THAI reviews jet fuel hedging
Published: 22/04/2011 at 12:00 AM
Thai Airways International is adopting a wait-and-see strategy before deciding how aggressively to hedge jet fuel in light of high oil prices.
Like many airlines, the flag carrier believes recent increases could be just temporary and not a good basis on which to bet on prices, a THAI insider said.
Jet fuel prices have risen to US$140 a barrel from $110 in January and are showing signs of even greater upward volatility due to the political turmoil in the Middle East and North Africa.
"Oil prices have become unpredictable, but the law of supply and demand dictates they should not remain at this level," president Piyasvasti Amranand said on Wednesday.
He said market conditions would dictate the size of any future hedging by THAI, although he regards the current level, at about half of monthly consumption, as suitable.
Hedging volume in the second quarter is being reduced to 44% of consumption, now at about 1.7 million barrels a month, from 48% in the first quarter.
However, the insider said yesterday the latest oil price spike was prompting the airline to tread much more cautiously in order to avoid risk.
The airline can afford to wait a while, as the volume it has already hedged covers consumption to midyear.
The board has given management flexibility in hedging anywhere from 20-80% of consumption, said the source.
Fuel now represents 37% of THAI's operating costs, up from 32% last year.
THAI has also been passing on some of its fuel costs to passengers via surcharges. The latest surcharge increases _ $5.50 to $38 per flight sector depending on distance _ took effect on Monday for international services only and were based on a jet fuel at $137 a barrel.
The most expensive fuel surcharge, on flights to Los Angeles, is $200.
Credit: Bangkok Post (www.bangkokpost.com)
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