Singapore Airlines 2011 Annual Report Download - page 177
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ANNUAL REPORT 2010/2011 175
NOTES TO THE FINANCIAL STATEMENTS
31 March 2011
38 Financial Risk Management Objectives and Policies (in $ million) (continued)
(a) Jet fuel price risk (continued)
Cash flow hedges
The Group manages this fuel price risk by using swap and option contracts and hedging up to
15 months forward using jet fuel swap and option contracts. The Group no longer enters into new
gasoil hedges. Existing gasoil swap contracts will be rolled up into jet fuel equivalents by hedging in
the gasoil-jet fuel regrade closer to maturity. As at 31 March 2011, all gasoil contracts have matured.
The Group has applied cash flow hedge accounting to these derivatives as they are considered to be
highly effective hedging instruments. A net fair value loss before tax of $321.6 million (2010: $458.9
million), with a related deferred tax credit of $93.8 million (2010: $116.9 million), is included in the
fair value reserve in respect of these contracts.
Jet fuel price sensitivity analysis
The jet fuel price risk sensitivity analysis is based on the assumption that all other factors, such as
fuel surcharge and uplifted fuel volume, remain constant. Under this assumption, and excluding the
effects of hedging, an increase in price of one USD per barrel of jet fuel affects the Group’s and
the Company’s annual fuel costs by $42.5 million and $35.5 million (2009-10: $44.9 million and
$38.1 million) respectively.
The fuel hedging sensitivity analysis is based on contracts that are still outstanding as at the end of
the reporting period and assumes that all jet fuel hedges (2010: jet fuel, gasoil and regrade hedges)
are highly effective. Under these assumptions, with an increase or decrease in jet fuel prices (2010:
jet fuel and gasoil prices), each by one USD per barrel, the before tax effects on equity are as follows:
The Group The Company
31 March 31 March
2011 2010 2011 2010
($ million) Effect on equity Effect on equity
Increase in one USD per barrel 3.5 5.1 2.8 4.2
Decrease in one USD per barrel (3.5) (5.1) (2.8) (4.2)