Jet Fuel at $148 Raises Asia Airlines’ Exposure as Hedges Wind Down
Key Facts
Asia-Pacific airlines face greater exposure to rising jet fuel prices as older hedging contracts expire, according to a Reuters report on November 13. Spot jet fuel was about $148 a barrel, after nearing $180 at the end of October. Even so, the price remained far above about $85 before the war with Iran broke out in late February. The director general of the Association of Asia Pacific Airlines said fuel now accounts for about 33% of operating costs, compared with the International Air Transport Association’s estimate of 25% last year. Fuel’s larger share of costs raises the stakes for hedging decisions, surcharges and ticket-price adjustments as airlines seek to protect margins.
Airlines in the region vary in their ability to absorb the increase, depending on their purchasing and hedging strategies. Air Astana Chief Executive Ibrahim Canliel said current fuel prices represented a "new normal" and that the company aimed to hedge all the fuel it buys outside Kazakhstan. That represents about 30% of its usual total consumption for the year. Japan Airlines expects prices to remain volatile and has set $160 a barrel as its worst-case scenario in its budget. That figure matches the average price the company paid from April to September.
Singapore Airlines’ results for the six months ended in September showed the scale of the pressure on its accounts, with its fuel bill rising 56% year on year to 3.97 billion Singapore dollars. Operating profit fell 29% despite record revenue, reflecting the impact of fuel costs on results. The average price the company paid was $171 a barrel before hedging, up 87% from the same period a year earlier. Hedging gains of 731 million Singapore dollars reduced the effective price to $145 a barrel. The company had recorded a hedging loss of 75 million Singapore dollars a year earlier, highlighting the differing impact of hedging in the two periods.
Singapore Airlines Chief Financial Officer Joanne Tan said hedging offers only partial protection in a market that is difficult to predict. "No one can predict fuel prices, and that is why we hedge," she added. In Japan, ANA and Japan Airlines hedge only their domestic fuel consumption, according to Reuters. The two airlines rely on fuel surcharges and ticket-price adjustments to manage exposure on international flights. This policy puts pricing and surcharge decisions at the center of the companies’ response to fuel-cost increases beyond the scope of domestic hedging.
Japan Airlines is moving toward imposing a fuel surcharge on domestic flights from April 2027, in what would be a first for the company. ANA said it was considering a similar domestic surcharge. Reuters reported that competition from high-speed rail makes the decision more difficult for ANA, which must account for the impact of surcharges on the competitiveness of air travel within Japan. ANA Chief Executive Goichi Hirasawa said fuel costs would exceed the company’s initial plan by about 100 billion yen in the fiscal year ending March 31, 2027. He expected the fuel market to stabilize in the second half of the fiscal year, ending March 31.
Cost pressures come amid weak passenger-traffic growth in the region, according to the director general of the Association of Asia Pacific Airlines. Passenger growth was negative overall from April to August before becoming "slightly above zero" in September. This weakness makes it harder to pass fuel costs on through ticket prices as airlines try to restore hedging or adjust surcharges. The official warned that capacity cuts remained a potential risk for the sector. Airlines thus face a dilemma between protecting profits and sustaining demand in a market that had shown no strong passenger growth through September.