Airlines make wrong-way bets
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A number of airlines have made wrong-way bets on fuel prices as oil tumbles to a four-year low. The Japan Times cited All Nippon Airways (ANA), Southwest Airlines and Cathay Pacific Airways among those reported to have made poor gambles on fuel prices. It said to recoup higher fuel costs, ANA and rival Japan Airlines (JAL) are charging more for tickets, making budget-conscious companies and travellers less likely to fly.
“Hedging is very tricky,” Edwin Merner, President of Atlantis Investment Research Corp. in Tokyo, was quoted saying. “Unless you know what you’re doing, you shouldn’t be doing it.”
That is not to say however, that the airlines, with vast experience in hedging fuel, did not know what they were doing. But according to the report, ANA has predicted fuel costs would rise 12% this year even as jet kerosene has plummeted to the lowest price in almost four years. Carriers are recouping some of the higher costs of fuel by pushing up surcharges, it said.
“Some passengers are putting off travelling due to the high surcharges,” Yoshihisa Miyamoto, an analyst in Tokyo at Okasan Securities Co. was quoted saying.
Cathay, which said it had unrealised losses on fuel hedging contracts as of 31 October of about HK$2.8 billion (US$361 million), warned that financial results would be “disappointing” because of hedging contracts and falling demand.
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