Source: Reuters Author: Soo Ai Peng, Harry Suhartono 06/16/2008
Subject Concerned: Airlines Aviation Fuel
Malaysian budget airline AirAsia has not hedged its fuel requirements for the second half of 2008, Chief Executive Officer Tony Fernandes said on Jun. 16, as oil prices held close to US$134 a barrel after hitting record highs in recent weeks.
High fuel prices have been a major issue for the global airline industry, slashing into profits, although Fernandes said in April that rising prices were less of an issue than high airport charges in some countries.
"We have none after June, but we never have very much anyway," Fernandes told Reuters, referring to the airline's fuel-hedging position for 2008.
Growth in global travel demand is expected to slow this year as airlines hike fares to try to keep up with swelling fuel bills, analysts said.
But AirAsia, Asia's largest budget carrier, has continued to expand aggressively since it began its low-fare, no-frills flights in December 2001.
Fernandes brushed off fears that the company's earnings could take a hit this year and next due to heavy derivatives losses.
AirAsia is betting that oil prices will moderate eventually. It has sold call options on fuel which have an exercise price of US$82.60 a barrel and a knock-in of US$90 between January 2008 to June 2010.
Under these contracts, the company will have to pay its counterparty the difference between the exercise price and the spot price as long as fuel price stays above US$90 a barrel.
AirAsia shares were traded unchanged at 0.88 Malaysian ringgit on Jun. 16. The stock has lost 39 percent of its value of the past three months.