The State of Airline Fuel Hedging in 2017-2018 Dubai | 4 October - - PowerPoint PPT Presentation

The State of Airline Fuel Hedging in 2017-2018

Dubai | 4 October 2017

Number of Aircraft in Fleet

1-25 26-50 51-75 76-100 100 or more 0% 5% 10% 15% 20% 25% 30% 35% 2016-2017 2017-2018

Majority of Flights Domestic or International

Domestic International 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2016-2017 2017-2018

Point of Origin of Majority of Flights

Africa Asia Pacific & Oceania Europe Latin America Middle East North America 0% 10% 20% 30% 40% 50% 60% 70% 2016-2017 2017-2018

Majority of Shares are Publicly Traded, Privately Held or Government Owned

Publicly Traded Privately Held Government Owned 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2016-2017 2017-2018

Percentage of Total Costs Attributed to Fuel Costs

1-25% 26-35% 36-45% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2016-2017 2017-2018

Does Your Company Engage in Fuel Hedging

Yes No 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2016-2017 2017-2018

Does Your Company Have A Formal Fuel Hedging Policy

Yes No 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2016-2017 2017-2018

Primary Purpose of Your Fuel Hedging Program

Manage cash flow volatility Ensure budget certainty Manage exposure to short-term fuel prices Manage exposure to long-term fuel prices Other 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2016-2017 2017-2018

Primary Decision Maker Regarding Fuel Hedging Activities

Board of Directors Executive Management Team Risk Management Committee CEO, MD or President CFO, VP Finance or Treasurer Risk Manager 0% 10% 20% 30% 40% 50% 60% 2016-2017 2017-2018

What Hedging Strategies Do You Employ On A Regular Basis

Futures Forwards (Physical) Swaps Call Options Costless Collars Three-Way Collars Other 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2016-2017 2017-2018

Maximum Tenor (Duration) of Your Fuel Hedging Positions

1-6 Months 7-12 Months 13-18 Months 19-24 Months 25 Months or More 0% 10% 20% 30% 40% 50% 60% 2016-2017 2017-2018

Percentage of Fuel Consumption Hedges for Upcoming 12 Months

1-20% 21-40% 41-60% 61-80% 81-100% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2016-2017 2017-2018

Percentage of Fuel Consumption Hedges for Upcoming 12 Months

Brent Crude Oil WTI Crude Oil Singapore Jet Fuel US Gulf Coast Jet Fuel Rotterdam Jet Fuel NY Ultra-Low Sulfur Diesel ICE Gasoil 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2016-2017 2017-2018

Do You Believe Credit Issues May Limit Your Ability to Hedge in Coming 12 Months

Yes No 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2016-2017 2017-2018

Do You Clear Any of Your Fuel Hedges with Exchanges i.e. CME, ICE?

Yes No 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2016-2017 2017-2018

Primary Counterparty or Clearing Firm

Global Financial Institution Local/Regional Financial Institution Major Oil Company Fuel Supplier Commodity Trading Company Futures Clearing Firm 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2016-2017 2017-2018

How Do Stakeholders (i.e. Board, Shareholders) Define Hedging Success

Minimize exposure to short-term fuel price increases Minimize exposure to long-term fuel price increases Cash flow volatility is minimized Hedging activities improves our bottom line Hedging activities provides competitive advantage Hedging results in fuel price which is at or below budget 0% 10% 20% 30% 40% 50% 60% 2016-2017 2017-2018

How Can Company Best Improve Hedging Results

Strategies which better reflect the company’s risk tolerance & goals A policy which requires hedging

• n a consistent

basis, regardless

• f market

Methodology which consistently seeks to

• ptimize existing

positions Decision making framework based on quantitative analysis of relevant data Better execution and implementation

• f existing

hedging policy & strategies. Content with the current state 0% 10% 20% 30% 40% 50% 60% 2016-2017 2017-2018

Does Your Company Utilize Hedging Accounting per IFRS or GAAP?

Yes No Not Applicable 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2016-2017 2017-2018

What Technology Do You Use to Manage Fuel Hedging Activities?

Spreadsheet Treasury System Commodity Risk Management System Financial Risk Management System Enterprise Platform Custom Built System 0% 5% 10% 15% 20% 25% 30% 35% 40% 2016-2017 2017-2018

Will Changing Market Regulations (i.e. MiFID) Impact Fuel Hedging Activities?

Yes No Unsure 0% 10% 20% 30% 40% 50% 60% 70% 2016-2017 2017-2018

Primary Source of Fuel Hedging Data and Information

Financial Institution Fuel Supplier Futures Clearing Firm Advisory/Consulting Firm Data Provider

0% 10% 20% 30% 40% 50% 60% 70% 2016-2017 2017-2018

What is Company’s Largest Challenge As It Relates to Fuel Hedging

• Risk committee is attempting to guess market prices to determine best hedging strategies
• Mark-to-market losses associated with positions executed when prices were much higher
• Changing regulations and declining number of counterparties
• Anticipating the fuel hedging strategies being utilized by competitors
• Call option premium prices
• Board and CEO lack understanding of risk management and commodity markets
• Improve cost/benefit ratio of our fuel hedging activities
• Strategy selection i.e. swaps vs. costless collars
• Obtaining a better understanding of all strategies available to us so that we can diversify portfolio
• Optimizing current positions in light of changing market prices and volatilities

What Data & Information Would Allow You to Better Manage Fuel Hedging

• A treasury system which can natively handle fuel hedging and can integrate with our enterprise risk

management system

• In-depth market analysis of FX and fuel markets
• Regional and global trends of airline fuel hedging positions
• Competitor and peer group hedge benchmarks and analysis
• Trading system which allows us to execute with many counterparties at same or similar time
• Forward market prices and volatilities
• System to conduct scenario analysis and valuate hedging activities
• Better access to cleared market for crude oil and jet fuel swaps and options
• Independent advice for our directors regarding best strategies to meet our hedging objectives

Contact

Mike Corley Managing Director Mercatus Energy Advisors corley@mercatusenergy.com +65.3163.8961