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123Qantas |Annual Report 2007
Notes to the Financial Statements
for the year ended 30 June 2007
(C) Fuel price risk
The Qantas Group uses options and swaps on aviation fuel and crude oil to hedge the exposure to movements in the price of aviation fuel. Hedging
is conducted in accordance with Qantas Group policy. Up to 100 per cent of estimated fuel costs out to 12 months may be hedged and up to 50 per cent
in the subsequent 12 months, with any hedging outside these parameters requiring approval by the Board. During the year, the net loss arising from
effective fuel hedging was $39.8 million (2006: $345.9 million gain) which has been recognised in fuel expenses. In addition, a $59.7 million loss
(2006: $64.3 million (loss)) was recognised in Ineffective derivatives – closed positions and $11.5 million loss (2006: $31.1 million gain) in Ineffective
derivatives – open positions in accordance with A-IFRS. For the year ended 30 June 2007, Other financial assets and liabilities includes fuel derivatives
totalling $129.3 million (asset) (2006: $246.6 million (asset)). These are recognised at fair value in accordance with AASB 139.
(D) Credit risk
Credit risk is the potential loss from a transaction in the event of default by the counterparty during the term of the transaction or on settlement of
the transaction. Credit exposure is measured as the cost to replace existing transactions should a counterparty default. The Qantas Group conducts
transactions with the following major types of counterparties:
trade debtor counterparties – the credit risk is the recognised amount, net of any impairment losses. As at 30 June 2007, this amounted to
$1,030.8 million (2006: $969.9 million). The Qantas Group has credit risk associated with travel agents, industry settlement organisations and
credit provided to direct customers. The Qantas Group minimises this credit risk through the application of stringent credit policies and accreditation
of travel agents through industry programs; and
other financial asset counterparties – the Qantas Group restricts its dealings to counterparties that have acceptable credit ratings. Should the rating of
a counterparty fall below certain levels, internal policy dictates that approval by the Board is required to maintain the level of the counterparty exposure.
The Qantas Group minimises the concentration of credit risk by undertaking transactions with a large number of customers and counterparties in
various countries. As at 30 June 2007, the credit risk of the Qantas Group to Other financial asset counterparties amounted to $6,004.3 million
(2006: $5,718.8 million) and was spread over a number of regions, including Australia, Asia, Europe and the United States of America.
(E) Cash flow hedges
Any gains/losses on contracts entered into to hedge anticipated specific sales and purchases of goods and services, together with the cost of the
contracts, are recognised in the Financial Statements at the time the underlying transaction occurs. For further information, see Note 1(F).
At 30 June 2007, the Qantas Group and Qantas held various types of derivative financial instruments that were designated as cash flow hedges of
future forecast transactions.
These were:
hedging of certain foreign currency revenue receipts and operational payments by future debt repayments in foreign currency and exchange derivative
contracts (forwards, swaps or options) hedging future foreign exchange risk;
hedging of future jet fuel purchases by forward crude, gasoil and jet kerosene derivative contracts and options;
hedging of future interest payments by interest rate derivative contracts (forwards, swaps or options); and
hedging of future capital expenditure payments by foreign exchange derivative contracts (forwards or options).
To the extent that the hedges were assessed as highly effective, changes in fair value are included in the hedge reser ve. The periods in which the related
cash flows are expected to occur are summarised below:
Qantas Group
2007
$M
Less than
1 Year 1 to 5 Years
More than
5 Years Total
Contracts to hedge future foreign currency payments 12.3 (186.3) (158.1) (332.1)
Contracts to hedge future aviation fuel payments (46.8) (6.6) – (53.4)
Contracts to hedge future interest payments (31.8) (15.4) (10.8) (58.0)
Contracts to hedge future capital expenditure payments 70.0 202.1 – 272.1
3.7 (6.2) (168.9) (171.4)
Related deferred tax charge 51.4
Total net gain included within hedge reserve (120.0)
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28. Financial Instruments continued