Airline tries to battle fuel cost

OVERHEADS: Cathay Pacific Airways has increased its hedging ratio to offset the pressure of rising fuel costs, which could be further eased when the mainland authorities allow it to operate flights to and from Shanghai.

The carrier is now allocating more money for future and derivatives for every ton of gasoline it buys.

Cathay Pacific Chief Executive Philip Chen told reporters that the company raised its hedging ratio for fuel to a record 40 per cent.

"Confronting the jet fuel price, rocketing from US$73 per barrel last year to US$90 per barrel, our hedge ratio had inevitably to rise. The ratio was 30 per cent last year and has increased to 40 per cent in 2006," Chen said.

The fuel price hike forced the carrier to suffer a 25.3 per cent drop (HK$3.3 billion) in profit last year. Its fuel cost rose substantially, by 67 per cent, to reach HK$15.6 billion.

"Today, fuel expense accounts for approximately 30 per cent of our total cost, which is similar to last year," Chen said.

"We mainly use derivatives to hedge the hike. But in the view of imminent rise in international fuel prices, we are going to seize alternatives for tackling the problem," he said. Cathay Pacific is in talks with the government to extend the cost on passengers by levying surcharges on them. But Chen said that even if the government approved of its move, it would do very little to compensate for its fuel cost.

The aviation department granted Cathay Pacific the right to impose a HK$370 and HK$90 fuel charge on long- and short-route passengers in March, but that arrangement was only till last month.

The General Administration of Civil Aviation of China has said Cathay Pacific could operate flights to and from Shanghai in 2006.