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Sun 26 Aug 2018 09:33 AM

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Rising oil prices could see Royal Jordanian pursue a hedge

CEO Stephan Pichler said the timing isn't opportune but hedge, if approved by the board, could help improve profitability

Rising oil prices could see Royal Jordanian pursue a hedge

Royal Jordanian is drafting a proposal to pursue an oil price hedge, the airline’s CEO Stefan Pichler has told Arabian Business.

“We haven’t in the past, and the timing isn’t opportune, but we are proposing a hedging strategy to the board,” the CEO said during an interview at Arabian Business’ studios in Dubai last week.

Airlines such as Lufthansa and American Airlines often employ oil price hedges to minimise the adverse affects of rising prices. However, advantages from a hedge tend to accrue over time, Pichler said. “It’s an ongoing process and we don’t have momentum right now so just entering a hedging strategy as prices have risen means the timing won’t be opportune,” he said.

The rise in fuel prices in 2018 “came as a big surprise,” he added. “So we’re hoping to still mitigate some of the damage.”

Appointed in May 2016, Pichler inherited an airline that hadn’t been profitable since 2011. Results in the first half of 2017 also proved disastrous with the carrier posting a loss of -$37.1 million (JD 26.3 million) more than its entire loss in 2016.

However, the airline has since registered a turnaround that continue to strengthen. A more than 10 percent increase in revenues in the second half of 2018 allowed it to reverse losses from earlier in the year and even eke out $386,000 in net profit.

The first half of 2018 is seeing a continuation of the story from 2017. The airline has halved its losses year on year to $17.9 million. “We’ve are looking to be profitable again by the end of the year,” Pichler said.