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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 flowvolatility
Ensure budgetcertainty
Manage exposure toshort-term fuel
prices
Manage exposure tolong-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 ofDirectors
ExecutiveManagement
Team
RiskManagementCommittee
CEO, MD orPresident
CFO, VPFinance orTreasurer
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 CostlessCollars
Three-WayCollars
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 CrudeOil
WTI Crude Oil Singapore JetFuel
US Gulf CoastJet Fuel
Rotterdam JetFuel
NY Ultra-LowSulfur 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 FinancialInstitution
Local/RegionalFinancialInstitution
Major OilCompany
Fuel Supplier CommodityTrading
Company
Futures ClearingFirm
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
Minimizeexposure to
short-term fuelprice increases
Minimizeexposure to
long-term fuelprice increases
Cash flowvolatility isminimized
Hedgingactivities
improves ourbottom line
Hedgingactivitiesprovides
competitiveadvantage
Hedging resultsin fuel price
which is at orbelow 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 whichrequires hedgingon a consistent
basis, regardlessof market
Methodologywhich
consistentlyseeks to
optimize existingpositions
Decision makingframeworkbased on
quantitativeanalysis of
relevant data
Better executionand
implementationof existing
hedging policy &strategies.
Content with thecurrent 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 RiskManagement
System
Financial RiskManagement
System
EnterprisePlatform
Custom BuiltSystem
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 ClearingFirm
Advisory/ConsultingFirm
Data Provider0%
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
+65.3163.8961
