Wowpeter From Hong Kong, joined Oct 2006, 156 posts, RR: 0 Posted (5 years 8 months 3 weeks 6 days 11 hours ago) and read 2450 times:
" Jan. 8 (Bloomberg) -- Cathay Pacific Airways Ltd., Hong Kong's largest carrier, fell the most in almost a month on the city's stock market after saying paper losses from fuel-hedging almost tripled to HK$7.6 billion ($980 million) in two months.
The carrier declined as much as 7.3 percent, its biggest intraday drop since Dec. 12, and was down 5.4 percent at HK$9.19 as of 11:02 a.m. Cathay Pacific will report the fair-value hedging loss and a HK$300 million cash loss in its 2008 accounts....."
So only a realize loss of HK$300 million for the year 2008... but if the fuel price stay at the current level... they are looking at HK$4.9 billion loss for 2009... even though the fuel bill for CX has gone down by HK$20 billion due to the low fuel cost... I wonder, how much that reduction is taken away by the reduction in fuel surcharge and the reduction of ticket cost? Overall, I think the big profit days for CX will probably not return at least for the next 2 to 3 years...
Also, I am sure this must have an impact on other carriers as well but it seem all the other carriers has been pretty quiet about it... anyone got any insider information on how much fuel hedging loss might be impacting other carriers?
Elite From Hong Kong, joined Jun 2006, 2858 posts, RR: 10
Reply 1, posted (5 years 8 months 3 weeks 6 days 11 hours ago) and read 2441 times:
Air China, China Eastern, and US Airways are just a few airlines of the list of airlines that lost money due to fuel hedging, but from the figures that are available the projected losses are nowhere as great as CX's.
"The accounting treatment by some airlines of profits and losses in respect of certain fuel hedging contracts can have the effect of spreading those profits and losses over the periods in which the hedging contracts mature."
I have seen this before for losses and development costs before. So in reality, you cannot compare how hedging is accounted for between airlines, as the way this is included into the accounts can vary country to country, or even airline to airline.
"Third, the Cathay Pacific group has benefited (and will continue to benefit) from the reduction in oil prices notwithstanding the mark to market losses. Had the jet fuel price remained at its July 2008 peak, the cash costs of obtaining fuel in 2008 would have been approximately HK$7.9 billion higher than they proved to be. If oil prices are on average the same in 2009 as they were at the end of 2008, expenditure on fuel in 2009 will, on the basis of currently projected usage, be approximately HK$20.3 billion lower than in 2008."
The lower fuel price has saved HK$7.9 billion, so
"In addition net realized losses on fuel hedging contracts of approximately HK$0.3 billion will be included in the consolidated profit and loss account for the year ended 31st December 2008."
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