Oil Price Hedging In MAS and Other Airlines

[Mat Tongkang]

Saw a taped CNBC interview where Idris Jala mentioned competitive hedging as opposed to strategic hedging. It was an interesting discussion but unfortunately he did not expand much on it. Also Air Asia's TF was reported to have lost big in fuel price hedging. Any more info from insiders?

[WiraMelayu]

I don't know what strategy MAS uses as far as fuel price hedging is concerned but when the cash situation is bad, MAS always have the cash cow Petronas to fork out to pay the salaries!

Someone mentioned somewhere that with the sky high oil prices, Malaysians should be enjoying a windfall. I guess Idris Jala being an ex oil man will understand fuel hedging better; MAS will be better off hedging strategically than just hedging competitively unless Idris too has no clue as to the mechanics and dynamics involved!

In another unrelated thread, it was mentioned that Malaysian oil futures had been bartered off some 10 years ago......anyone has any more info despite warnings that it's a highly touchy and controversial subject? Is the fear of SB and old mamak so deep set that people are so scared to discuss this?

[Langkasuka]

Wira, Sireh, Paishinel ( from some other thread ) and other concerned Malaysians.........before I start telling what I know, I will need to cover my arse and tracks. It is HIGHLY CONTROVERSIAL and bordering on tthe CONSPIRATORIAL! What you see from the other threads are just glimpses of how our Malaysian oil wealth went down the jamban.........just don't pooh pooh the info there. It is very close to the actual truth as far as I know. I have refrained from adding " fuel " to this until such time I know I am safe; so guys, just hang on....will post what I know later.

Idris Jala has a point that competitive hedging is the order of the day as very few people are in the know to make strategic fuel price hedging viable. The way geo politics drive the global oil and commodities markets make it risky to consider strategic hedging. For those who are familiar with the commodities and oil futures market would remember that a big gun like Steve Forbes predicted that oil price would plunge to 60-70USD by this time, but we are seeing prices above USD100 a barrel.

[Mat Tongkang]

Waiting with bated breath! Controversial and conspiratorial? Wow...no wonder no comments so far; or is it pure nonsence?

[EECEPR]

ok - from my perspective it is a very starnge game in Malaysia - how can TF claim to have 2.5 cents ASK when no other LCC in the world is better than 3.8C. The typical LCC model has fule standing at 35-40% of the entire operation. And to infrom you the crude you see published is bull **** numbers add another 15-20 USD per barrel for the simple fact that the refineries and speculators are screwing the world with huge profits. As of last week oil traded in Singapore at over 120USD a barrel!!!!!!!!!! How is gods name can we continue to pass this along to our guests!!! I can not understand the Malaysian market but funny things are going on and I belive Petron TF, MAS are at the heart of this. Lets be real about these flash in the pan airlines Air Asia, ATA, Sky Bus will all bust and many more in India will follow suite - poor management - too aggressive growth plans, and big ego's rule this small business world. If you want to see greatairlines focus on the long term smart guys like SQ, Qantas, South West, Ryan (sorry hate to say it), and last but not least Cebu Air in the Philippines. At the nd of the day only th strong, smart, agile, conservative, will run, and capable airlines will survive the others should fold up their sly organization and go rite a book or something as this business truly is low margin, big headache, and very hard to run but oh so fun.......................

[Mat Sabo]

A lot of things in Malaysia defies conventional wisdom.....one has to glean from obscure business reports and company reports from European sources to know of the oil deals made in the 1997/98 period when the county made a miraculous recovery from the financial meltdown. I too heard something about the oil barter stuff, but it is hard to get proof.

[orangminyak]

Langkasuka, you do have have to be so dramatic lah.......those in the know during and after the financial crisis largely discount the allegations. However top people from Malaysian diplomatic corp including one military attache whom I know well actually confirm of the alleged deal. As to whether one can safely reveal details of this contoversial deal; I am new to this forum and I do not know to what extent the Malaysian secret service will go to nab whistle blowers. However given recent developments, I guess the Malaysian rakyat will eagerly want to know the details. Do PM me with what you know and see if that jives with what my sources told me. Cheers!

