‘Bank on fuel efficiency, not fluctuating oil prices’

EVEN as global oil prices continue plummeting to a historic low, airlines are unlikely to benefit immediately due to fuel hedging, which is practised by most major airlines.

Speaking at the opening panel of the Aviation Festival Asia, Shakeel Adam, manging director of international aviation consultancy Aviado Partners, said: “Many airlines cannnot benefit in the short term because they are hedged up to 80 per cent, years in advance. So those who will benefit are often the cash-rich ones.”

According to International Air Transport Association, while fuel costs account for a third of airlines’ operating costs on average, the savings on fuel relative to the oil price decline are not as straightforward.

Sharing similar sentiments, Finnair COO, Juha Järvinen, said: “We are hedged from 60 to 80 per cent so possibly we will see more impact in the second half of the year rather than the first half.”

Adam suggests it is instead more viable for airlines to look at using fuel-efficient aircraft, pointing to Finnair as an example. Last December, the airline announced the additional order of eight A350 XWBs, which would provide at least 25 per cent improvement in fuel efficiency.

Järvinen said: “Fuel prices will go up and down. At the end of the day, it is the fuel efficiency savings and the unit cost that is the key.”

Separately, Singapore Airlines (SIA) yesterday announced it will reduce fuel surcharges for tickets issued on or after February 26. The reduction will apply to SIA and SilkAir flights, representing a decrease of US$5 to US$83 per sector, depending on the distance and class of travel.

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