Ashwini Phadnis

New Delhi, Oct. 5

THE New Year will provide some relief for Air India on the fuel front. The airline board has been given the nod to hedge 10 per cent of the aviation turbine fuel (ATF) that it uplifts from abroad from January 1, 2006.

AI will be the first scheduled airline from India to be allowed to hedge on the ATF it buys in the international market. Citibank is to be the counter party in the hedging process.

Several international airlines hedge on ATF, which basically is forward selling and buying of aviation fuel, to guard against fluctuating fuel prices.

The move will help AI as the global oil prices have been spiralling upwards in the recent past. The airline uplifts close to 70 per cent of its fuel requirements from abroad while the rest of its needs are met domestically.

"The decision should help the airline hedge against upside of any further fuel hike. The decision has come at a time when oil prices are at a high level and all indications are that in the coming months they will harden further," a senior AI official said. During 2005-06, AI has projected a total fuel bill of about Rs 2,100 crore.

The airline has in the recent past been affected by fuel price increases. While AI was paying about 114 cents per US gallon during 2003-04 it touched 173.14 cents per US gallon the following year before peaking at 220 cents per US gallon during 2005-06.

For AI, fuel as a percentage of total costs went up from 21 per cent during 2003-04 to 28.8 per cent during 2004-05. "Of the total increase in expenses of 21 per cent during 2003-04, fuel constituted 65 per cent of the costs," the sources said.

The airline has maintained that had it not been for the increase in fuel prices, it would have made a profit of more than Rs 450 crore after adjusting for fuel surcharge during 2004-05.

The impact of the sharp increase in oil prices has also been acknowledged by the global airline body, International Air Transport Association (IATA) which recently pointed out that the annual fuel bill for member airlines is now expected to reach $83 billion, significantly higher than the $76 billion projected earlier.

(This article was published in the Business Line print edition dated October 6, 2005)
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