IFRS 9 para 6.5.12(b), reclassification of amounts to profit and loss when hedged future cash flows no longer expected to occur

Air New Zealand Limited – Annual report – 30 June 2020

Industry: airlines

3. Other Significant Items (extract)

Other significant items are items of revenue or expenditure which due to their size and nature warrant separate disclosure to assist with the understanding of the underlying financial performance of the Group.

Amounts transferred from the cash flow hedge reserve where the forecast transaction is no longer expected to occur

Group policy is to manage risk exposures on foreign currency risk arising in respect of forecast operating cash flows and price risk arising in respect of forecast fuel transactions. As a result of Covid-19 there was a substantial decline in customer demand due to border closures and domestic travel restrictions. The airline significantly reduced operating capacity with effect from March 2020, affecting revenues, operating expenditure and fuel consumption. A significant number of fuel hedges were closed out and hedges of both fuel price and of foreign currency operating revenue and expenditure transactions were de-designated. Where the forecast hedged transaction was no longer expected to occur, the associated accumulated gains or losses were transferred from the cash flow hedge reserve to profit or loss. A number of trades de-designated from hedge relationships remained open as at reporting date. The change in the fair value of these trades from the date of de-designation to 30 June 2020 was recognised in earnings within ‘Fuel’ and was largely offset by the transfer of premiums from the costs of hedging reserve in respect of hedge relationships that had been de-designated.