Oil Price Relief for Oz Carriers?
 

My whole working career has been primarily in the finance and investment area and I have been closely monitoring the global financial crisis.

The price of oil has dropped considerably over the past few months on fears that the demand for oil will weaken considerably on the back of the financial woes around the world. Last night trade ended around US$87 a barrel as opposed to a few months back when we saw prices up around US$145 a barrel.

This would be great news..... if the bottom hadn't fallen out of the Aussie dollar which closed yesterday at a dismal 67c up against the US dollar.

My question is, will Aussie airlines be excited at this drop in Oil price, or are they really just in the same position as the weak dollar has offset the drop in the price of Oil.

I have no idea how they hedge/buy their fuel and in what currency etc. I do some work now and again for a South African company who holds accounts in both US currency and also in Euros and they use those currencies to buy stock overseas. Right now their US currency is flying high obviously. Do airlines have a similar set up?

QANTAS will reduce fuel surcharges on its international fares from tomorrow due to recent falls in world oil and jet fuel prices. Surcharges on flights from Australia to the UK and Europe will be cut by $20 to $190, while on flights to the US, Canada, South America, South Africa and India will be $15 lower at $150.

Surcharges on flights to Asia will be cut by $10 to $110, while flights to New Zealand will incur a surcharge of $70, a drop of $5.

Domestic fares will also be reduced by 2 to 3 per cent, Qantas executive general manager John Borghetti said.

Oil hit an eight-month low on Monday when it slipped under $US90 per barrel in New York trade, as the global financial turmoil and plunging stock markets raised fears about slowing demand.

Crude oil futures have recently been trading within a band of about $US80-95 a barrel, well off the record highs of $US147 reached in July. However, Mr Borghetti warned that oil prices remained volatile.

"Although the price has fallen below $US100 in recent days, oil remains very volatile and a major challenge for the airline industry," Mr Borghetti said.

Qantas' fuel bill for the 2008/09 fiscal year will be $1.3 billion higher than the previous year, he said.

I'd say they would still be happy as the % drop in oil is still greater than the % drop in AUD.

And for carriers like QF, it will means they are earning more $$$ from overseas sales ie in the UK and US. (Though obviosuly that demand will be slowing)

^ yep, the Aussie dollar is a problem now with the way its been falling, no wonder there hasn't been any movement at petrol stations.

Yeah unfortunately for us regular petrol/diesel users who don't have a fuel hedging setup the drop in the dollar has killed any relief the drop in oil prices would have provided.

Good news though, Gerry Harvey says big screen TV's wont drop in price even with the weak dollar:cool:

it is indeed a very good time to hedge now for airlines - though the aussie dollar has been falling badly. The question should be how much further the oil prices will fall.

I suspect the oil prices would take a bit longer to translate to the price in the pump. Wasn't it 2-3 yrs ago when the aussie dollar and oil price was at a similar position as now?

Well Qantas is in a fortunate position in that its airplanes fly all over the world - so some of their fuel bill could be payed in pounds or $US depending where the planes are.

:eek:

if they are paying in pounds or USD they still need AUD to buy that currency...

hypothetical, if QF spends 170,000pounds for fuel on a flight from LHR-SIN it's still going to be around $420,000 AUD, that means QF needs $420,000 AUD to buy the UK equivalent to pay for the fuel...if I go to London and buy something on my mastercard its always converted back to AUD.

right now our AUD is buying less pound & USD so its just as expensive....I'd go so far to say that it was better when oil was $120 p/b and the dollar was buying .95 USD.

QF is currently hedged at $112 USD p/b, that = around $160AUD p/b. QF has also hedged its currency exposure, locking in 84% of projected spending in USD for the financial year.

right now its still costing Australian's as much today for a barrel of oil as it was when it was $145 p/b...all thanks to the decline in our AUD.

I thought about the $AUD currency conversion, but QF does sell tickets in these contries in the nominated currencies (USD, GBP) so they would already have a decent amount of that currency without the need for conversion.

