a quarter of an airline’s operating expense,” she said.

She added that airlines could increase their ticket fares to protect their yields but they were unlikely to do so in the near future.

Chin said the survival of an airline would also depend on whether the load factor and fuel surcharge were moving fast enough to help offset the higher cost of fuel.

“Airlines should avoid unnecessary expenses and replace ageing aircraft with new and fuel-efficient ones to avoid further losses. New aircraft also require lower maintenance cost,” she added.

On the outlook for jet fuel prices in the fourth quarter, an analyst said it would be between US$70 and US$80 per barrel.

 
AIRASIA :  [Stock Watch]  [News]
MAS : [Stock Watch] [News]


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