Fuel, engines, contracts, crews and weather

Jet fuel is priced in US dollars against a Singapore benchmark, and after people it is our largest cost: about A$188 million in the 2026 financial year, for roughly 145 million litres. My first task at Saltbush was to separate the fuel we bear from the fuel our customers bear. Charter contracts reset their fuel component monthly against a published index, so we hedge only scheduled-services fuel on a declining twelve-month ladder, plus the one-month lag in the charter reset, and we manage currency as a programme of its own. I report to the Audit and Risk Committee on net exposure, not on the share of consumption hedged, because that share can rise while real protection falls. Under AASB 9 each hedging instrument now relates to a forecast purchase we genuinely carry, which makes the hedge accounting easier for auditors to test and for directors to follow. The notional book is about A$95 million, against A$240 million in 2021.

I compare leasing and owning on total cost over the years an aircraft will actually earn money, including maintenance reserves, expected engine shop visits, return conditions and the weeks an aircraft stands idle while it is prepared for return. Six years pricing leases in Dublin taught me that return conditions are a second price, often worth more to the lessor than the rent. At Saltbush we moved from 11 owned aircraft out of 39 to 21 out of 44, buying mid-life jets where contracts were shorter than a new lease and buying out four turboprops at lease end where we had already paid for much of their maintenance. Under AASB 16 our remaining leases sit on the balance sheet as right-of-use assets, with lease liabilities of A$288 million at June 2026. I report return-condition exposure beside them, lease by lease, because the standard does not bring it into view by itself. Every fleet paper now shows the engine plan before the financing.

Our charter contracts with resources companies run for three to seven years. They combine a fixed availability charge for dedicated aircraft and crew, a rate per block hour, a monthly fuel reset and annual indexation for wages and other costs. I test every bid's indexation basket against our own cost history, because a basket that lags wage growth can turn a profitable contract into a loss by its fourth year; I learnt that on bus contracts at Harlowe. Scheduled services raise different questions. Two of our routes are held under state arrangements that grant exclusivity in return for fare and frequency commitments, and in 2024 we declined to match a rival's bid for a third. Airport charges are a fixed cost we do not set: the largest capital-city airports agree aeronautical charges with airlines under a light-handed price-monitoring regime, and regional airports, usually owned by local councils, set their own. I lead the largest of those negotiations with our commercial team.

People cost us about A$228 million a year, and roughly a third of that is pilots and licensed engineers, whose qualifications take years to build and can be lost to a competitor in a month. I treat those workforces as capacity. Each departing captain costs us about A$60,000 in type-rating training and several months of reduced flying, so attrition belongs in the financial plan, not only in a human resources report. Our 2023 pilots' enterprise agreement, negotiated with the pilots' union and approved by the Fair Work Commission, paired moderate base increases with retention payments that grow with service and a funded cadet pathway. I modelled each element's cost and its likely effect on attrition before we tabled it, and our 2025 engineers' agreement followed the same structure. Safety decisions belong to our accountable manager and flight operations team under CASA oversight. My part is to make sure they are never asked to trade safety for a budget line.

Northern Western Australia has a cyclone season from November to April, and a single system can close the airports at Port Hedland or Broome for days. Disruption costs us in recovery flights, crew accommodation, aircraft stranded in the wrong place and charter penalties for missed rotations. I budget for it from our own ten-year record of disruption, and our charter contracts now define weather exclusions precisely instead of leaving them to argument after the event. Our insurance programme covers hull, liability and spares and is placed each year through brokers in the international aviation insurance market. When premiums rose sharply in 2023, I recommended accepting higher hull deductibles and retaining more risk ourselves. That saved about A$3.1 million a year in premium, and we hold undrawn liquidity sized to two moderate claims against it. The choice made weather and minor damage a larger share of our own risk, so I review it with the Audit and Risk Committee every half.