Asian airlines take 18 percent jet fuel hike in stride
Asian airlines take 18 percent jet fuel hike in stride
SINGAPORE (Reuter): Asian airlines are unfazed by the 18 percent rise in benchmark Singapore jet fuel prices so far this year, industry sources said yesterday.
Major Asian airlines said generally that they had not raised fares for two years and had no immediate plans to do so despite the recent price increase of jet fuel, one of the biggest costs for air carriers.
"Prices of jet fuel, to airlines in general, have firmed slightly in the past few months, but it is not clear if prices will strengthen further. If they do, then the aviation industry will be obliged to consider fare adjustments," Singapore Airlines said in a statement in response to a Reuter question.
Jet fuel prices in Singapore, which act as a benchmark for other regional markets, averaged US$22.80 per barrel in 1995. But so far this year they have averaged $26.95 -- 18 percent more.
A Qantas spokesman said the Australian airline was assessing ways it could deal with the recent price increases.
"The airline was not immune to the aviation fuel price increases experienced by other airlines. Qantas is currently assessing its strategies in relation to the fuel price increases," the spokesman said.
Fuel purchases make up about 15 percent of an airline's costs. Salaries and capital depreciation are also big expense items.
Air traffic growth and airlines' increasing sophistication in using price risk management were likely to offset some of the cost pressures, industry sources said.
"We saw prices spike to $34.00 last winter, and so we are better prepared this time," said one jet fuel buyer with an airline.
Jet fuel prices rose from about $24 in November 1995 to a peak of around $34.00 in early January this year before easing in the spring.
As a result of the price volatility, some airlines have been hedging up to 60 percent of their fuel purchases compared to 30 percent previously, industry sources said.
"Within the framework authorized by our top management, we have some flexibility in hedging our exposures," a Japan Airlines official said in a statement. However, he declined further comment.
Hedging
The number of Asian airlines increasing their hedging include Qantas, Air New Zealand, Cathay Pacific, Singapore Airlines and Japan Airlines, industry sources said.
Japan Airlines consumed 1,358 million gallons of jet fuel in its last financial year ending March 31, 1996.
The big jump in fuel prices was also unlikely to translate to higher airfares as strong growth in air traffic has offset part of the higher fuel bill, one analyst said.
"Revenue from traffic growth will compensate for the increase in operating costs," he added.
Air traffic for cargo and passengers is growing around 10-to- 15 percent in Asia, although Singapore Airlines is currently seeing 15-to-20 percent year-on-year growth, he said.
The current price hike should not cause undue worry about airline earnings unless it lasts for more than a month, the analyst said.
Recent U.S.-Iraq tensions pushed prices up to a post-winter high of $30.25 from $28.90. But prior to the U.S. attack on Iraq, prices were on their way down, traders said.
Traders said they now expect prices to head lower, but that they were unlikely to fall below $28.00 this year because of seasonal fourth-quarter demand, traders said.