Airline Fuel Hedging in 2016 & Beyond Mike Corley, Mercatus - - PowerPoint PPT Presentation

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Jan 14, 2023 128 likes •403 views

Airline Treasury & Risk Management Forum Airline Fuel Hedging in 2016 & Beyond Mike Corley, Mercatus Energy Advisors The State of Airline Fuel Hedging in 2016 and Beyond 4 October 2016 How many aircraft are in your companys fleet?

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Airline Treasury & Risk Management Forum Airline Fuel Hedging in 2016 & Beyond Mike Corley, Mercatus Energy Advisors

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4 October 2016

The State of Airline Fuel Hedging in 2016 and Beyond

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How many aircraft are in your company’s fleet?

37% 11% 21% 5% 26% 1-25 26-50 51-75 76-100 100 or more

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Company Ownership

21% 37% 42% Publicly Traded Privately Held Government Owned

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37% 42% 21% 1-25% 26-35% 36-45%

Fuel as Percentage of Total Costs

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Does your company hedge fuel price risk?

68% 32% Yes No

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Does your company have a hedging/risk policy?

92% 8% Yes No

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Primary purpose of your fuel hedging program?

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Manage cash flow volatility Manage exposure to short-term fuel price increases Manage exposure to long-term fuel price increases Other

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Who makes company’s fuel hedging decisions?

8% 61% 8% 23% Board of Directors Hedge or Risk Management Committee Chief Financial Officer, VP of Finance, Treasurer Other

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What fuel hedging instruments does your company utilize?

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Futures Forwards (Physical) Swaps Call Options Collars Other

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What is the maximum tenor of your fuel hedge positions?

8% 8% 8% 46% 15% 15% 1-6 Months 7-12 Months 13-18 Months 19-24 Months 25 Months or More Other

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% of fuel consumption hedged for coming 12 months

15% 8% 31% 46% 1-20% 21-40% 41-60% 61-80%

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Primary reference index

23% 8% 69% Brent Crude Oil US Gulf Coast Jet Fuel Rotterdam Jet Fuel (NW Europe and ARA)

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Anticipate credit related issues may limit your ability to hedge your fuel price risk in coming year?

25% 75% Yes No

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Do you utilize clearing for credit risk management?

0% 100% Yes No

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What type of firm is your primary counterparty(s)

42% 12% 23% 15% 8%

Global Financial Institution (i.e. BNP Paribas, Goldman Sachs, Morgan Stanley, etc.) Local Financial Institution (i.e. Abu Dhabi Commercial Bank, DBS, National Bank of Canada, Nordea, etc.) Major Oil Company (i.e. Shell, BP, etc.) Fuel Supplier (i.e. World Fuel Services)

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What is fuel hedging success to your company?

16% 17% 42% 17% 8% When we minimize exposure to short- term fuel price increases. When we minimize exposure to long- term fuel price increases. When our cash flow volatility, as it relates to fuel prices, is minimized.

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How can company improve fuel hedging program?

35% 12% 12% 12% 17% 12%

Strategies which better reflect the company’s risk tolerance and goals. A policy which requires hedging on a consistent basis, regardless of our

pinion of the market.

A methodology which consistently seeks to

ptimize the company's

existing hedge positions. A decision making framework based on sound, quantitative analysis of relevant data? Better execution and implementation of existing hedging policy and strategies.

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Does your company utilize hedge accounting treatment?

75% 25% Yes No

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What system(s) do you use to manage fuel hedging?

34% 8% 17% 33% 8% Spreadsheets (i.e. Microsoft Excel) Treasury System (i.e. VisualRisk, Sungard) Commodity Risk Management System (i.e. Openlink) Financial Risk System (i.e. SuperDerivatives) Enterprise Platform (i.e. SAP)

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Do you expect regulations (i.e. EMIR, Dodd Frank, Basel III) to impact your fuel hedging practices?

33% 25% 42% Yes No Unsure

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What is your primary source of fuel market information?

15% 85% Financial Institution (i.e. Goldman Sachs) Data Provider (i.e. Reuters)

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Most significant challenge regarding fuel hedging

Lack of access to credit lines
Large negative mark-to-market losses
Board of directors doesn’t understand pros

and cons of hedging

Improve cost/benefit of fuel hedging
Weak balance sheet
Lack of internal knowledge and skills
Oil price volatility
Management makes decisions based on gut

not information

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Contact

Mike Corley | Mercatus Energy Advisors +65.3158.2705 | corley@mercatusenergy.com

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Contact

Mike Corley | Mercatus Energy Advisors +65.3158.2705 | corley@mercatusenergy.com

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Contact

Mike Corley | Mercatus Energy Advisors +65.3158.2705 | corley@mercatusenergy.com