Across Asia and the Pacific, airlines are learning how much of their future now rides on a commodity none of them controls. Jet fuel, which cost about $85 a barrel before the Iran war began in late February, has swung far higher and now sits near $148, so that fuel has grown from roughly a quarter of operating costs to a third. Gathered in Kuala Lumpur for their annual assembly, the region's carriers face an old dilemma in sharper form: the price protection they bought earlier is expiring, and locking in new cover means wagering that today's elevated prices will endure. Whether they rebuild th
Asia-Pacific Airlines Brace for Prolonged Fuel Pain as Hedging Cover Thins
"There has to be a breaking point where passengers will say no."
Mark
Fuel went from 25% to about 33% of costs. Why is that such a big deal?
Mimi
Because it's the one big cost airlines can't negotiate away. Going from roughly $85 a barrel to $148 reshapes the whole budget.
Mark
And hedging is supposed to soften that?
Mimi
It did. Singapore Airlines paid $171 before hedging and an effective $145 after, with S$731 million in hedging gains. But its CFO was frank that it only offers some protection.
Luke
Worth noting those hedging gains are Singapore Airlines' own figures. They don't tell us how other carriers fared.
Mark
What's the dilemma Wong Hong describes?
Mimi
Old hedges are expiring. Re-hedging now means locking in high prices, and that only pays off if prices stay high or climb.
Luke
And the executives genuinely disagree. ANA's CEO expects stabilisation in the second half of the fiscal year; the Kazakh airline expects ups and downs and budgets for $160. Those are expectations, not forecasts anyone can verify.
Mark
Why does JAL's surcharge matter?
Mimi
It's a first for the carrier, and it follows a conclusion that government subsidies can't be relied on indefinitely. ANA is still weighing it, partly because bullet trains compete.
Luke
The passenger-demand warning is Wong's reading. Growth was negative in aggregate April to August and barely positive in September, but we don't know if the fares are the cause. Capacity cuts are described only as a potential risk.
Mark
So what's unresolved?
Mimi
Where fuel goes next, and whether travelers keep paying.
Luke
Right, and nobody quoted claims to know either.
Il Polso
- Jet fuel sits near $148 a barrel, far above the pre-war $85, and airline costs are being squeezed as fuel climbs to a third of operating expenses.
- Hedges bought earlier are expiring just as prices stay high, forcing carriers to choose between locking in expensive cover or riding out volatility.
- ANA and JAL are navigating fuel costs differently: JAL is introducing a first-ever domestic fuel surcharge from April, while ANA weighs a similar move against bullet train competition.
- Passenger demand has already turned negative across the region from April to August, and fare increases are not always keeping pace with fuel bills.
- Capacity cuts loom as a possible response, and the industry is watching closely for the moment passengers finally push back.
Across Asia and the Pacific, airlines are learning how much of their future now rides on a commodity none of them controls. Jet fuel, which cost about $85 a barrel before the Iran war began in late February, has swung far higher and now sits near $148, so that fuel has grown from roughly a quarter of operating costs to a third. Gathered in Kuala Lumpur for their annual assembly, the region's carriers face an old dilemma in sharper form: the price protection they bought earlier is expiring, and locking in new cover means wagering that today's elevated prices will endure. Whether they rebuild that shield or accept the swings, the costs will ultimately be carried by passengers, whose willingness to keep paying is the question no one can yet answer.
At the annual assembly of the Association of Asia Pacific Airlines in Kuala Lumpur, the talk among executives kept circling back to one figure: jet fuel at about $148 a barrel. It has eased from nearly $180 in late October, but it remains far above the roughly $85 it cost before the Iran war began in February.
The association's director general, Wong Hong, described the damage in structural terms. Fuel now makes up about a third of airline operating costs, up from a quarter last year. Hedging, the practice of locking in future prices, has become what he called a very tricky dilemma. Carriers that held contracts over the past months came out well, but those protections are running out, and re-hedging now means betting that high prices will last.
