Thu, Sep 30, 2004 - Page 10 News List

Local airlines increasingly worried about oil prices

CNA , TAIPEI

Aviation companies based in Taiwan are increasingly concerned about rising oil prices that have kept heavy pressure on their operations and might further erode their profitability.

A spokesman for China Airlines (華航), Taiwan's largest carrier, said yesterday that although the company has imposed fuel surcharges on passenger ticket fees twice, the measure is not capable of fully reflecting its operating costs amid the continuously soaring oil prices.

He attributed the international oil price rises since late last year to manipulation of hedge funds and forecast that prices will fall to below US$35 per barrel next year.

In an effort to offset the impact of the high prices, China Airlines has hedged as much as 80 percent of its fuel oil at a price of US$35 per barrel, he said, adding that the airline consumes 15 million barrels of oil each year.

EVA Airways Corp (長榮), Taiwan's second-largest carrier, has hedged 60 percent of its fuel oil, also at a price of US$35 per barrel.

Market watchers predicted that the two airlines' operations will improve in the second half of the year thanks to the fourth quarter -- the traditional peak season -- and additional earnings produced by the fuel surcharges.

The two carriers have twice imposed fuel surcharges on their ticket prices since last month.

But they pointed out that the uncertainty surrounding the surging oil prices still lingers and might keep on creating a heavy burden, as benefits produced by the hedging will be limited for the whole year.

Soaring oil prices is the No. 1 negative factor for aviation companies' operations, as oil spending makes up about 30 percent of their operating costs, they explained.

Oil prices climbed to break a high of US$50 per barrel on Tuesday -- a new high in 21 years -- in the international market, stirring up grave concern of a fresh economic recession around the world.

The Executive Yuan is scheduled to call a cross-division meeting today to work out contingency measures to cope with surging oil prices.

Hu Sheng-cheng (胡勝正), chairman of the Council for Economic Planning and Development, and Yeh Ming-feng (葉明蜂), vice chairman of the council, will be key conveners of the Executive Yuan's economic and financial meeting.

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