A picture paints a thousand words! The chart below is a comparison of price performance of selected airline names in Asia. SIA’s under-performance is staggering, considering that most of these airlines compete in a similar operating environment, and are valued along the same metrics. A key drag on SIA’s most recent earnings report was their continued heavy expense on jet fuel. This is due to SIA’s fuel-hedging policies which did not allow them to enjoy better margins when Oil prices declined in the second half of 2014. Cathay Pacific has a similarly aggressive hedging policy for jet fuel, while the Chinese Airlines are not permitted to hedge their fuel expenses. Over time, however, the effects of these hedging contracts should smoothen out, if we assume that the policies remain consistent. With this in mind, could we perhaps see an opportunity for the shares of SIA to play catch up?
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