Fuel price hedging in the airline industry

摘要

The cost of fuel represents the second highest operating expense airlines must contend with, second only to labor. Rising jet fuel prices over the past several years have put constant pressure 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 nonfinancial firms like the airlines as well as the source of added value from hedging. Some argue that hedging is not a core competency of airlines and that as long as competitors are not hedged; it will be a level playing field. United, Northwest and ATA do not hedge at all, while other airlines are engaged in some limited hedging. In this paper we use recent data to test the model developed by Froot et. al. (1993) and Allayanis and Weston (2001) to test if hedging adds value to an airline.