Hedging Activities

If you have been browsing airline websites in search of travel locations recently, you would have noticed that fuel surcharge has been increasing steadily in wake of the high oil prices. If I recall correctly, Qantas has increased their surcharge by around $200-250 in the past 2-3 weeks.

Guess what? It is still one of the cheapest airlines (if not the cheapest) to fly to Europe! The other airlines already have a higher initial fuel surcharge compared to Qantas.

At the back of my mind, though I wasn't sure, I was impressed with their trading arm of the business. The low fuel surcharge was possible only through hedging. By buying future contracts of fuel, Qantas has already locked in prices way ahead of the oil price surge.

To my surprise, the Sunday Times published this article.

Despite the crisis, Australian carrier Qantas still expects to make a record profit in excess of A$1.5 billion (S$1.94 billion) this financial year, due largely to its fuel hedging programme, which has seen it pay US$76 a barrel for fuel.

But too bad their contract wasn't for a longer period of time. They will be paying US$112/ barrel starting from July till December. Earlier, they have announced that there will be a fuel surcharge revision from 4 June onwards.

On another note, Nestle published a full page advertisement some time earlier this year announcing that the prices of their products will remain constant for about 3-6 months.

Yes. It's hedging at work. Makes for a good PR exercise too, doesn't it?