Some airlines gain more than others from low oil prices

By Chan Quan Min

Asia-Pacific airlines can look forward to a better 2015 as all airlines in the region, according to Maybank Research, are net beneficiaries of lower fuel prices.

However, not all airlines are made the same and the effect of lower fuel is not even across the region’s airlines. According to Maybank Research, the general rule is that “airlines without fuel hedging benefit the most”.

Other secondary factors to consider include stage length and share of cargo operations to total revenue. In this respect, and that of fuel hedging, Taiwanese carriers China Airlines and EVA Airways come up top. They are followed by AirAsia X in third place.

The Taiwanese carriers, according to Maybank’s Mohshin Aziz, “traditionally do not hedge”. Chinese carriers too, such as the big four of Air China, China Eastern, China Southern and Hainan Airlines, do not hedge their fuel requirements.

“Chinese carriers are fully on the spot market,” he said. “However, recall that China has a fuel-price control mechanism and prices do not fluctuate on a daily basis. Not only do Chinese jet fuel prices lag movements in global fuel prices, they do not necessarily adjust by the same quantum.”

Kuala Lumpur based AirAsia and sister long-haul airline AirAsia X have hedged at least 43% of their fourth quarter (4Q14) and 24% of their first quarter (1Q15) fuel requirements, most of it at rates over US$100 a barrel. Malaysia Airlines was not part of the study.

“The lower fuel price is a present from the heavens for an industry that just went through hell,” said Mohshin.

“With this new cost environment, many sectors previously unfeasible are now churning good money and air freight is enjoying a cyclical recovery,” he said.

“This should shift the airline executive’s strategy mindset from that of a combative one fixated on market share – much like the case was back in 2013 and 2014 – to that of a more relaxed state whereby everyone is focused on making good profits.”

In the space of four months, the price of crude oil traded in international markets, as indicated by the Brent crude benchmark, has fallen about 40% to just US$60 a barrel.