The Kazakh carrier's executive, Canliel, said his first-half hedges have expired and that current prices did not make sense for new cover, though the airline still plans to rebuild its position. He expects the price to be cyclical and is budgeting for a worst case of $160 a barrel.
In Japan, ANA's chief Juichi Hirasawa expects fuel to cost 100 billion yen more than planned this year and hopes the market steadies in the second half. Both ANA and JAL hedge only domestic fuel and pass international costs through surcharges and fares. JAL will introduce a domestic surcharge in April, its first, after deciding government subsidies could not be relied upon. ANA is considering the same, though bullet trains make that choice hard.
Fares have risen with oil but not always fast enough. Regional passenger growth was negative from April to August, and Wong warned that there must be a breaking point where passengers say no, with capacity cuts a clear risk. Singapore Airlines shows both the power and the limits of hedging: its hedges cut an effective $171 price to $145, yet its finance chief reminded listeners that no one can predict fuel prices, which is exactly why they hedge.
At the annual assembly of the Association of Asia Pacific Airlines in Kuala Lumpur this week, the conversation among airline executives kept returning to one number: jet fuel is trading at about $148 a barrel. That is down from nearly $180 at the end of October, but well above the roughly $85 it cost before the Iran war began in late February.
Wong Hong, the association's director general, put the damage in terms of cost structure. Fuel now accounts for about 33% of airlines' operating costs. The global industry group IATA had put that share at 25% last year, before prices surged. Wong's group represents 18 of the region's carriers, and he described hedging, the practice of locking in future fuel prices, as a "very, very tricky dilemma."
The dilemma arises because the protection many airlines bought earlier is running out. Carriers that held hedging contracts over the past six to eight months were, in Wong's words, "coming out smelling like a rose." Now they face re-hedging at much higher levels. Adding cover is a bet that prices will stay high, and executives at the assembly disagreed about how long that will last.
The Kazakh carrier's executive, identified in the report by the surname Canliel, said its first-half hedges have expired and that current prices "did not make sense" for locking in new cover. The airline still plans to rebuild its position, aiming to hedge all the fuel it buys outside Kazakhstan, about 30% of its total in a typical year. "We still think it will be cyclical. It's going to go up and down," he said. The airline is budgeting for a worst case of $160 a barrel, the average it paid from April to September.
In Japan, All Nippon Airways CEO Juichi Hirasawa said fuel costs will run 100 billion yen ($626 million) above initial plans this fiscal year. He expects the fuel market to stabilise in the second half of the financial year ending March 31. ANA and Japan Airlines hedge only their domestic fuel consumption and rely on fuel surcharges and ticket price changes for international exposure; neither signalled any change to that approach. JAL, however, will introduce a domestic fuel surcharge from April next year, a first for the carrier, after concluding it could not rely on government fuel subsidies indefinitely. Hirasawa said a domestic surcharge at ANA is "under consideration," but competition from bullet trains makes the decision difficult.
Ticket prices have risen with oil, though not always quickly enough to cover the added fuel costs. "There has to be a breaking point where passengers will say no," Wong said. Asia-Pacific passenger growth was negative in aggregate from April to August, with September "just above water," he said, and capacity cuts are "clearly a potential risk."
Singapore Airlines shows both what hedging can do and where it stops. It paid an average of $171 a barrel before hedging, up 87% year-on-year. Hedging gains of S$731 million, against a S$75 million loss a year earlier, cut the effective price to $145 a barrel. Chief Financial Officer JoAnn Tan said at Thursday's earnings briefing that hedging "only offers some level of protection," adding, "No one can predict fuel prices, which is why we hedged."
The things to watch now are whether ANA follows JAL with a domestic surcharge, and whether passenger demand holds as fares rise and capacity cuts loom.
Citazioni salienti
Hedging is a "very, very tricky dilemma."— Wong Hong, director general, Association of Asia Pacific Airlines
Hedging "only offers some level of protection."— JoAnn Tan, CFO, Singapore Airlines
Vuoi la storia completa?
Leggi l'originale su Reuters ↗