KUALA LUMPUR (April 2): Malaysia Aviation Group (MAG) has hedged about one-third of its fuel needs for this year, offering some breathing room for the owner of Malaysia Airlines amid soaring jet fuel prices.
In the second quarter alone, the group has a collar hedge for 50% of its fuel requirement, capping its cost at around US$80 per barrel with a floor of about US$60 per barrel, MAG president Captain Nasaruddin A Bakar said at a briefing on Thursday. Apart from jet fuel, insurance premium rates have also increased, he flagged.
“More importantly, it is about fuel supply,” Nasaruddin said. Some countries are controlling the amount of refuelling, especially in import-reliant nations such as Manila, which may affect flight frequency, he noted.
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Jet kerosene prices have surged over 140% to above US$200 per barrel following the outbreak of the Iran war last month. Apart from attacks on oil and gas facilities, the conflict has also disrupted shipping of major commodities from metals to grains.
Malaysia Airlines, the national flag carrier, has been forced to take detours around high-risk areas that added flight times for European destinations such as London and Paris.
Combined with the costlier jet fuel, the group is seeing additional costs of around RM115,050 each day, Nasaruddin said. Further, the national carrier is losing up to RM1.6 million in revenue daily as four flights are cancelled each day.
To ensure Malaysia Airlines can fly longer distances, the group is "optimising our fleet efficiency to fly the newer aircrafts,” Nasaruddin said. For now, demand has remained strong, he said.
London routes, he highlighted, are seeing 90% load factor, meaning that most of the flights are flying full of paying passengers.
Every US$1 increase in fuel price could see RM51 million increase in annual costs, though part of the expenses could be passed to travellers through dynamic ticket pricing, according to the company’s estimates.
The currency exchange rate also impacts the group's profitability, Nasaruddin said, with every 10 sen depreciation against US dollar to cut its bottom line by RM203 million.