LIAT, Caribbean Airlines Looking to Oil Future to Stabilize Airfares

With jet fuel being one of the most expensive operational costs that is constantly increasing, two of the region’s airlines are in negotiations to purchase oil futures as a way to stabilize the price and offer lower fares.

Chief Executive Officer of LIAT, Mark Darby, and CEO of Caribbean Airlines, Peter Davies, confirmed to Caribbean360.com Tuesday that they were in separate discussions with a number of companies. Neither revealed the names of the companies.

This came as oil rose to $71 a barrel Tuesday and as the region’s airline industry complained about high fuel fees and taxes. The International Air Transport Association (IATA), hosting an inaugural Caribbean Aviation Day here, said these charges account for as much as 50 percent of total operating costs, in some instances, for Caribbean airlines.

Darby, who said fuel fees are currently about 25 percent of LIAT’s costs, indicated that his company is talking to some businesses about helping it with “fuel hedging” as one of the cost-cutting strategies it was investigating. He said while hedging fuel prices was an expensive venture, it would allow the airline to plan more effectively.

“Even if you end up paying a bit more or a bit less, at least you know that your fuel costs will be stable. From that point of view, it does help rather than being susceptible to whatever is going on in the Middle East or anywhere else and if the fuel price goes through the ceiling,” Darby told Caribbean360.

The other strategy which LIAT is investigating is more active fuel management and the CEO says the carrier is exploring the fuel-buying approach of another company.

“We could save a million dollars a year. We’re going to burn a bit less fuel as well the way we’re going to operate the aircraft, so when we put all that together, we can take down our fuel costs,” Darby said.

Meantime, Davies acknowledged the difficulty of hedging fuel prices, noting that effectively what the airlines would be doing is trying to gauge the cost of oil in the future.

“We have some specialists who are working on that and in fact, we’re having negotiations with various oil companies at the present moment in order to put a more effective hedging process into play,” Davies revealed.

Both men were attending the IATA Caribbean Aviation day in Barbados. The one-day conference was designed to discuss pressing issues among the key stakeholders in the industry.