1. Vistara plans to hedge jet fuel price to cut cost

Vistara plans to hedge jet fuel price to cut cost

The drop in jet fuel prices has allowed Vistara to keep fuel costs below 45% of its total costs for the first time since it started operations

By: | Mumbai | Published: August 26, 2015 12:27 AM

Full service carrier Vistara — a 51:49 JV between Tata Sons and Singapore Airlines — looking at reducing costs, is considering the option of hedging its jet fuel price on the back of a slide in the global crude oil prices.

The national carrier, Air India, is currently the only Indian carrier that hedges its jet fuel requirements. The airline hedges about a fifth or 20% of its total oil requirements. “Right now, given the volatility of situation, we are watching and deciding whether it’s time to hedge or sit back and wait for the right time. We don’t know if the fuel prices could fall further,” Vistara’s chief executive Phee Teik Yeoh told FE. “We look at fuel hedging to lock in at an optimal price.

It’s not gamble but to achieve price certainty. And, if the price goes down, after lock in, you should just move on,” Phee Teik Yeoh added.

Gr1

Jet fuel comprises about 45-60% of airline’s total costs. However, the jet fuel price have declined by over 34% during the last 12 months as a result of a steep decline in the global brent crude prices. Airlines have benefited immensely as a result with most carriers recording profit on the back of fall of jet fuel prices during the recently concluded quarter.

The jet fuel price on August 3, 2015, stood at Rs 46,407.36 per kilolitre in Delhi compared with Rs 70,044.87 per kilolitre during the year-ago period.

For Vistara, the drop in the jet fuel prices have allowed the airline to keep its fuel costs below 45% of its total costs for the first time since the carrier began its operations in January 2015.

Vistara’s competitor in the full service space, Air India, is hoping to save Rs 800 crore on fuel during Fy 16 on the decline of oil prices. The airline, which spent close to Rs 9,000 crore on fuel during Fy 15, hopes to save over Rs 2,500 crore during the Fy 17 if the exchange rate remains stable.

Tags: Vistara
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