Singapore Airlines plans to retain high jet fuel hedges

SINGAPORE - Singapore Airlines does not plan to unwind any of its existing jet fuel hedges, which are fixed at US$116 (S$145) per barrel for 65.3 per cent of its requirements in the six months to the end of March, a spokesman on Friday.

With jet fuel prices in Asia JET-SIN hovering at nearly $63 a barrel after a 60 per cent fall in crude prices since June last year, the SIA has been caught out by fixing more than half of its fuel costs at a far higher level.

Unwinding the hedges, however, could result in losses of more than tens of millions of dollars, according to brokers who handle jet fuel hedges for airlines.

Earlier this month, US carrier United Airlines said it had paid a premium to dump old losing bets on higher oil prices and that it was reviewing its strategy for insulating itself from oil market volatility. "It is not correct that we are looking to unwind existing hedges. Our hedging policy remains unchanged," said the SIA spokesman. The airline uses a combination of swaps, collars and call options to hedge its jet fuel purchases, he said.

SIA Chief Executive Goh Choon Phong said last November that the airline's policy of consistently hedging for fuel is not to speculate in the market but to reduce the impact of "the volatility of fuel price movements" on the company's earnings.

Jet fuel can account for up to 50 per cent of an airline's operating costs, and swings in oil prices can mean a huge boost or hit to profits.

In December, the International Air Transport Association (IATA) said lower fuel prices could mean that airlines globally will report their strongest profit margins in more than five years in 2015.