Casino-Like Hedges Seen Hurting Airlines as Crude Plunges - Bloomberg:
"Investors from Sydney to Mumbai cheered the plunge in crude-oil prices, sending Asian airline shares to their highest level in three years. The bad news is several carriers could end up losing money from the sudden drop.
Some Asian carriers, like Singapore Airlines Ltd. (SIA), have hedged fuel at an average of $116 a barrel of jet fuel, when spot market rates are about $85. That can result in losses on paper as airlines will have to account for their hedges or pay charges to unwind contracts prematurely.
Oil’s dramatic decline in the past month is a replay of events in 2008 and 2009, when Hong Kong-based Cathay Pacific Airways Ltd. (293), Chinese carriers and Singapore Air all reported millions in losses because of bets on fuel. An inability to take advantage of a drop in their biggest expense also means airlines may be reluctant to cut fuel surcharges and lower ticket prices for consumers."
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