San Fransisco // Etihad Airways has ended a hedging programme with lenders to mitigate risks on jet fuel after oil prices dropped at the fastest pace in two years.
Fuel hedging has been a common practice among airlines in recent years in light of rising energy prices. Typically, carriers get into contracts to buy fuel at a specific price range to protect themselves from excessive rises or declines in oil prices.
“As an airline, we have to consider a number of shocks, whether its economic, war or pandemic such as Ebola, and of course, fuel,” said James Hogan, the chief executive at Etihad. “So yes, the price of fuel has gone down. We hedge on a three-year rolling programme, so the first year is typically about 80 per cent, the second year is 50 per cent and the third year is at 25 per cent.
“We have collar targets [an option trade that guarantees a set price range] and we’re comfortable where it is at the moment. But now we’ve stopped hedging because fuel has come down.”
As of last Friday, jet fuel sold at a global average of US$85 per barrel, a decline of 32.9 per cent from last year, according to data from the energy firm Platts published on the International Air Transportation Association website.
“We’re comfortable where it sits because it helps us with our performance,” Mr Hogan said.
Jet fuel typically makes up 25 to 40 per cent of operating costs for airlines.
Brent crude has declined more than 40 per cent since its peak in June, hovering around $66 per barrel amid a battle for market share that involves Opec member countries pressuring US shale oil and gas producers.
A decline in oil prices is generally favourable for the airline industry, which has adopted fuel surcharges in light of rising costs on energy since the early 2000s.
Jet fuel demand in the Arabian Gulf has been growing because of the rapid expansion of Etihad, Emirates Airline and Qatar Airways.
Etihad over the past three years has been acquiring equity stakes in struggling carriers to boost its geographic footprint and connectivity.
This year, Etihad has grown its equity partnership to eight, comprising Air Seychelles, airberlin, Virgin Australia, Air Serbia, Ireland’s Aer Lingus, India’s Jet Airways, while Etihad Regional (formerly known as Darwin Airline) and Italy’s Alitalia are awaiting final regulatory approval.
Mr Hogan categorically denied that it was in talks to buy a minority stake in South African Airways.
Nico Bezuidenhout, the acting chief executive at the African carrier, was quoted on Tuesday by Bloomberg News as saying that Etihad was looking at the carrier as a potential investment target.
“I’m quite surprised,” Mr Hogan said. “We haven’t had talks on this matter. We launched a codeshare agreement but there have not been discussions over an equity stake. Not sure where that article came from.”
After an aggressive expansion in recent years, Mr Hogan said the carrier will focus on consolidation next year.
“It’s a business maturing. We have gone from a start-up phase to a developing phase, and now we are entering into a maturing phase of the business.
“By rule of thumb, consolidating is making sure the network flows, so that when you arrive in Abu Dhabi you can connect within two hours, ideally on to your next flight. It’s about frequency and timing.”halsayegh@thenational.ae
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