Singapore Airlines 2016 Annual Report Download - page 202
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Notes to the Financial Statements
31 March 2016
38 Financial Risk Management Objectives and Policies (in $ million) (continued)
(a) Jet fuel price risk
The Group’s earnings are aected by changes in the price of jet fuel. The Group’s strategy for managing the risk on fuel price, as defined by
BEC, aims to provide the Group with protection against sudden and significant increases in jet fuel prices. In meeting these objectives, the
fuel risk management programme allows for the judicious use of approved instruments such as swaps, options and collars with approved
counterparties and within approved credit limits.
Cash flow hedges
The Group manages this fuel price risk by using swap, option and collar contracts and hedging up to eight quarters forward using jet fuel
swap, option and collar, ICE Brent swap and Brent-MOPS crack swap contracts.
The Group has applied cash flow hedge accounting to these derivatives as they are considered to be highly eective hedging instruments.
A net fair value loss before tax of $610.7 million (2015: loss before tax of $952.9 million), with a related deferred tax credit of $103.8 million
(2015: deferred tax credit of $162.0 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 uplied fuel volume,
remain constant. Under this assumption, and excluding the eects of hedging, an increase in price of one USD per barrel of jet fuel aects
the Group’s and the Company’s annual fuel costs by $52.4 million and $41.3 million (FY2014/15: $50.0 million and $41.8 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, Brent and crack hedges are highly eective. Under these assumptions, with an increase or decrease in jet fuel prices, each by
one USD per barrel, the before tax eects on equity are set out in the table below.
Sensitivity analysis on outstanding fuel hedging contracts:
The Group
31 March
The Company
31 March
2016 2015 2016 2015
Effect on equity Effect on equity
Increase in one USD per barrel 25.4 35.1 20.7 28.8
Decrease in one USD per barrel (25.4) (35.1) (20.7) (28.8)
Singapore Airlines200
FINANCIAL