Fuel price hedging in the airline industry

摘要

The cost of fuel represents the second highest operating expense airlines must contendwith, second only to labor. Rising jet fuel prices over the past several years have put constantpressure on airlines to maintain positive cash flows and have pushed airlines towards bankruptcy.There is an ongoing discussion in the literature about the usefulness of hedging for nonfinancialfirms like the airlines as well as the source of added value from hedging. Some argue thathedging is not a core competency of airlines and that as long as competitors are not hedged; itwill be a level playing field. United, Northwest and ATA do not hedge at all, while other airlinesare engaged in some limited hedging. In this paper we use recent data to test the modeldeveloped by Froot et. al. (1993) and Allayanis and Weston (2001) to test if hedging adds valueto an airline.