Cathay Pacific locked in fuel at the wrong time and lost HK$7.6B

Cathay Pacific, the Hong Kong-based flag carrier, has long used fuel hedging to manage exposure to volatile jet fuel prices. In 2008, when oil prices were near record highs above $140 per barrel, the airline locked in prices for about half of its fuel needs through the end of 2011. When oil prices collapsed to under $40 per barrel in late 2008, Cathay was forced to pay far above market rates for its hedged fuel.

In March 2009, the airline reported a record full-year loss of HK$8.56 billion for 2008 — its first loss since the 1997 Asian financial crisis. The loss included fuel-hedging charges of HK$7.6 billion. The airline had to scrap its final dividend.

Eight years later, in 2016, the same pattern repeated. Oil prices had halved from 2014 levels and stayed below $50 per barrel, but Cathay had locked in fuel at higher prices. The airline suffered another HK$4.5 billion loss from wrong bets on fuel prices, causing half-year net profits to drop more than 80% and forcing the reintroduction of fuel surcharges on many flights.