Interview: Howard Millar, Ryanair CFO

Ryanair defends hedges despite higher Q1 fuel bill

Ryanair will continue to hedge fuel costs with the same swap instruments that prompted heavy mark-to-market losses for the industry in 2008/09, despite taking an apparent hit on its fuel risk management strategy in the first quarter, says chief financial officer Howard Millar.

The airline's average fuel price increased by 21% year-on-year during the first quarter, rising from $820 per metric tonne (pmt) last year to $998pmt in Q1 2012/13.

This came despite a 6% reduction in average jet fuel prices across all benchmarks over the corresponding period, according to global energy information provider Platts. Average global prices between April and June stood at $994pmt, data from Platts shows, compared with $1,057pmt during the same months last year.

Gambling with a clear game plan

Full article in JPG format: page 20/21 & page 22/23

In its 2006/07 annual report, Dubai-based Emirates Airline proudly announced that its “fuel risk management programme” – more accurately described as an oil hedging strategy – had delivered savings of $197 million against spot prices for jet fuel. Gary Chapman, president of group services at the carrier, said the programme had saved Emirates $1 billion over eight years.

One year later, on the precipice of the worst financial crisis in living memory, the airline vowed that it would continue to “achieve a level of control over jet fuel costs so that profitability is not adversely affected” by volatile market prices.

It failed to do so. By the time Emirates’ 2008/09 report was being audited by PricewaterhouseCoopers, the company had written down annual fuel hedging losses of Dhs1.57 billion ($428 million). It may have succeeded in positioning itself defensively against higher oil prices, but it did not mitigate the downside risk of a price crash, which inevitably accompanied the global recession. The mistake was repeated in airline boardrooms around the world...