Does hedging reduce economic exposure? Hurricanes, jet fuel prices and airlines

Author(s):  
David A. Carter ◽  
Daniel A. Rogers ◽  
Betty J. Simkins ◽  
Stephen D. Treanor
Keyword(s):  
Jet Fuel ◽  
2014 ◽  
Vol 42 (4) ◽  
pp. 473-474 ◽  
Author(s):  
Bahram Adrangi ◽  
Richard D. Gritta ◽  
Kambiz Raffiee
Keyword(s):  
Jet Fuel ◽  

Author(s):  
Siew Hoon Lim ◽  
Peter A. Turner

Large and unpredictable swings in fuel prices create financial uncertainty to airlines. While there are the risks for going unhedged, airlines that hedge to mitigate fuel price risk face the basis risk. This paper examines whether the length of hedge horizon and distance to contract maturity affect the effectiveness of jet fuel cross hedging. Understanding the effects of hedge duration and futures contract maturity helps improve airline’s fuel hedging strategies. We find that (1) regardless of the distance to contract maturity, weekly hedge horizon has the highest effectiveness for jet fuel proxies like heating oil, Brent, WTI, and gasoil; (2) heating oil is the best jet fuel proxy for all hedge hori-zons and contract maturities; and (3) the hedge effectiveness of heating oil is higher for one-month and three-month contracts.


2013 ◽  
Vol 6 (2) ◽  
pp. 83-97 ◽  
Author(s):  
Finbarr Murphy ◽  
Na Li ◽  
Bernard Murphy ◽  
Mark Cummins

2016 ◽  
Vol 17 (6) ◽  
pp. 977-991 ◽  
Author(s):  
Barbara GAUDENZI ◽  
Alessandro BUCCIOL

We analyze the relationship between dynamics to stock prices and jet fuel prices, conditional on financial and company-specific variables, in the airline sector. In particular, our contribution to the literature is in the comparison between regular and low-cost airline companies. We run a set of fixed-effect regressions where the dependent variable, the stock daily return of the airline company (observed between 2008 and 2014) is regressed over three sets of explanatory variables (financial, company-specific and time variables). While large and small companies provide similar results, we find that the company price return – among different variables – correlates only with the jet fuel return and the stock market return. Our work also suggests that there is a difference between regular and low-cost companies. We speculate that this possibly arises because low-cost companies stock-pile in a more efficient way, which depends less on current jet fuel price. Our evidence then sheds light on the efficiency of the low-cost model and may suggest to export part of its practice among regular airline companies.


1970 ◽  
Vol 32 (1) ◽  
pp. 1-20
Author(s):  
Garland Simmons

In this paper two approaches are applied to understand the hedging behaviorof companies which compete in the American airline industry (2007-2014) as theyseek to cope with the uncertain, future costs of jet fuel. The first measures the riskthat jet fuel prices will fall, a matter of concern to airlines that hedge against risingjet fuel prices, for when jet fuel prices fall, those airlines that have hedged losemoney on their hedges. The second describes the risk of hedging or not by usingsome of the tools of game theory. Two different cases are investigated. In the firstcase airlines compete against one another in a market structure where it is assumedthat whether one airline hedges is of no immediate concern to its rivals. In this firstcase hedging decisions of one airline produce no effects upon other airlines. In thesecond case airlines compete against one another in the context of an oligopoly.Hedging decisions of one airline are connected to the hedging decisions of otherairlines. If some airlines hedge jet fuel costs while at the same time others do not,winners and losers are created among the competing airlines. The problem here isthat while hedging can fix the price of jet fuel, it cannot guarantee that this fixedprice will be lower than the price paid by a rival that did not hedge. The last partof this paper is an empirical data analysis of the differences in jet fuel costs, net ofhedging results, is conducted. The null hypothesis that all airlines have equal jet fuelcosts after hedge results are accounted for could not be rejected at any reasonablelevel of confidence.


Aerospace ◽  
2021 ◽  
Vol 8 (2) ◽  
pp. 37
Author(s):  
Laurent Tabernier ◽  
Esther Calvo Fernández ◽  
Andreas Tautz ◽  
Robin Deransy ◽  
Peter Martin

The majority of emissions from aviation come from the combustion of the fuel required to operate each flight. Keeping the fuel consumption required for a safe flight to the absolute minimum is therefore the simplest and most effective way to ensure that emissions from that flight are kept to a minimum. In practice, however, the fuel load is determined by each aircraft operator on the basis of a number of criteria maximizing first cost efficiency, rather than fuel savings. In this context, tankering is the practice of carrying more fuel than is necessary for the safe execution of the flight to avoid or minimize refueling at the destination airport. It offers an economic advantage when there is a significant difference in fuel prices between the departure and arrival airports, but considerably increases the amount of emissions produced, because the more fuel an aircraft carries, the heavier it is, and carrying this extra weight increases its fuel consumption. This paper presents the steps followed by EUROCONTROL in conducting a first study to estimate the number of times this practice would offer an economic benefit and the amount of extra CO2 emissions that would result. This study, limited to flights up to 1500 and 2500 NM, corresponding mainly to short and medium-haul flights, estimates that, in 2018, 21% of ECAC (In this paper, ECAC refers to the geographical region defined by the 44 member states that signed the European Civil Aviation Conference) flights would perform fuel tankering beneficially. This would represent a net saving of 265 M€ per year for the airlines, but the burning of 286,000 tonnes of additional fuel (equivalent to 0.54% of ECAC jet fuel used), or 901,000 tonnes of CO2 per year. At a time when aviation is challenged for its contribution to climate change, the use of fuel tankering for economic reasons is therefore highly questionable.


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