Domestic airlines may soon fly into foreign ATF futures market

While airlines did have permission to trade in jet fuel futures on foreign bourses, the industry had largely shied away from the prospect due to the relative difficulty of operating in other countries. NACIL, the combined entity formed after the merger of Air India and Indian, had suspended its futures ATF trade abroad around four years ago, but has now decided “to take a fresh look” at the matter.

“A few years back, we used to hedge 10 per cent of our risk on other markets. But with the way fuel prices have been shooting up over the last year and with the domestic futures market now open, we are taking a fresh look and have in-principle agreed to be open to hedging,” said NACIL executive director (corporate communications) Jitender Bhargava.

The Air India-Indian combine last year ran up a fuel bill of Rs 5,800 crore. The airline currently procures jet fuel at $3 per gallon (One gallon is equal to approximately 3.8 litre). “If there is an increase of even 1 cent per gallon, that is, the price becomes $ 3.01 per gallon, our cost increases straightaway by Rs 12 crore,” says Bhargava, adding that the company is looking to tap the futures market in the next few months.