Singapore Airlines 2009 Annual Report Download - page 186

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36 Financial Risk Management Objectives and Policies (in $ million) (continued)
(a) Jet fuel price risk (continued)
The Group manages this fuel price risk by using swap and option contracts and hedging up to 18
months forward using jet fuel swap and option contracts, as well as up to 24 months forward using
gasoil swap contracts. These gasoil swap contracts will all be rolled up into jet fuel equivalents by
hedging in the gasoil-jet fuel regrade closer to maturity. A change in price of one US dollar per barrel
of jet fuel affects the Group’s annual fuel costs by USD 35.8 million (2007-08: USD 36.0 million),
assuming no change in volume of fuel consumed.
(b) Foreign currency risk
The Group is exposed to the effects of foreign exchange rate fl uctuations because of its foreign currency
denominated operating revenues and expenses. For the fi nancial year ended 31 March 2009, these
accounted for 63.0% of total revenue (2007-08: 66.0%) and 69.0% of total operating expenses
(2007-08: 67.0%). The Group’s largest exposures are from USD, Euro, UK Sterling Pound, Swiss Franc,
Australian Dollar, New Zealand Dollar, Japanese Yen, Indian Rupee, Hong Kong Dollar, Chinese Yuan,
Korean Won and Malaysian Ringgit. The Group generates a surplus in all of these currencies, with
the exception of USD. The defi cit in USD is attributable to capital expenditure, fuel costs and aircraft
leasing costs – all conventionally denominated and payable in USD.
The Group manages its foreign exchange exposure by a policy of matching, as far as possible, receipts
and payments in each individual currency. Surpluses of convertible currencies are sold, as soon as
practicable, for USD and SGD. The Group also uses forward foreign currency contracts and foreign
currency option contracts to hedge a portion of its future foreign exchange exposure. Such contracts
provide for the Group to sell currencies at predetermined forward rates, buying either USD or SGD
depending on forecast requirements, with settlement dates that range from one month up to one year.
The Group uses these currency hedging contracts purely as a hedging tool. It does not take positions
in currencies with a view to making speculative gains from currency movements.
(c) Interest rate risk
The Group’s earnings are also affected by changes in interest rates due to the impact such changes
have on interest income and expense from short-term deposits and other interest-bearing fi nancial
assets and liabilities. The Group enters into interest rate swap contracts and interest rate cap contracts
to manage interest rate costs on its fi nancial assets and liabilities, with the prior approval of the BEC
or Boards of subsidiary companies.
NOTES TO THE FINANCIAL STATEMENTS
31 March 2009