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Air India Boeing 787-8 Dreamliner line number 35 test registered N1015 (later became VT-ANH) at the India Aviation show, Hyderabad March 2012. Photo copyright Devesh Agarwal.
Air India Boeing 787-8 Dreamliner line number 35 test registered N1015 (later became VT-ANH) at the India Aviation show, Hyderabad March 2012.

Someone please explain Air India’s reported fuel hedging plan?

On January 19th, Bloomberg reported that national carrier Air India will commence large scale fuel hedging for the first time. The story was promptly picked up and reported by many leading Indian newspapers the next morning, including The Business Standard and The Mint.

As per the story, “Air India is hedging 2 million barrels of aviation turbine fuel annually at $75 per barrel” and the story goes on to state “Jet fuel in Singapore traded at $63.05 a barrel on Jan. 16, data compiled by Bloomberg showed.” Based on current aviation turbine fuel (ATF) prices $75 appears to be a price exclusive of all taxes and levies.

I am no expert in fuel hedging, in fact I admit I don’t know too much on the subject. In case my conclusions below are incorrect, I request someone with better subject knowledge to please correct me.

I researched the futures price of Jet Fuel (ATF) with Platts, the pricing authority which even industry body IATA uses. Graphing the futures contracts quoted for Gulf coast Jet Fuel, the price of fuel does not reach $75, the price at which Air India is hedging even by December 2016, two years away.

Gulf coast Jet Fuel Futures price quotes till December 2016.
Gulf coast Jet Fuel Futures price quotes till December 2016. Image by Devesh Agarwal.

In fact by end of 2015 price quotes indicate a rise of just 7.4% to $67.43 compared to January’s price quotes of $62.47.

So a simple question is, why is Air India paying such a premium? I am sure there is a reason for it, but I am not able to understand it.

Please share your thoughts via a comment.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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