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.