The dog finds himself agreeing with the resident cat again, (yes this is scary). At the end of the day there's always a significant cost to hedging, (see latest spreadsheet data they presented on cost of hedges), so in the long run the airline must lose from its hedging program. Chinese Govt controlled airlines for example are prohibited from hedging so they can react expeditiously to changing market conditions.
Based on some analysis I did, (yes can you believe it PT I've done some), Air sell about 2 months forward on their average booking, (i.e.at any one time they have approx. one sixth of annual sales in forward bookings).
Given sales on average are for travel fairly close to the point at which the expenditure on jet fuel is incurred and given present low fuel prices and huge hedge losses last year by most airlines its perhaps entirely unsurprising that this is a hot topic for discussion in the industry, why bother hedging especially when the cost of same relative to the price of fuel has rarely been higher ?
Perhaps this new highly competitive environment is a good opportunity for AIR's management to review their hedging policy ? Perhaps a new lower level of hedging going forward, say no more than one third of expected fuel consumption for the next six months, (effectively a maximum of 2 months 100% hedging, equal to the approximate amount of forward bookings at any one time) is appropriate going forward ?
Also looking to hedge the Singapore Jet fuel cost in a way closer than Brent futures might be more optimal ? The cost to refine and distill the oil can vary a lot as we all know.
Such a revised policy would effectively nicely match the timing of new sales with new fuel purchases and would minimise hedging costs. Good topic to bring up at the annual meeting I reckon.
Raz - you going ?...maybe you could raz them up a bit about this :)