Crude futures rally boosts jet fuel prices to record highs

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Blastor
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Crude futures rally boosts jet fuel prices to record highs

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Crude futures rally boosts jet fuel prices to record highs


By BRENT JANG TRANSPORTATION REPORTER
Friday, September 24, 2004 - Page B2

Jet fuel prices jumped to a record high yesterday as crude oil futures rallied and made life more difficult for Air Canada and WestJet Airlines Ltd., which don't hedge any of their fuel needs.

Benchmark prices for jet fuel in the U.S. Gulf Coast gained 1.28 cents (U.S.) to close at $1.45 a U.S. gallon, part of the ripple effect of red-hot oil markets.

Crude oil prices gained 11 cents to close at $48.46 a barrel yesterday. They briefly touched an intraday high of $49, just shy of the record intraday high of $49.40 on Aug. 20.

The increase in jet fuel costs is bad news for the beleaguered airline industry, and particularly painful for carriers that haven't hedged, that is, locked in contracts to buy their energy supplies at lower rates.

Montreal-based Air Canada, WestJet of Calgary, Delta Air Lines Inc. of Atlanta and Elk Grove, Ill.-based UAL Corp.'s United Airlines are among the North American airlines operating without hedges.

For insolvent Air Canada, sky-high fuel prices are putting a damper on the company's carefully crafted restructuring plans. The airline will emerge next Thursday from 18 months of bankruptcy protection.

Air Canada has slashed its debt load and unveiled promising plans to boost international routes and also rely on regional jets to provide greater flexibility in domestic scheduling.

Shares in Air Canada's new parent company, ACE Aviation Holdings Inc., are scheduled to begin trading Monday, Oct. 4 on the Toronto Stock Exchange.

ACE's TSX ticker symbols will be ACE.B for Canadian voting shares and ACE.RV for restricted voting shares for foreigners.

Shares of WestJet, which launched its transborder flights into the United States from Canada on Monday, rose 15 cents (Canadian) to close at $13.45 yesterday on the TSX.

While ACE's balance sheet has been cleaned up and the new parent could lure investors, "there's that wild card of fuel," said Cameron Doerksen, an analyst at Dlouhy Merchant Group.

Air Canada estimates that every $1 (U.S.) a barrel gain in oil prices slashes roughly $25-million (Canadian) annually from its books, while WestJet assesses the impact on its operations at $5-million a year.

Southwest Airlines Co. leads the way among carriers shrewd or lucky enough to have hedged their fuel supplies. Dallas-based Southwest has hedged 80 per cent of its fuel this year, the highest level in a survey by Merrill Lynch & Co. Inc.

US Airways Group Inc. of Arlington, Va., filed for bankruptcy protection on Sept. 12 in the United States for the second time since 2002. It has hedged just 16 per cent of its fuel this year, the survey shows. AMR Corp. of Fort Worth, Tex., the parent of American Airlines Inc., is 13-per-cent hedged in 2004. Others with relatively small hedging positions include Frontier Airlines Inc. of Denver (10 per cent) and Northwest Airlines Corp. of Eagan, Minn. (19 per cent).


http://www.theglobeandmail.com
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