Cebu Pacific reviews fuel hedging policy
Cebu Air president Lance Gokongwei said the company is reviewing its options after losing roughly $40 million a few years ago on a bad hedge. File
MANILA, Philippines — Cebu Air, the operator of Cebu Pacific airline, is reviewing its fuel hedging policy and may even completely move away from hedging, taking its cue from bigger American and Chinese airlines, which have done better without it.
Cebu Air president Lance Gokongwei said the company is reviewing its options after losing roughly $40 million a few years ago on a bad hedge.
“A lot of airlines are now taking the philosophy not to hedge like the American and Chinese airlines. It’s something that many airlines are reviewing now because historically, it seems those who have not hedged have done better than those who did,” Gokongwei said.
Another option for Cebu Air is to have wider band fuel hedging, learning its lessons from the other airlines, which have decided to source all requirements from the spot market.
Airline companies usually hedge to minimize risks, particularly in their jet fuel expenses. For instance, companies prepay their fuel needs at a certain assumption, which means that if oil prices increase, they are able to generate some savings. However, if oil prices go below the price they bet on, they may incur losses.
Pending completion of its review, Cebu Air plans to stick to hedging about 20 percent of its requirements for next year and depending on market opportunities, increase this toward the end of the year.
Gokongwei said Cebu Air is assuming a P52 against the dollar exchange rate for next year.
- Latest
- Trending
