Cathay Pacific 2008 Annual Report Download - page 92

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Notes to the Accounts SUPPLEMENTARY INFORMATION
31. Financial risk management (continued)
Sensitivity analysis for interest rate exposure
An increase of 25 basis points in interest rates at the reporting date would have decreased equity and profit
and loss for the year by the amounts shown below. These amounts represent the fair value change of
interest rate swaps and financial liabilities designated as at fair value through profit and loss at the reporting
date and the increase in net finance charges. This analysis assumes that all other variables, in particular
foreign currency rates, remain constant. The analysis is performed on the same basis for 2007.
2008 2007
Profit
and loss
HK$M
Other equity
components
HK$M
Profit
and loss
HK$M
Other equity
components
HK$M
Variable rate instruments (97) (2) (61) 34
(iii) Fuel price risk
Fuel accounts for 50% of the Group’s operating expenses (2007: 36%). 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 the equity and profit and loss 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.
2008 2007
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 532 123 (95) 271
Net decrease in jet fuel price (573) (123) 105 (258)
The analysis on page 28 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 Group has designated the following as cash flow hedges as at 31st December 2008:
2008
HK$M
2007
HK$M
Foreign currency risk
– Natural hedge on long-term liabilities (5,242) (4,032)
– Cross currency swaps (45) (353)
– Foreign currency forward contract 281 (292)
Interest rate risk
– Interest rate swaps (96) (22)
Fuel price risk
– Fuel options (831) 1,405
90 Cathay Pacific Airways Limited Annual Report 2008