[Paishinel]

Red flag!!!...careful, I smell a rat here!

[bungacengkeh]

Wow Mat Sabo, if you do know anything spill it out. Being holed up in the Middle East should afford you some protection from persecution those chickens Langka, Sireh, Paishinel etc are so **** scared about. I suppose it's all rubbish, tembak tembak nonsense.

[mascamel]

On another thread i.e MH F/Os to AK Capts I mentioned having heard it fro one of my former skippers. As luck would have it, I ran into this gentleman just a couple of days ago! I picked his brain on the subject and he has this to say: " post this at your own risk, but you don't have to be that **** scared! "

Well after dwelling on it, the Makkal Sakthi sentiments got better of me and here is what you folks are so eager to hear.....HOWEVER will you be **** scared to discuss it or even share it with your fellow rakyat back in bolehland?

Here it comes :

After the financial crisis in 1997 and getting rid of Anwar's bumbling attempts at self aggrandizing economic management, Mamak and Dime worked out a deal with some clandestine European interests to salvage the Malaysian economy. First the agreement to peg the ringgit at RM3.8 to the USD so that the Malaysian bonds held by these European interests remain reasonably stable. In return for agreeing to this peg the European financial warlocks extracted a massive price; Malaysian petroleum futures bartered off for 25 years at substantially below THEN market price. All Malaysian petroleum and gas extracted will be sold at that price until 2023 to these European " hydra ". This apply to Petroleum and gas DISCOVERED prior to this date ( late 1997/early 1998 ). HOWEVER petroleum and gas discovered after this date will be available to be sold at existing market price.

So our Malaysian oil wealth have been bartered off for less than USD15 a barrel for the next 25 years after 1998!

We currently enjoy USD110 per barrel of crude oil ONLY FOR THOSE PETROLEUM crude discovered after that " barter " agreement!

So that's why we ain't booming amidst this oil price bonanza!

Who are these clandestine European interests? They involved THE VATICAN and European as well as American Jewish interests!!! THAT IS WHY IT IS SO CONTROVERSIAL and POTENTIALLY DAMAGING to those involved, never mind the petro wealth down the jamban!!!

Most would remember Mamak making some well publicised trips to the Middle East with huge media coverage of meetings with Hosni Mubarak, King Hussein, King Fahd, King Hassan etc. HOWEVER once these meetings with so called great Muslim leaders are over he WOULD SNEAK QUIETLY over to Europe to meet some " business " leaders and the POPE! The meeting with the Pope was some photo ops to quell the " curiosity " of some mainstream media, but the actual meetings were with the secret inner circle of hidden leaders of the inner Vatican sanctum. These meetings were of course highly secret! Wonder why George Soros took it so cooly when Mamak called him names and blamed him for the financial crisis? Think outside your tempurungs, guys.

Of course, in public, the story went that high minded Mamak was conveying the thoughts and misgivings of Middle Eastern leaders to the Pope. If you look back you will find quite a few of such meetings with the pontiff.

Now is this all part of a conspiracy theory, go figure. I cannot go further without revealing actual names of people involved as these people has no " nick names ". These people still hold great power in the Malaysian establishment.........hence some people are **** scared to reveal more. I am also **** scared too; **** scared for my family's and Malaysia's future! Enogh said, time to see if the fireworks and knives come out in full show!

[bungacengkeh]

Really? what prove have you got? Nothing but nonscence bashing a former leader in the light of the so called tsunami in the recent election.

[Paishinel]

What can I say? BRAVO mascamel!!! That's more or less I learned from a European banker sometimes ago. The secret European interests have very long reach and the Malaysian parties involved are mostly still in high powered positions.......hence the reluctance of those in the know to elaborate. Suffice to say that mascamerl's post has most of the things involved in this soddy tale of national wealth down the toilet.

