Non-US airlines profit from low-flying dollar

Japan Airlines said exchange benefits amounted to ¥9.3 billion ($84.5 million) in its air transport segment for the six months to September 30, helping it report a net profit of ¥83 million, against a net loss of ¥57.6 million for the correpsonding period last year.

The average dollar/yen exchange rate in the six months to September 30 was ¥118.7, compared with ¥109.7 in the corresponding period of 2003.

British Airways said it had made £4 million ($7.3 million) from the weakening yen rate against sterling in its second quarter – British Airways' financial year runs from April 1 to March 31.

The unexpected boost to the firm's balance sheet came after a charge of £58 million for the same period the previous year.

Keith Williams, group treasurer and head of tax at British Airways in London, said that while his firm is fairly neutral to sterling/dollar exchange rates, as a large proportion of its revenues as well as costs are dollar-based, "at current weak dollar rates, it becomes incumbent on the treasurer to lock in some of the benefit".

He said European airlines facing large increases in their fuel costs generally welcome a weak dollar as it offsets some of the price increase on the fuel itself. "It also reduces some of their other dollar costs, for example, aircraft costs and landing charges."

But although US airlines faced the double whammy of high oil costs and a weak domestic currency, only those with large Asian operations, such as Northwest, United and to a lesser extent Continental, have done any significant currency hedging, said Glenn Engel, airline analyst at Goldman Sachs in New York. These companies have far more yen revenues than yen expenses, so they try to lock in a profitable yen/dollar rate and prefer a weak dollar, he said.