Emirates Airline not ready to resume fuel hedging

London // Emirates is betting on oil prices staying below US$80 a barrel for the medium term and has no plans to return to fuel hedging.

Emirates is benefiting from ending its fuel hedging strategy in 2009, but in the past the airline’s profitability was hit hard when oil prices soared, briefly hitting $147 a barrel in 2008.

Tim Clark, the airline’s president, said that his treasury team was constantly “on my case, over fuel hedging”, but that he was reluctant to resume the practice, which required people “with a triple first from Oxford and from Harvard”.

“I’m not saying that we won’t ever do it, but it has been very difficult,” he said. “We have managed to trade the airline through [fluctuations in the oil price]. When oil is priced between $115 a barrel and $50 a barrel we can make money.”

Oil prices have plunged by more than 40 per cent since June.

Mr Clark said he believed that the global oil supply was unlikely to be constrained in the short term.

He pointed to production from Iran, where sanctions could soon be lifted, and US shale explorers, who he said would continue operations at any cost given the billions they had already invested.

Emirates scrapped its fuel surcharge amid the plunge in oil prices, which Mr Clark said the airline was using to examine new business strategies. These included expansion to new markets or lower fares in addition to further investment in its product and its brand.

“Our prices are very competitive. But I’m not attracted to fighting [price] wars. We have the No 1 airline brand in the world and that does a lot of selling for us,” he said.

Before oil prices fell, fuel accounted for 41 per cent of the airline’s costs. Fuel efficiency continues to be a priority, which Emirates made clear in its choice of Rolls-Royce engines for its 50 new Airbus A380 jets.

Airbus has not yet given Emirates a decision on whether it will build an upgraded ‘neo’ A380, despite being put under pressure by Emirates to do so.

Improving the Airbus fleet is central to Mr Clark’s ambition of carrying 70 million passengers to 180 destinations around the world by 2020. Emirates has said it will order 200 of the new jets if Airbus goes ahead with the update.

Some of the Rolls-Royce orders announced on Friday could be converted for the new craft, Emirates said.

Emirates believes that the Airbus A380 could be the best solution to the constrained aviation infrastructure in many markets, as global air travel recovers from the worldwide downturn.

Speaking of the US airline industry’s attacks on Gulf carriers, he said that it was a “ripple” and dismissed the idea that the bilateral trade agreement between the UAE and US was at risk.

“I don’t believe that the US government would change its Open Skies strategy. They drove it in the first place and it has been the best thing that has ever happened,” he said.

“When the evidence is clearly put in front of them, they will see that no such set of state subsidies exists. It is a ripple, but it is having an effect on the industry, because there is no unanimity on this. Opinion is deeply divided.

Earlier in the week, International Airlines Group, which owns British Airways and Iberia, pulled out of the Association of European Airlines saying it did not agree with the policy of other members towards competition in the skies.

Willie Walsh, the chief executive of IAG, has also made clear his displeasure that American Airlines, a partner in the One World alliance, which includes IAG, has been arguing against liberalisation of aviation markets.


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