[Mat Sabo]

Holy cow, by the beard of JC; the Vatican, Pope and Jewish interests involved with the mamak? Whoa, no wonder it's controversial and no go for MH boys to discuss. Come on guys, it's not that far fetched. Some guys in the sandpit told me something along such vein, but did not think much of it until now. Maybe in time some can offer much juice on this.

[Mat Tongkang]

Announcement made sometime ago that MAS has hedged 43% of their 2008 fuel requirements on US$89 per barrel and 13% of 2009 requirements on US$95. Looks like a good deal as oil crude has gone to almost US$120 per barrel currently.

As for the oil futures barter back in 1998, if true, was really a big fiasco. Must be a real touchy subject judging from the lack of response, makkal sakthi notwithstanding!

[Ali Sadikin]

Alamak, looks like a real scary taboo subject for the MH guys. Reminds me when Suharto was in power, we opened our foolish mouths at great risks to no avail. This sort of " fear " psychology takes a long time to bury. With the current political climate, I urge MH guys to speak up or your chance for a radical change for the better will go into the coming August smog.

By competitive hedging, I guess your MH CEO meant hedging based on what the other regional big airlines like SQ, CX, JAL or Thai are doing. It will be a case of following the leader!

[Geragau]

I don't know the insides of this big story but I have always had great reservations on how the ' rapid miraculous ' recovery from the Asian financial crisis in the late 90's. Too good to be true. Is mamak sticking his nose around the politics of the day to ensure ' immunity ' in case someone has the guts to spill out all this? It certainly looks like it.

Well competitive hedging by following the leader and trying to go one up on your competitor s the flavour of the month; learn from the kiasu masters! At the very least, MH won't go very far wrong!

[worldlythird]

where Idris Jala mentioned competitive hedging as opposed to strategic hedging. It was an interesting discussion but unfortunately he did not expand much on it

when you see a cat do not say it is a lion (big exaggeration) or a lion cub (small exaggeration). Either way also not true.

From here
http://www.malaysiaairlines.com/getdoc/fc3f8561-712f-4c99-8a9d-263851118dfb/Mr-Idris-Jala.aspx

Dato' Sri Idris Jala
Managing Director and Chief Executive Officer
Dato' Sri Idris Jala, aged 47, is a Malaysian. He graduated with a Bachelor Degree (Hons) (B.Soc Sc) in Development Studies/Management in University Sains Malaysia in 1982. He later obtained a Masters Degree in Industrial Relations from University of Warwick, United Kingdom in 1986. Prior to MAS, he was attached to Shell MDS (Malaysia) Sdn. Bhd. as Managing Director and Executive Director of Shell Malaysia Ltd, Gas & Power from 2003 to 30 November 2005. He joined Sarawak Shell Berhad in 1982 and 1987 as Industrial Relations Officer and as Head Staff Development. In 1989, he was appointed as Human Resource Advisor of Shell International, Holland and Head HR Planning of Sarawak Shell Berhad in 1993. From 1995 to 1997, he was appointed as Business Reenginnering Manager, Retail Area Manager and Senior Manager, National Retail Sales of Shell Malaysia Ltd. In 1998, he was promoted as Chairman/Managing Director (LPG) of Shell Sri Lanka. From 2000 to 2001, he was transferred to London as Vice President Business Development Consultancy and Vice President Retail Marketing, SRI of Shell Int. Pet. Co, United Kingdom (London). He was appointed as Managing Director and Chief Executive Officer of Malaysian Airline System Berhad on 1 December 2005.

Basiaclly he is a HR guy. And not a very good one at it. Or a very good one if considered from a diabolical way.

Divide and rule
make one group fight against anoother.


Should see the other sidekick!

[mohdawang]

Wow, this must be a hot potato. Are MH boys too fearful of retribution to touch this one! Hey, your country and company are at stake here!

