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China Eastern loses 1.8 billion on fuel contracts

By Zhang Qi (China Daily)
Updated: 2008-11-28 11:36

China Eastern Airlines said on Wednesday that fair value losses on its jet fuel-hedging contracts stood at 1.83 billion yuan at the end of October.

In the statement, the Shanghai-based carrier said aviation fuel prices have dropped dramatically since the third quarter, resulting in losses on fuel hedging contracts.

It said previously that the company lost 270 million yuan on those contracts in the third quarter.

The company said the proportion of fuel costs in overall operating costs increased sharply to 40 percent in mid 2008, up from 21 percent in 2002.

"The significant rise in aviation fuel prices since 2008 has severely affected the operating effectiveness of the company," it said. "To protect the company from suffering losses from high fuel prices, the company has signed fuel-hedging contracts."

The carrier said fuel hedging in 2008 accounted for 35.9 percent of its total fuel consumption.

The company said if future aviation fuel prices stay low the purchasing cost will drop, and savings from spot fuel costs will overwhelm the fuel-hedging losses.