OIL & GAS

Steep capacity cut leaves airlines with overhedged jet fuel headache

The collapse in global passenger flights has left airlines with fresh challenges: how to manage overhedged jet fuel positions as oil prices crashed to just a third of some contracts agreed in anticipation of rising prices and solid air travel demand.

A shattered global airline industry is now seeking tens of billions dollars from state bail-outs to absorb the shock from the coronavirus pandemic, as many have grounded almost entire fleets and placed thousands of workers on unpaid leave to stay afloat.

With a sharp plunge in oil prices and the rapid spread of the flu-like virus globally raising uncertainty when and how strongly air travel demand will recover, airlines are now left counting the cost of their heavy fuel hedging.

“Given the substantial reduction in our capacity, we do have an overhedged position and that will come at a cost… that we’ll realize in the next couple of months,” Australia’s Qantas Airways Ltd Chief Financial Officer Vanessa Hudson told analysts this week.

“That’s going to be a key part of how we manage our cash inflows and cash outflows. So in terms of a specific number, that’s just going to be a part of our fuel consumption and cost that we have in this quarter but also into next quarter.”

Global oil prices are down nearly 60 per cent from the start of the year after talks between the Organization of the Petroleum Exporting Countries and its allies including Russia, broke down, which led Saudi Arabia to ramp up supply and start a price war.

Brent crude futures slumped below $30 a barrel earlier this week to its lowest since 2003.

Source
ET Energy World
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