[Sireh]

Do you think one can get charged with sedition just by talking and writing about old mamak selling out the country? Certainly, see what happened to blogger Raja Petra. Having said that, if everyone remain **** scared then we gonna be a sick banana nation going the way of Zimbabwe and the like.

Having checked with former classmates who are big wigs in the diplomatic corps and tradfe missions....the oil barter with shadowy european interests seem true. It remains whether Malaysians have the ovarian and testicular fortitude to confront their former pharoah with the truth.

[Geragau]

The silence on this thread is " SCARY ", here goes a scaredy cat's view: with the gomen's announcement to investigate the VK Lingam's video on corrupt judges, will the mamak's other more damaging misdeeds come out?

Time has come for every Malaysian to be told the truth.

As for the fuel costs and hedging, wasn't it reported somwhere by Mat Tongkang about Idris Jala's strategy that 43% for 2008 was hedged at US$89 and 13% of 2009 requirements at US$95? Good call, don't you guys think, in the light of oil approaching US$130 a barrel soon?

[chintanmanis]

Idris Jala might have got it right.........give credit where it is due.

[Geragau]

For the prophets of doom and gloom to quibble over:

MAS Q1 profit down 9.5% to RM120m




KUALA LUMPUR: Malaysian Airline System Bhd (MAS) reported net profit of RM120.06mil for the first quarter ended March 31, down 9.5% from RM132.71mil a year ago.
It announced Tuesday that operating profit declined to RM132.9mil from RM146.8mil a year ago due to higher operating expenses mainly from the increase in fuel cost.
Revenue was higher at RM3.75bil compared with RM3.54bil a year ago while earnings per share declined to 7.19 sen from 9.49 sen.
“The outlook for the aviation industry in 2008 is extremely challenging as fuel prices continue to escalate to record highs,” it said.
“Growing signs of a global economic slowdown, further liberalisation and increasingly excess capacity further compounded the tough business environment,” it said.
MAS said for the next quarter, the immediate focus was to manage the high fuel prices coupled with seasonal soft demand in view of the shoulder season in Europe, the United States and North Asia.
“The increased fuel surcharges and fares imposed will alter travelling patterns and frequency for both long haul leisure and business travels.
“With intensified competition coupled with huge capacity injection in 2008 especially for the Middle East and Asia, revenues are under tremendous downward pressure,” it said.

[chintanmanis]

Idris Jala and gang hedged a portion of their fuel costs for 2008 / 2009 at below US$100 a barrel! Oil now approaching US$150.......guess a jolly good show. Maybe the former oilman does know better!

[Mat Sabo]

Yep, has to concede that he got it covered better than TF. Got to give credit to his team.

[jetjockey696]

AirAsia, the region's biggest budget airline, can remain profitable even if world oil prices hit US$200 a barrel, Chief Executive Tony Fernandes said Monday, allaying concerns that it may be hit by rising fuel costs.





AirAsia has no plans now to raise fares or fuel surcharge, but it will stick with plans to grow its regional route network, expand onflight sales to boost income and seek lower charges from airports, he said.





"We are comfortable even with oil at US$200 (a barrel). There is a silver lining. We have taken a very different approach in that we will market ourselves out of this problem," Fernandes told reporters on the sidelines of a two-day global economic forum.





"We think that just putting your head in the sand and crying about oil and cutting routes is not the solution."



After surviving the 2003 SARS epidemic, which he described as "a lot worse" that the current oil crisis, Fernandes said AirAsia can benefit from a consolidation in the airline industry.





"The silver lining is that everyone is going to be in a lot of pain. There will be more rational competition...there will be less people wanting to open a budget airline now," he said.





He acknowledged, however that AirAsia may have to revise fares if oil prices breach US$200 a barrel.



Airlines have been struggling to contain costs this year as oil prices stay above US$130 a barrel. Scores of startup carriers have gone out of business and several major carriers have raised fuel surcharges, cut capacity and deferred plane orders or shed jobs.


Fernandes said AirAsia will launch four more new routes over the next two months.


