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Emirates Airline Writes Off $600 Million In Fuel Hedging Costs Due To Coronavirus

This article is more than 3 years old.

Dubai-based Emirates Airline has written off more than $600 million worth of fuel which it had bought but could not use due to the travel lockdowns this year.

The figure was revealed in financial results (pdf) for the first half of the year released today by Investment Corporation of Dubai (ICD), the government entity which is the sole shareholder of Emirates.

In its financial statement, the Dubai sovereign wealth fund discussed the fuel hedging strategy used by Emirates as part of the airline’s risk management strategy. This involves the airline entering into forward contracts for crude oil, based on the amount of jet fuel it thinks it will need.

Unsurprisingly, given the Covid-19 lockdowns that began in March, its estimates proved to be wildly inaccurate this year and ICD said the “hedge ineffectiveness” led to a charge of AED 2.24 billion ($611 million) being included in its results, recorded as net losses from derivative financial instruments.

That figure was partially offset by an AED601 million ($164 million) gain on currency derivatives from one of ICD’s airline subsidiaries. The fund also owns shares in low-cost airline FlyDubai but did not specify whether it was that or Emirates that made the currency gain.

Like other airlines around the world, Emirates has had a torrid time in 2020, recording a $3.8 billion loss in the first half of the year. In response to the coronavirus pandemic, it has had to ground much of its fleet and lay off staff. It has been helped by a $2 billion injection from the Dubai government in the first half of the year, provided via ICD.

In its results, ICD said that Emirates is now seeing “a gradual rebound in passenger demand” but it described it as a “slow recovery” and added “the environment is such that consumers may be reluctant to travel for some time.”

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