Cathay Pacific 2007 Annual Report Download - page 88

Download and view the complete annual report

Please find page 88 of the 2007 Cathay Pacific annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 100

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100

Notes to the Accounts
Supplementary Information
28. Financial risk management (continued)
(iii) Fuel price risk
Fuel accounts for 36% of the Group’s operating expenses (2006: 36%). Fuel price risk is measured by
employing sensitivity analysis on the fuel price increase against the anticipated fuel consumption. Exposure
to fluctuations in the fuel price is managed by the use of fuel derivatives. The Group’s policy is to reduce
exposure by hedging a percentage of its anticipated fuel consumption. Around 30% of the anticipated fuel
consumption for 2008 and 22% for 2009 were hedged at the balance sheet date.
Sensitivity analysis for jet fuel price derivatives
A five percent change in the jet fuel price would have affected the equity and profit and loss by the amounts
shown below, representing the change in fair value of fuel derivatives at the balance sheet date. This
assumes that all other variables remain constant.
2007 2006
Equity
HK$M
Profit and loss
HK$M
Equity
HK$M
Profit and loss
HK$M
Net increase in jet fuel price 271 (95) 39 233
Net decrease in jet fuel price (258) 105 (83) (161)
(d) Hedge accounting
The Group has designated the following as cash flow hedges as at 31st December 2007:
2007
HK$M
2006
HK$M
Foreign currency risk
– Natural hedge on long-term liabilities (4,032) (4,150)
– Cross currency swaps (353) (135)
– Foreign currency forward contract (292) (33)
Interest rate risk
– Interest rate swaps (22) 183
Fuel price risk
– Fuel options 1,405 –
– Fuel forward contract –83
Cathay Pacific Airways Limited Annual Report 2007
86