Air China Ltd, the nation's largest international carrier, had its biggest plunge in almost a month in Shanghai trading yesterday after saying losses on hedging contracts tripled because of wrong-way bets on fuel prices.

Air China dropped 9.7 percent to 3.91 yuan in Shanghai, the biggest decline since October 27.

Jet-fuel prices plunged 62 percent from its July peak, leaving airlines with contracts to buy fuel for more than market rates. Cathay Pacific Airways Ltd, Hong Kong's biggest carrier, said hedging losses as of October 31 are estimated to be HK$2.8 billion (US$361 million), Bloomberg News reported.

"Air China has disappointed investors who used to believe it was the best Chinese carrier," said Jack Xu, an analyst at Sinopac Securities Co in Shanghai. "The loss may further widen as oil prices continue to drop." The fair-value loss on contracts widened to 3.1 billion yuan as of October 31, from 1 billion yuan disclosed in the third quarter, Air China said in a statement on November 21.

China controls the price of fuel used on internal flights, while airlines have to pay international prices for overseas services.

Among China's three-largest airlines, Beijing-based Air China is the most exposed to fluctuation in international jet-fuel prices as about half of its traffic is on international routes. China Southern Airlines Co, the nation's largest carrier, has less than 20 percent of its traffic from overseas.

Fuel accounted for more than 40 percent of Air China's operating costs this year, according to the statement. The company signed contracts in July with terms until 2011.

Jet-fuel prices in Singapore trading, an industry benchmark, fell 2.6 percent to US$68.70 per barrel on November 21.

Air China posted a loss of 1.9 billion yuan in the third quarter, its first loss in seven quarters, because of wrong-way bets on fuel prices.

Morgan Stanley cut the share-price target for the Hong Kong-traded shares of Air China to HK$1.50 from HK$3.80. Air China fell 10 percent to HK$1.59 in Hong Kong trading yesterday.

(Shanghai Daily November 25, 2008)