I'm not going to go into nonsense with you, Rhys...think about it, if QF is only flying with a half full 747 from LHR-SIN the fuel bill will still be the same or there abouts, the plane still needs to cover the same distance to get from A to B even with less people on it.

less people paying for a ticket still equals the same fuel bill, how do you propose they pay for it? :cool:

I vaguely thought that the price paid was linked to the cost of Singapore Jet Fuel.
If that were the case the $A vs $S has only varied by -15 to -18% - not by -35% as against $US

With oil now trading at US$85 a barrel at this timeframe, just interested as to what it averaging around the same time last year...?

Interesting question.

I just had a look at historical exhange rates.

Back in 2004 the AUd was sitting around 72c US - Not to far from where it is now and oil was around the $60 per barrel mark.


From 2004
http://www.smh.com.au/articles/2004/...784049180.html

"The airline will lift its one-way fuel surcharge for Qantas domestic, QantasLink and Jetstar flights by $2 to $12. One-way surcharges for international flights will rise $7 to $29.

"With jet fuel now at more than $US60 a barrel and showing no sign of falling, an increase in the airline's fuel surcharge was unavoidable," Qantas chief financial officer Peter Gregg said in a statement.
"
International flights are now upto $190 on some routes!

this time last year it was around $77 USD p/b, but the AUD was buying close on .90 USD, the price was less back then for a barrel and it was helped by a strong AUD, now oil is falling back to last years price but the AUD is plunging with it.

right now the AUD is buying .66 USD and a barrel of oil is trading at $83.29USD, so it works out to be around $130 AUD for a barrel of liquid tar.

QF share price has taken another hammering along with the rest of the market today...

$2.58, how low will the ASX go?

Crap its finished below 4000:eek:...we were pushing 7000 last year :(.

We've got a ways to slide yet...I can't see anything in terms of confidence coming into the markets.

The ASX is in for rough times yet. I feel sorry for everyone who has their nest egg tied up with the big superannuation companies, you guys must have lots a fortune over the past few weeks. Fortunately I have my super managed by myself and my exposure really hasn't changed. I thank god for that because it woould take several years to recoup the losses made by most super firms.

Good news is the banks are willing to throw money at you for less now, I have CBA offering mortgages back in the low 7% bracket which was unheard of a few months back.

Hang on tight the rollercoaster hasn't ended yet.

Watch for the next interest rate cuts - the dollar is going slip further:(

Heh, our holiday next year may well have to be put on hold (again!):(

good luck getting a loan though..banks aren't even lending to each other let alone anyone else, I'm riding it out, might even start buying up.

Its got a way to fall yet i believe, but more of this thinking is certainly coming around, an encouraging sign that the market is meeting some kind of Level of Support.

But in the same way the market has to be very careful of the quick selling of stocks after purchase.

Both the 1929 and 1987 market crashes saw our market fall around 50% in value, so i guess going by that the bottom of this crash may be around the 3000 -3500 mark.

As others have said with the falling Aussie dollar our fuel price at the bowser isn't going to get much cheaper despite falling oil prices.

Oil has fallen by a greater % than the $, but the price of petrol has stayed about the same.

It is falling slowly with the current wholesale price of petrol around 1.42 per litre

OT
 

You're not wrong, Nick - my BT super balance went backwards by 17% in the 12 months to 30 September! I gave them notice of withdrawal on 15 September to move it into my SMSF and they told me yesterday that my balance had reduced by a further $75,000 just since I'd given notice. Luckily I'd ticked a box that required them to put the entire balance into their cash management account upon receipt of the withdrawal notice so they will have to wear the subsequent loss (which they've now agreed to).

Who would've known ticking a box meant $75k!

To resurrect this thread;

At 12PM WST, NYMEX Light Crude was at $48.49.

Quite a drop!

You can keep an eye on it here at Bloomberg Energy.

Going to be some interesting fuel hedging negotations next year thats for sure.

yea..and maybe you can post the AUD drop too. we still need $81 AUD to buy 1 barrel of crude.

Ugh, tell me about it...

As soon as we book our first overseas holiday for 17 years (since i was 6 months old), this **** happens.:(:(

edited as the conversation had moved on