Royal Jordanian profit wiped out by unsuccessful fuel hedging

Royal Jordanian Airlines has paid the penalty for over-estimating the potential cost of aviation fuel and seen its pre-tax profits for 2008 wiped out by losses on fuel hedging.

Directors at Royal Jordanian insist the airline is progressing on track despite unfortunate losses

At the airline’s annual ordinary and extraordinary meetings at the Hyatt Amman hotel yesterday, the company said it was posting a net loss of JD23.4 million ($48 million) despite making a pre tax profit of JD18.7 million ($38 million).

Chairman of the Board of Directors Nasser Lozi said RJ’s performance in all operational aspects improved in 2008 despite the major challenges which it successfully overcame during the year. Among the challenges, there were massive, unprecedented rises in jet fuel prices, in addition to the drop in the demand on travel in the last quarter of last year, as a result of the global economic crisis and the events in Thailand and India.

Lozi had also said that the company's operating revenues went up to around JD703 million, an increase of 29% over 2007. This was achieved as a result of the rise in the number of passengers, which amounted to 2.701 million, marking an increase of 14.1% over 2007. Yield per passenger also rose by 11% due to the rise in ticket prices, which followed the increase in fuel prices during 2008. RJ's fuel bill reached around JD285 million in 2008, compared to JD165 million in 2007.

He pointed out that in keeping with the best international airline practices, the company resorted to fuel hedging deals in order to protect the airline's financial position and protect it against fluctuation in the bottom line. RJ hedged 35% of the fuel forecast for consumption in 2008 and 2009 at an average price of $105 per barrel, at a time when the price was $100 to $150 per barrel. All indications at the time were that the prices would continue to rise, to reach around $170-$200 per barrel.

He added that due to the rapid and unexpected decline in oil prices – reaching as low as $45 a barrel by the end of 2008 – this year's fuel hedging contracts were revaluated and unrealised losses of around JD46.7 million were recorded.

Lozi says the company's operational results during 2008 were consistent with the growing indicators of operational performance during the past four years. However, during these four years, the airline logged net profits despite the various challenges and obstacles it faced in the region, like wars and unstable conditions in Iraq, Palestine and Lebanon. All these and other events had a negative impact on air traffic and the performance of Royal Jordanian.

At the end of his speech, Lozi expressed appreciation for the shareholders’ support and confidence in the leading national company, and conviction that a prosperous future lies ahead for Royal Jordanian. RJ's clear mission, huge potential and efficient human and technological resources have secured it a very good reputation and placed it among the best world airlines.

Speaking to shareholders, RJ president/CEO Samer Majali said that the global economic crisis will directly affect the performance of the international air transport industry in 2009 and see a decrease in the volumes of passenger traffic and cargo. Nevertheless, the Royal Jordanian has taken a number of measures to reduce the impact of this crisis on the company's performance.

Royal Jordanian operates 28 aircraft on a route network covering 56 destinations.