Financial Mail



SA Airways, the embattled national carrier, which incurred losses of up to R8bn in the period from 2004 and 2010 on oil bets, says it is hedging conservati­vely and will not see “massive” losses or profits with the plummeting of the oil price.

Close to 40% of SAA’s fuel contracts are hedged, says SAA CFO Wolf Meyer. According to SAA’s annual report for the year ended March 2013, the airline’s policy is to hedge a maximum of 60% of its jet fuel price risk exposures on a 12-month rolling basis, with no minimum hedge percentage.

Fuel continues to be SAA’s biggest cost, accounting for 35% of the group’s cost base, according to the 2013 annual report.

In that financial year, SAA consumed 129m litres of jet fuel a month, up from 126 Ml/month in the previous financial period.

Media reports last week said SAA had made losses of R8bn on oil hedges it had taken between 2004 and 2010. Meyer says given the airline’s current conservati­ve hedging policy, the extent of hedging losses are not “remotely as severe” as in the past, and are partly offset by currency hedging gains. He says SAA has gained approximat­ely R300m to date on its fuel purchases at the lower prices over the past six months. However, it has been incurring losses of about R392m on its fuel hedges.

“SAA will realise the full benefit of the lower fuel price only once the current hedges run out,” he says.

However, he adds that while SAA has hedged against a weakening currency, it cannot protect itself against continued weakening of the rand. “What SAA is doing to mitigate this risk is to increase its natural currency hedge capability by growing its foreign currency revenue and thereby decreasing its net foreign currency exposure,” he says.

The price of Brent crude has fallen by over half since June last year, falling below US$50/barrel this month, as supply has grown and demand has decreased.

Brent crude was trading at just below $85 at the end of October and below $72 at the end of November.

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