Cathay Pacific 2009 Annual Report Download - page 95

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31. Financial risk management (continued)
(iii) Fuel price risk
Fuel accounted for 28% of the Group’s operating expenses (2008: 50%). Exposure to fluctuations in the fuel
price is managed by the use of fuel derivatives. The profit or loss generated from these fuel derivatives is
dependent on the nature and combination of contracts which generate payoffs in any particular range of fuel
prices. The Group’s policy is to reduce exposure by hedging at least 30% of its anticipated fuel consumption
for the next 12 months.
Sensitivity analysis for jet fuel price derivatives
A five percent change in the jet fuel price would have affected profit and loss and other equity components
by the amounts shown below, representing the change in fair value of fuel derivatives at the reporting date.
This assumes that all other variables remain constant.
2009 2008
Profit
and loss
HK$M
Other equity
components
HK$M
Profit
and loss
HK$M
Other equity
components
HK$M
Net increase in jet fuel price 204 142 532 123
Net decrease in jet fuel price (237) (157) (573) (123)
The analysis on page 31 of the Annual Report under the heading “Sensitivity analysis of cash and profit and
loss impact of fuel price movements on fuel hedging contracts” provides further supplementary information.
(d) Hedge accounting
The carrying values of financial assets/(liabilities) designated as cash flow hedges as at 31st December 2009
were as follows:
2009
HK$M
2008
HK$M
Foreign currency risk
– Long-term liabilities (natural hedge) (4,680) (5,242)
– Cross currency swaps 164 (45)
– Foreign currency forward contracts 46 281
Interest rate risk
– Interest rate swaps 10 (96)
Fuel price risk
– Fuel options 92 (831)
Others
– Carbon offsets (45) (31)
(e) Fair values
The fair values of the following financial instruments differ from their carrying amounts shown in the statement
of financial position:
Carrying
amount
2009
HK$M
Fair value
2009
HK$M
Carrying
amount
2008
HK$M
Fair value
2008
HK$M
Group
Long-term loans (19,299) (19,639) (18,468) (18,858)
Obligations under finance leases (30,140) (31,420) (29,309) (31,561)
Pledged security deposits 6,797 7,606 7,497 8,690
Notes to the Accounts SUPPLEMENTARY INFORMATION
Cathay Pacific Airways Limited Annual Report 2009 93