The Hindu Business Line : AI feels the heat as ATF prices shoot up

THE northward movement in the international prices of aviation turbine fuel (ATF) in the recent past has impacted the financial performance of Air India during the first two months of the current financial year.

"Like most global airlines, AI's financials for the first two months of the new financial year have been affected by the spiralling cost of ATF. During the first two months, things have been bad. The figures for July are yet to come in. However, it is still to early to say anything on the impact on the full year," a senior airline official said.

While refusing to disclose financial details, the AI official merely said the airline had been "badly affected" by the rising cost of ATF.

Hedging option: In the recent past, global oil prices have been in hovering around the $40 per barrel range, which is generally considered on the high side. Officials said that although the AI board had cleared a proposal to allow the airline to hedge on the price of ATF that it picks up, no move has yet been made in that direction.

The airline has already appointed ICICI Bank as the authorised dealer to carry out fuel hedging, and it plans to make a cautious start in this regard. AI officials had earlier said that initially the airline would hedge on ATF from only two international stations - Dubai and one more in the Far East. The airline is likely to hedge on about 10-15 per cent of the entire fuel that it uplifts from these two centres, officials said.

AI is also said to be looking at the scenarios of going in for the various options that are available in the global hedging market, including taking positions on ATF prices being quoted at the London market though delivery could be taken in Dubai, sources said.

Internationally, several airlines hedge on the price of the ATF that they pick up in an effort to ensure that the fluctuations in the prices of oil do not affect their bottomline.