September 17, 2019 / 8:20 AM / 5 months ago

Wizz Air says has stronger than usual hedges against Saudi oil shock

FILE PHOTO: A Wizz Air Airbus 321-231 aircraft, registration number HA-LXT, is pictured at the London Luton Airport, Luton, Britain, April 11, 2019. REUTERS/Kacper Pempel/File Photo

(Reuters) - Low-cost European airline Wizz Air (WIZZ.L) said on Tuesday it had increased its fuel hedge position beyond policy minimum levels over the summer, signalling it was better protected than it might normally be from this week’s surge in oil prices.

Airlines are among the most exposed in the corporate world to swings in the price of oil, or the value of the dollars in which it is priced, and normally take steps to offset the risks through hedging operations, where they typically pay a small premium for the right to buy relevant assets under certain conditions.

Wizz, the largest low-cost airline in Central and Eastern Europe’s former communist economies, said it had used lower fuel prices this year to hedge 77% of its projected jet fuel requirements for fiscal 2020 ending next March and 43% for fiscal 2021.

Its policy minimum levels are respectively 50% for 12 months and 40% for an 18-month horizon.

Wizz, which operates a fleet of 119 Airbus airplanes on 710 routes, said the aim of the hedging policy is to reduce short-term volatility in earnings and liquidity.

Higher fuel costs and stiffer low-cost competition have already led to a wave of bankruptcies among smaller European airlines in recent years.

Oil prices retreated on Tuesday but are still up around $8 a barrel, or more than 13%, since weekend attacks on Saudi Arabian plants cut the kingdom’s output in half and sent global crude prices soaring by as much as 20%.

A report by Bernstein analysts showed on Monday that British Airways owner IAG (ICAG.L) is best hedged and among the low-cost carriers, Ryanair (RYA.I) is significantly hedged over 12 months, but less so thereafter.

Reporting by Noor Zainab Hussain in Bengaluru; editing by Patrick Graham

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