European airlines are expected to reap rewards and pay for poor planning in equal measure as hedging strategies come to the fore amid unprecedented challenges for the sector.
While fuel hedges meant losses for airlines during the Covid pandemic, the decision to hedge for 2022 is expected to pay dividends against rising oil prices as Russia’s invasion of Ukraine looks increasingly likely to cause long-term headwinds.
Insecure supply, recovering passenger numbers and the requirement to extend some journeys to avoid Ukrainian air space meant fuel pressures were expected to leap for companies this year.
According to the International Air Transport Association (IATA), the average global price for jet fuel per metric tonne was US$877.57 on 25 February, and US$875.13 in Europe, both around a 60% rise on prices last year.
Wizz Air Holdings PLC (AIM:WIZZ)’s share price fell more than 13% at one point in morning trading as it notified investors that it had not hedged against rising oil prices which it spotted at US$1300m/t on 7 March, capping its fuel cost exposure at US$1172mt.
Ryanair Holdings PLC (LSE:RYA)s costs were almost fully hedged for the fourth quarter of 2022, with 80% of costs hedged out to 2023, with 60% jet swaps at US$620 per metric tonne and 20% caps at US$715m/t, while the second half of 2023 saw a 70% hedge at $640m/t.
British Airways owner International Consolidated Airlines Group (LSE:IAG) hedged 70% for the first quarter of 2022 and 60% for the financial year 2022, at $900m/t through 2022, its chief executive Luis Gallego said on 25 February, leaving 40% exposed.
easyJet plc (LSE:EZJ) was was also 60% hedged for fuel for its financial year ending 30 September at US$540m/t.
Jet2 PLC (AIM:JET2), which lost £108.4mln in 2020 through fuel hedging ineffectiveness, has not yet disclosed the price at which it hedged jet fuel for 2022, nor has TUI AG (LSE:TUI).