Competitive disadvantage
 

From IATA:
We are pleased to send you herewith the March report of the Airlines Financial Monitor

Key points:

• Global airline share prices continued their recovery in March from January’s decline;
• The latest airline financial results from Q4 2015 further cemented the picture of a strong end to 2015, driven by carriers in North America. Financial performance improved in all regions relative to Q4 2014 except Latin America;
• Crude oil prices gained in March, although the market currently expects them to stay below $50/bbl until late-2019;
• Further falls in air fares are likely to be seen in 2016 as fuel hedging contracts unwind and the decline in oil prices seen towards the end of last year feeds through. Exchange rate-adjusted fares fell by 6.2% year-on-year in January;
• While the leap year may have flattered things, the global air passenger market is enjoying a strong start to 2016. Passenger loads have slipped in recent months, though, which will require monitoring;
• Air freight volumes in the first two months of 2016 fell by 1.5% year-on-year, although the comparison is complicated by the one-off boost last year from disruption at US west coast seaports. The freight load factor in January and February combined was well below average for the time of year, keeping cargo yields under pressure.

The Executive Directors decision to hedge out to 4 years means that we will be at a competitive disadvantage for the next 3 years - expect performance and profits to be well below market expectations.

Note that the industry expects oil to remain below $50/barrel for the next three years - and now look at the fuel hedging positions held by the Company....

I am now understanding how the hedging has benefitted us.

Huh, that's funny. I still don't see it...

We don't mind paying for the hedges because it means Fuel is cheap:ugh:

Fuel hedging is good because if the price of oil goes up, you're making money, and if it goes down, you just take from your pilots and employees to cover the difference.

Win-Win.

And the recent extended holding after a few thunderstorms (because HKIA airspace is so choked with traffic) is good because the expensive hedged fuel gets burnt earlier; then they can start on the cheap stuff sooner.

Hey, I must 'yammer' that one to Ivan the Invisible, he could use that for the next interview (if his English is up to it).

Fuel Hedging 101
 

Fuel hedging is very complicated - in fact you have to get to first year in any economics, finance degree or MBA before you can fully understand it. Failing that you would have to spend at least five minutes on the internet googling the topic.

But to put it in terms everyone can understand I will call upon Tim Robbins from Team America...

Tim Robbins: Let me explain to you how this works: you see, the corporations finance Team America, and then Team America goes out... and the corporations sit there in their... in their corporation buildings, and... and, and see, they're all corporation-y... and they make money.


Any questions, PM me;-)

That you making the sign Numero?