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Old 9th October 2008, 08:06 AM
NickN NickN is offline
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Default 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?
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Old 9th October 2008, 08:32 AM
Greg McDonald Greg McDonald is offline
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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.
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Old 9th October 2008, 09:48 AM
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Michael Morrison Michael Morrison is offline
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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)
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Old 9th October 2008, 10:19 AM
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^ 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.
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Old 9th October 2008, 11:27 AM
NickN NickN is offline
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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
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Old 9th October 2008, 01:11 PM
D Chan D Chan is offline
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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?
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Old 9th October 2008, 02:04 PM
Rhys Xanthis Rhys Xanthis is offline
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Quote:
Originally Posted by Montague S View Post
^ 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.
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.
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Old 9th October 2008, 07:36 PM
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Montague S Montague S is offline
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Quote:
Originally Posted by Rhys Xanthis View Post
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.


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.
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Last edited by Montague S; 9th October 2008 at 07:44 PM.
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Old 9th October 2008, 07:44 PM
Rhys Xanthis Rhys Xanthis is offline
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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.
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Old 9th October 2008, 07:56 PM
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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?
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