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Hedging losses, now warning of earnings drop

CHINA Eastern Airlines Corp, the nation's third-largest carrier, said it lost around 6.2 billion yuan (US$906 million) on fuel hedging contracts and warned it will post a "significant" loss in earnings.

Fair-value hedging losses totaled US$14.2 million in December alone, the company said in a Hong Kong stock exchange statement yesterday. China Eastern said it expects to suffer "significant operating losses" in 2008.

Fuel-hedging losses have compounded the effects of slowing demand on airlines' earnings, as the global recession damps air travel. Carriers worldwide have suffered hedging losses after anticipating a continued rise in fuel prices. Jet-fuel prices doubled in a year to a record in July, before tumbling in line with declining oil prices, Bloomberg News said. Fuel prices tumbled 70 percent in less than six months.

"A pronounced global economic recession since the second half of 2008 led to a drastic decrease in air transportation demand," the Shanghai-based company said. "The civil aviation industry is facing a crisis."


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