Fuel price risks

In the reporting year the Lufthansa Group consumed around 9 million tonnes of kerosene. It is a major item of expense, making up over 20 per cent of operating expenses for the Lufthansa Group. Severe fluctuations in fuel prices can therefore have a considerable effect on the operating result. A change in the fuel price of +10 per cent (–10 per cent) in 2012 would increase (reduce) fuel costs for the Lufthansa Group by EUR +372m (EUR –460m) after hedging.

Oil price scenario for the Lufthansa Group 2012 (line chart)

Lufthansa therefore hedges fuel prices with a time horizon of up to 24 months. This is aimed at reducing fluctuations in fuel prices. Limited protection against higher prices is accepted in exchange for maximising the benefits derived from any fall in prices.

The hedging level and the time horizon depend on the risk profile, which is derived from the business model of the Group company concerned. The hedging policy and structure shown in the graph are applied to Lufthansa Passenger Airlines, SWISS and the scheduled operations of Austrian Airlines.

Lufthansa’s hedging policy – Medium-term crude oil hedging (graphics)

We use standard market instruments for fuel hedging and hedge fuel price risks with a lead time of up to 24 months, mostly by means of combined options. Hedges are mainly in crude oil for reasons of market liquidity. The hedging transactions are therefore based on fixed rules and map the average of crude oil prices over time. Depending on the company in the Group, the amounts hedged each month result in a hedging level of up to 85 per cent. For Lufthansa Passenger Airlines for instance, the six months following a given date are hedged to 85 per cent. At the beginning of February 2012 there were crude oil and kerosene hedges for 73 per cent of the forecast fuel requirement for 2012, in the form of futures and options. For 2013 around 29 per cent of the forecast fuel requirement was hedged at that time. The fuel surcharge has established itself in the market as a further means of reducing risk. The extent to which it will continue to be possible to levy a surcharge is nevertheless uncertain. If fuel prices were to drop by 20 per cent below their level at the start of February 2012, expenses for the Lufthansa Group would be reduced from the forecast EUR 7.4bn to around EUR 6.4bn. The earnings improvement that this would bring could be offset by lower fuel surcharges, however. As fuel is priced in US dollars, fluctuations in the euro/US dollar exchange rate can have a positive or a negative effect on fuel prices in euros. This is accounted for in the currency exposure.

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