Cathay loses US$980 million on hedging gamble

Cathay Pacific Airways has joined many of its counterparts in reporting huge fuel-hedging losses, plunging the previously profitable Asian carrier into an expected record loss for last year, the South China Morning Post reported.

The loss on Cathay's fuel-hedging contracts as of the end of last month amounted to around US$980.1 million, deepening from the $361.1 million loss estimated to have been incurred at the end of October, according to the third profit warning filed by the airline in recent months.

The dramatic plunge in oil prices, down nearly 70 per cent from the record high in July to just US$45 per barrel at the end of the year, has seen many carriers stung by fuel-hedging contracts locked in at much higher prices.

Air China, the second-largest mainland carrier, said earlier that its hedging losses widened to US$453.6 million by the end of October while China Eastern Airlines Corp said it had US$263.4 million of hedging losses as of October.

United Airlines posted US$519 million in hedging losses in the third quarter last year.

Cathay Pacific expects "disappointing" fiscal year results for 2008. To cut costs, the airline has slowed capacity growth, grounded two freighters beginning this month which translates to about a 10 per cent capacity decline in long-haul services to the US and Europe, offered unpaid leave to staffers and will delay building a new cargo terminal.