Jazeera Airways may hedge 25% fuel in second quarter

Budget carrier Jazeera Airways is planning to put in a hedging strategy in place this year on a quarterly basis, according to the airline's chief executive.

"We have about 25 per cent of fuel hedging requirement in the second quarter of this year. We are currently looking to put a hedging strategy in place now since the oil price seems to be stabilising," Andrew Cowen, Kuwait-based airline's newly appointed CEO, told Emirates Business.

The airline, however, was not hedged in the latter part of 2008 given the volatility of fuel prices. "It did not make sense to be hedged especially in the latter part of last year. We also did not have any hedging in place in the first quarter of this year," Cowen said.

Jazeera reported a 94 per cent increase in 2008 net profit to KD4.5million and 40 per cent increase in operating revenues to almost KD49 million compared to a year earlier. Fuel costs accounted for 40 per cent of the airline's revenues last year.

The airline's Chairman Marwan Boodai had said recently that Jazeera gained through not hedging fuel contracts, allowing it to buy cheaper fuel on the spot markets in the second half of the year as oil prices fell. So lower fuel costs coupled with leasing its aircraft as against owning them allowed Jazeera to generate higher profits last year.

Airfare war

With Dubai's new budget carrier, flydubai, slated to launch services in June this year, the fare war seems inevitable in the budget segment of the market. Asked if Jazeera is looking to further lower its fares, Cowen said: "We obviously have price targets in our business plan. But we also need to look at the dynamics of the market at the moment. There has been an economic impact on travel generally. It only makes sense in such an environment to keep your fares down to keep people travelling."

"It also depends obviously on what competitors are doing," he added.

With flydubai entering the already competitive budget carriers market, Jazeera is not threatened, Cowen said. "We do not see the entry of flydubai as a threat. Of course, it is competition but I don't think it will have a significant impact on us."

"One of the reasons is that flydubai has opted to fly out of Dubai International's Terminal 2 while Jazeera operates out of Terminal 1, making it easy for passengers we bring in from the region to connect to their international flights from Terminal 1. That ease is not there at Terminal 2," Cowen said.

Financing needs

All of the carrier's aircraft financing needs are currently being taken care of by its aircraft leasing unit Sahaab Leasing, which was launched in October last year, according to Cowen.

"The two aircraft coming in June are already financed by Sahaab Leasing," he said.

With Jazeera Airways as Sahaab's kick-off customer, the leasing unit will be acquiring between 40 and 50 planes by mid-2009, in a deal worth between $2.5bn and $3 billion (Dh11bn) at list prices, the airline's Boodai had said recently.

He had also said that Jazeera Airways would become a debt-free airline by early-2010.

Target

Operating out of Kuwait and Dubai at present, Jazeera is targeting 51 per cent increase in passenger traffic for 2009 with six new destinations to be launched in the year.

"We have six new routes opening up this year and two aircraft coming in June. We may also have an additional aircraft coming in later this year," Cowen said.

He added that the airline, which has 32 aircraft on order presently, is looking to open its third hub by the end of this year. "I cannot reveal any details as yet as we are still finalising a lot of things," Cowen said.

With regards to load factors, the airline this year aims to exceed its 2008 achievement of 67 per cent, according to Cowen. "Just in the summer season, we would be flying 60 per cent more flights this year," he said.

Overall market

The budget carrier market in the Middle East is still quite "immature", according to Cowen. "Only about three to four per cent of the total air travel in the Middle East is accounted for by the budget carriers at present as against about 30-odd per cent globally," he said.

"But that is set to change. The budget carrier segment in this region could easily achieve up to about 20 per cent market share over the next five years," he added.

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