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Cathay Fuel Hedging Policy

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Cathay Fuel Hedging Policy

Old 16th Aug 2016, 03:06
  #1 (permalink)  
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Cathay Fuel Hedging Policy

Now we all know why they fuel hedge. But to hedge at $82/ barrel when the spot price is $45/ barrel is surely an expensive "insurance" policy.

Surprising that none of the senior managers or AT seem to discuss fuel price lately???

Cathay Profit Margin Strained as Fuel Hedging Losses Mount - Bloomberg

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Old 16th Aug 2016, 03:27
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So just let me understand this clearly: a small, unaccountable and anonymous group of employees are responsible for a debacle that might effectively wipe out profits for the next 3-4 years. Additionally, instead of being held to account, they are never identified as having even caused a problem. Then, to add insult to injury, the company continues to attack the only group of employees that are continually and ultimately accountable, their aircrew. Perhaps this airline really does deserve to fail.
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Old 16th Aug 2016, 04:14
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Just thinking?
Say you were the major shareholders/directors in a vertically integrated aviation company where fuel accounted for 30% of your costs. You are sick of having to share your hard earned profits with those pesky public shareholders via dividends, staff via profit share and the government via profits tax.
Would it make sense to set up a private company to execute part of your fuel hedging policy at ridiculous prices and perhaps to mask this deal, still hedge at closer to the market prices with third-party hedging providers? A lot of the profits go straight to the owners of this private company listed in an obscure tax jurisdiction, and the top line profits of this aviation company are whittled away.
Or am I just being paranoid?
Who does the company use to hedge its fuel costs, does anyone know and what relationship do they have with SWXXXES?
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Old 16th Aug 2016, 05:27
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Ala Kenneth Lay and Enron? Have management rights to a company you're a minority shareholder of and award ridiculous contracts from that company to a company you're a 100 percent shareholder of? Surely not. Hope you're not accusing Swire of being unethical...

It's not even the price CX paid for the hedge. It's the amount they hedged. 60 percent!! CX and most other airlines have traditionally hedged at 20 to 30 percent. The idea is to level off the peaks in price a bit with the trade off being the troughs aren't as deep. But CX decided to remove peaks and troughs and flatline it. And flatline it they did. At a line far higher than the highest peak. Brilliant!!

Added to their other self inflicted woes is the price to be paid for the third runway. A third runway that CX lobbied hard for the government to build, as well as encouraging their staff to join the lobbying efforts. Will be amusing as well as rather ironic if CX now pay their construction share of this white elephant with the 13th month payments of their employees. That might pacify their long suffering shareholders a bit and take their minds off the price of fuel.
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Old 16th Aug 2016, 09:31
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Wasn't Ivan the CFO when the hedges were made?
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Old 16th Aug 2016, 13:02
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Cock up I reckon, not conspiracy. Given the number of other screw ups, what makes you think this management could pull something like that off?
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Old 16th Aug 2016, 14:31
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The whole issue sickens me. I have rarely seen an example of incompetence and arrogance on this scale. At least for the 3-4 years this will take to unwind, they should stop barraging us week after week of the need to 'cut costs' and 'become more efficient'. They have no credibility on any level regarding this anymore.

Last edited by Trafalgar; 16th Aug 2016 at 14:49.
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Old 16th Aug 2016, 14:44
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The whole fuel hedging conspiracy was put to bed in a post by someone on the AOA forums a while ago. The likelihood of them pulling off the scam as per the conspiracy theory and being able to predict oil prices years in advance is hard to believe even for the most hardened sceptic.
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Old 16th Aug 2016, 18:07
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They should clarify this and document it in Part A

Swire Prince n Princesses are not accountable for mistakes and any are that are made will have the losses clawed back from other employee groups
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Old 17th Aug 2016, 13:40
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Why do people here find it so hard to believe the people running this airline are simply incompetent. Some of you give them far too much credit, they're just not that smart.
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Old 17th Aug 2016, 14:32
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Chinese Airlines Skirting Fuel Hedge Profit From Plunge in Oil - Bloomberg

China’s airlines are reaping the benefits of a policy not to hedge in the oil market, unlike some of their rivals across Asia Pacific.

The ’Big Three’ -- Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp., will probably report next week at least a 70 percent surge in net income for 2015 amid a plunge in oil prices, which helps to trim their biggest expenditure.


Air China will report net income surged 77 percent to HK$6.78 billion ($874 million), the highest in four years, according to the mean estimate of 14 analysts tracked by Bloomberg. China Southern’s profit will jump 177 percent and China Eastern’s by 71 percent, according to the estimates.

"They have a no-hedge policy, so they weren’t caught like Cathay by the hedging losses," said Geoffrey Cheng, Bocom International’s head of transportation research in Hong Kong. "So last year was a pretty good year in terms of getting these fuel price benefits, but that is unlikely to be as strong a driver this year."

Cathay Pacific saw passenger yields, or the money an airline earns from carrying travelers each kilometer, slide 11 percent last year amid competition from mainland carriers. The Hong Kong-based company also reported HK$8.47 billion of jet fuel losses last year.
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Old 17th Aug 2016, 15:13
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Sooooo, according to our illustrious and charismatic leader, this can only be a bad thing for the Chinese carriers. Yup, disastrous fuel hedging is 'good', and airlines reaping record profits must be 'bad'. Genius. IC, I salute you
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Old 17th Aug 2016, 18:12
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Progress wanchai

Kenneth Lay at Enron? More like Homer Simpson at Spingfield nuclear.
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Old 17th Aug 2016, 18:19
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Cathay Pacific saw passenger yields, or the money an airline earns from carrying travelers each kilometer, slide 11 percent last year amid competition from mainland carriers

Thats cos people will no longer tolerate overpriced crappy product! Even the Chinese carriers are outclassing us, that says something.
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Old 17th Aug 2016, 22:53
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Everyone should buy shares in this Airline and call these idiots to account.
I think it's called "Crowd Funding".
Are the current shareholders happy with HUGE losses related to "Hedging"???
Hedging is supposed to be smart??? What our so called leaders have done is not smart at all.
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Old 17th Aug 2016, 23:07
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This is what happens when the management of the airline falls into the hands of the inveterate, but very bad, hereditary gamblers Arfur!

Wouldn't have happened when you first joined CX, I'd bet good money on it.
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Old 18th Aug 2016, 00:06
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Stick your 'save 100kg per sector' admonition right where the sun doesn't shine. What a bunch of destructive amateurs.
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Old 18th Aug 2016, 00:18
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If i'm not mistaken Swire & Air China (CNAC) own about 80% of the CX fuel hedging gambling game. When it comes to this fuel hedging roulette wheel I think CX makes Macau look tame....
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