AirAsia has hedged 63% of fuel needs for next year
AirAsia has hedged 63% of fuel needs for next year
Bloomberg, Kuala Lumpur
AirAsia Bhd., Southeast Asia's biggest discount airline, said it has hedged 63 percent of its fuel needs for the next fiscal year, reducing the risk that a surge in prices will erode earnings.
"We waited and waited until we saw an opportunity in the market,' Chief Executive Tony Fernandes said in an interview on Tuesday.
"We're very happy with the hedge." He declined to say how much the company would pay for fuel.
The company, based outside Kuala Lumpur in Malaysia, had hedged all of its fuel needs through June, the end of its current fiscal year. Without hedging, the company would be more likely to add a fuel surcharge, eroding its price advantage over rival Malaysian Airline System Bhd.
"By putting a hedge in place, the company should ease fears about its exposure to fuel prices," said Paul Dewberry, a Hong Kong-based analyst for Macquarie Bank Ltd, who rates the company "outperform".
"The lack of a hedge for 2006 was a key concern for some potential investors."
The company hedged all its fuel needs until June, shielding it from higher fuel prices. Fuel makes up about 43 percent of the airline's operating expenses. The company earned 55 million ringgit in the first half.
AirAsia was listed in November and hasn't released comparable figures from last year.
Thai AirAsia Co., AirAsia's venture with Thailand's Shin Corp., reported its first quarterly profit in the three months ended March on rising travel demand as Southeast Asia recovered from the Dec. 16 tsunami, Chief Executive Tassapon Bijleveld said in Bangkok last month.
The spot price of jet fuel in Singapore has risen 28 percent to $60.79 a barrel this year according to Platts data on Bloomberg.
AirAsia hedged its fuel needs by buying West Texas Index futures, a form of crude oil contract, Fernandes said.
The airline has hedged all of its fuel needs for the first half of next fiscal year, which starts in July and 25 percent of its needs for the second half, Fernandes said. AirAsia is seeking government approval to add a fuel surcharge.
Malaysian Air raised its surcharge on international flights by 52 percent to 76 ringgit on May 1.
AirAsia, which currently operates 24 Boeing Co. 737-300s, wants to expand its fleet to meet travel demand in Southeast Asia, where there are 500 million people within three hours' flying time of its Kuala Lumpur base.
AirAsia is also betting increased flight frequencies and more destinations will help the company meet its own profit forecasts.
The company plans to buy some 60 Airbus planes as it expands in Thailand, Indonesia, the Philippines and China.
AirAsia is in talks with Citigroup Inc., HSBC Holdings Plc and other lenders over a $3.6 billion loan to finance the planned purchase of the new aircraft, the company has said. It will take delivery of the first of 60 A320 aircraft it ordered from Airbus SAS in December.