China Airlines to Exit All Fuel Hedges After Return to Profit
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By Janet Ong
Aug. 24 (Bloomberg) -- China Airlines, Taiwan’s largest carrier, plans to exit all fuel-hedging contracts, locking in paper profits that helped it end six straight quarters of losses.
“When oil prices reach $75 and above, we will get out,” Chairman Philip Wei, 67, said in an Aug. 21 interview at the carrier’s Taipei headquarters. The airline was profitable in the second quarter as hedging gains offset an operating loss, he added, without giving any figures.
Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, has also returned to profit this year as oil’s climb to about $74 a barrel offset slumping international travel demand. China Airlines made an NT$21 billion ($638 million) unrealized hedging loss last year after the price of oil fell 69 percent from a record in about six months.
Most of the Taiwanese carrier’s hedging contracts are at about $75, Wei said, without elaboration. They will expire between April and August next year unless the carrier closes them early. The airline probably won’t enter any new positions, Wei said.
The price of oil reached a high of $145.85 on July 3, 2008. It was at $73.90 at 7:29 a.m. China Airlines rose 1.2 percent to NT$8.20 at 9:03 a.m. in Taipei trading. The carrier has gained 7.6 percent this year, trailing smaller rival EVA Airways Corp.’s 15 percent gain.
China Airlines also plans to lease two twin-aisle Airbus SAS A330s next year for mainland flights in anticipation of a further liberalization in cross-strait travel, Wei said. The carrier already operates Boeing Co. 747 jumbo jets on routes to Beijing, Shanghai and Shenzhen because of the demand, he added.
‘Golden Route’
“The ‘Golden Route’ is now China,” Wei said. “It used to be Japan and Hong Kong, but yields there have fallen because of the economic crisis.” Yield is a measure of average revenue per passenger.
China Airlines will likely get about 10 percent of sales from cross-strait flights by year’s end, up from 7.3 percent, Wei said. The ratio will rise as the carrier will operate 55 flights a week to 13 mainland cities from Aug. 31. It now flies 22 weekly services to seven cities, Wei said.
The carrier will also be able to fly cargo to and from the mainland because of a rule change, he added. That may help the airline offset plunging air-cargo demand amid the recession. Freight now accounts for about 30 percent of revenue, from as much as 45 percent in October on the demand slump, Wei said.
The total number of Taiwan-China flights will increase to 270 a week from 108 starting Aug. 31, under an agreement signed in April. Each side will have 135 flights.
The two sides ended a six-decade ban on direct services after Taiwan President Ma Ying-jeou took office in May 2008, abandoning his predecessor’s pro-independence stance.
To contact the reporter on this story: Janet Ong in Taipei at [email protected]
Last Updated: August 23, 2009 21:16 EDT
Share | Email | Print | A A A
By Janet Ong
Aug. 24 (Bloomberg) -- China Airlines, Taiwan’s largest carrier, plans to exit all fuel-hedging contracts, locking in paper profits that helped it end six straight quarters of losses.
“When oil prices reach $75 and above, we will get out,” Chairman Philip Wei, 67, said in an Aug. 21 interview at the carrier’s Taipei headquarters. The airline was profitable in the second quarter as hedging gains offset an operating loss, he added, without giving any figures.
Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, has also returned to profit this year as oil’s climb to about $74 a barrel offset slumping international travel demand. China Airlines made an NT$21 billion ($638 million) unrealized hedging loss last year after the price of oil fell 69 percent from a record in about six months.
Most of the Taiwanese carrier’s hedging contracts are at about $75, Wei said, without elaboration. They will expire between April and August next year unless the carrier closes them early. The airline probably won’t enter any new positions, Wei said.
The price of oil reached a high of $145.85 on July 3, 2008. It was at $73.90 at 7:29 a.m. China Airlines rose 1.2 percent to NT$8.20 at 9:03 a.m. in Taipei trading. The carrier has gained 7.6 percent this year, trailing smaller rival EVA Airways Corp.’s 15 percent gain.
China Airlines also plans to lease two twin-aisle Airbus SAS A330s next year for mainland flights in anticipation of a further liberalization in cross-strait travel, Wei said. The carrier already operates Boeing Co. 747 jumbo jets on routes to Beijing, Shanghai and Shenzhen because of the demand, he added.
‘Golden Route’
“The ‘Golden Route’ is now China,” Wei said. “It used to be Japan and Hong Kong, but yields there have fallen because of the economic crisis.” Yield is a measure of average revenue per passenger.
China Airlines will likely get about 10 percent of sales from cross-strait flights by year’s end, up from 7.3 percent, Wei said. The ratio will rise as the carrier will operate 55 flights a week to 13 mainland cities from Aug. 31. It now flies 22 weekly services to seven cities, Wei said.
The carrier will also be able to fly cargo to and from the mainland because of a rule change, he added. That may help the airline offset plunging air-cargo demand amid the recession. Freight now accounts for about 30 percent of revenue, from as much as 45 percent in October on the demand slump, Wei said.
The total number of Taiwan-China flights will increase to 270 a week from 108 starting Aug. 31, under an agreement signed in April. Each side will have 135 flights.
The two sides ended a six-decade ban on direct services after Taiwan President Ma Ying-jeou took office in May 2008, abandoning his predecessor’s pro-independence stance.
To contact the reporter on this story: Janet Ong in Taipei at [email protected]
Last Updated: August 23, 2009 21:16 EDT
