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28 Cathay Pacific Airways Limited Annual Report 2008
Financial Review
At 31st December 2008 the Group had entered into fuel derivatives contracts which expire in 2009, 2010 and 2011.
The chart above shows, for the range of specified reasonably possible average fuel prices, the estimated amount
of cash inflow or outflow from the settlement of these contracts in 2009, 2010 and 2011, and the estimated
impact on the Group’s profit and loss split according to the maturity of the contracts. The periods in which profit or
loss would actually be impacted varies contract by contract. For contracts which are accounted for as cash flow
hedges, profit or loss would generally be impacted in the period the contracts mature. For contracts which are not
accounted for as cash flow hedges, profit or loss for each year would be impacted by the change in mark to
market valuation in that year.
If the Brent price is at a level of US$45 per barrel over 2009, 2010 and 2011, then the Group would be required to
pay a total of about US$1.4 billion to settle these contracts and the profit would be further reduced over the three
years. If the annual average price of Brent over each of the next three years is approximately US$75 per barrel
there will be no further net cash impact and mark to market losses recognised in 2008 would then be released in
subsequent periods.
In addition to the estimated impact of changes of fuel prices on fuel hedging contracts shown above, the Group’s
operating profit would be affected by costs of fuel uplift and the level of fuel surcharges.
US$M
(1,000)
(600)
(800)
(400)
0
(200)
400
200
600
800
1,000
Sensitivity analysis of cash and profit and loss impact of fuel price movements on
fuel hedging contracts*
$30 $40 $50 $60 $70 $80 Brent
(US$/barrel)
$90 $100 $110 $120 $130
Cash impact in 2009 of contracts maturing in 2009
Cash impact in 2010 of contracts maturing in 2010
Cash impact in 2011 of contracts maturing in 2011
Overall P&L sensitivity for contracts maturing in 2009
Overall P&L sensitivity for contracts maturing in 2010
Overall P&L sensitivity for contracts maturing in 2011
* This information supplements note 31(c) (iii) to the accounts.