To ease the fuel price burden, he said the company will expand its food menu and sell more in-flight products and services to its 22 million annual passengers.


"You can use your mobile phones on the plane soon, send SMS," he said.


"We are going to sell more things, more duty free (products). We will sell washing machines if we have to. There are many things we haven't done. In a crisis like this, you become more innovative," Fernandes said.


AirAsia will also benefit once the lucrative Kuala Lumpur-Singapore route, the fourth-busiest route in the region, is fully liberalized in January, he said. The carrier now only has limited flights on the route, which is dominated by national carriers Malaysia Airlines and Singapore Airline.


AirAsia reported an 86 percent jump in its January-March net profit from a year ago to 162 million ringgit (US$50 million), buoyed by higher passenger demand and large foreign exchange gains.


It said it has hedged part of its fuel requirement for April-June, which will lead to US$10 million in cost savings for the quarter. But Fernandes ruled out plans to further hedge the company's fuel requirement.


"Only a lunatic will hedge fuel — it's too volatile. We will just have to ride it until there is some stability," he said. "You have to build a business that is sustainable at whatever price and the only way... is to have topline growth and good growth."

International Herald Tribune

[essentialbus]

Latest definition of On Time Performance.:E


KUALA LUMPUR: AirAsia will compensate passengers whose flights are delayed for more than three hours.

The budget carrier said it would give RM200 e-gift vouchers that can be used to buy their next AirAsia flight or any AirAsia product or service online. The e-voucher would be valid for three months.

Labelled as its “On Time Guarantee,” all flights from yesterday were accorded the service, which comes at no extra cost to passengers.

“We decided to put our money where our mouth was (in giving 5-star service).

Regards
E.B.

[MD330]

A delay more than 3 hours.....what a joke....or maybe not since 70% of their flights are delayed....now everybody can fly but late.......

[MAS Guy]

Better than the service that MAS is giving out now. Cold food etc, sandwiches for 2 hrs flight. And it is cold. Meals comes in box now, cold and hard. What is happening to our beloved Airline. My ear is painful listening to complains from friends and relative. Now people are paying full fare for low cost service. Pity our cabin crew.

[Geragau]

Aiyoyo......bolehland is getting interesting. MAS is cutting fat and pulling out of unprofitable routes, good show but how far will the politicos allow Idris jala to take the painful measures to a more meaningful level? Given the chance and with prudent management of the fuel crisis, MAS can surely boleh succeed!

On the flip side, bolehland is mired in skyrocketing inflation; DPM implicated in Altantuya murder, ex-Pm doing his best to screw the whole country, etc, etc, etc.....is there hope for anything better?

[a345xxx]

well at least it makes it worthwhile to check the malaysian news websites!! :)

[Al Cole Holic]

mascamel (http://www.pprune.org/forums/members/mascamel.html)

Join Date: Mar 2008
Location: UAE
Age: 45
Posts: 6


Malaysia's squandered oil wealth


Read this some months ago...truly thought it was nonsence; then dad in law's financial adviser said that there was more to it. So spent the last 2 moons chasing some leads with ex College friends working in FRA and ZRH........something scary came out; investment bankers over in Europe reveal quietly that such a barter deal DID happen. They reckoned Malaysia was temporarily better because of the deal.....HOWEVER NO ONE FORSEE oil going to USD 150-200 per barrel in 10 years! So can we blame the old mamak for this squandered wealth????? He was probably trying his best then, but then again was he really?

[standman]

Yup, IJ is definitely on top of the game. Wonder what magic could have been performed if not for the Bush-Oil-Subprime crises mess hitting us all at the same time. And a real charmer, too. Been to a briefing, and the man fields questions off the cuff like a motivational guru! Scary shyt... We're more used to moronic buffoons who can't even read prepared statements properly. :E

[MasMamak]

Gotta concede that so far he has done good....kudos to his team too. Having said that, if he wants to continue on his successful track he better lose some of the deadwood like rat**** khan, the useless blundering chairman and a whole host fruitcakes!