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Ashwini Phadnis

New Delhi, July 1 The decision of the Delhi-based low-cost airline SpiceJet to start hedging on the price of aviation turbine fuel is paying dividends.

The airline, which started hedging recently, claims that it has reported a positive cash flow in the first two months of the current fiscal, largely due to the decision to hedge on fuel prices.

“We started hedging on oil when it was low and in May and June we have seen a positive cash flow due to this. It is small (the amount that is hedged), but it is a good investment that we have made. Besides there is some natural hedge, which every airline has which is to raise fuel surcharges,” the airline Chief Executive Officer, Mr Sanjay Aggarwal, told Business Line.

The airline has an annual fuel bill of Rs 750 crore. The increase in fuel prices has affected the airline previously. In April 2007, the airline reported operating expenses of Rs 232.46 crore mainly on account of the upward movement in the price of aviation turbine fuel, officials said. During the quarter ended February 28 last year, the airline had reported operating expenses of Rs 111.62 crore.

This year too the price of ATF has been fluctuating. On Tuesday, oil companies announced an increase of more than Rs 2 a litre in the sale price of ATF. From Wednesday, domestic airlines will be charged Rs 38.55 for a litre of ATF in Delhi, up from Rs 36.25 a litre charged previously.

Globally, several airlines hedge on ATF, which basically is forward selling and buying of aviation fuel, to improve their bottom line. In the domestic market, ATF constitutes 45-50 per cent of the operating cost of airlines mainly on account of the high incidence of sales tax that States levy on the fuel.

More Stories on : Performance | Airlines | Petroleum

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