Air India will conduct large scale hedging of jet fuel for the first time, as the state-run carrier seeks to take advantage of lower oil prices, Bloomberg reports.
Citing a source said to have “direct knowledge of the matter”, Bloomberg revealed this week that Air India will hedge more than two million barrels of aviation fuel per year, at a price of US$75 per barrel.
According to the source, the national carrier has taken the step as it doesn’t expect oil prices to fall any further.
Oil prices slumped almost 50% last year, resulting in a similar slide in the cost of jet fuel. This has provided relief for airlines, which commonly spend between 30% and 40% of their operating costs on fuel.
The policy of hedging allows airlines to buy future jet fuel at today’s prices, offsetting the risk of future price rises. But it also ties them into contracts for higher priced fuel should prices drop even further.
Bloomberg states that lower fuel prices could help Air India save INR20 billion (US$324 million) for the year ending 31 March 2016, and could even help it meet its target of returning to profit ahead of schedule. Air India is targeting annual profitability by 2019.