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Hedging fuel costs is widely practiced by most international airlines but its theoretical justification is weak. This paper explores the nature and extent of airline fuel hedging and asks why airlines hedge. A policy of permanent hedging of fuel costs should leave expected long-run profits unchanged. If it damps out profit volatility, it should do so in a way that the market would not value. However, it may not damp out volatility, after all. Oil prices and air travel demand cycles are linked when oil supply reductions drive GDP declines. But oil and travel are negatively correlated when GDP demand surges drive oil price increases. So oil prices can either increase or decrease airline profit cycles, depending on the time period sampled. A fuel price hedge would create exceptional value when an airline is on the edge of bankruptcy. However, when on the verge of bankruptcy, an airline does not have the liquidity to buy oil futures. And variable levels of hedging can be useful in transferring profits from one quarter to another. Finally, hedging may be a zero-cost signal to investors that management is technically alert. Perhaps this is the most compelling argument for airline hedging. However, it lies more in the realm of the psychology of markets than the mathematics.

Abstract.With the increasing trend of charging for externalities and the aim of encouraging the sustainable development of the air transport industry, there is a need to evaluate the social costs of these undesirable side effects, mainly aircraft noise and engine emissions, for different airports. The aircraft noise and engine emissions social costs are calculated in monetary terms for five different sized airports, ranging from hub airports to small regional airports. The number of residences within different levels of airport noise contours and the aircraft noise classifications are the main determinants for accessing aircraft noise social costs.The environmental impacts of aircraft engine emissions include both aircraft landing and take-off and 30-minute cruise. The social costs of aircraft emissions 2 vary by engine type and aircraft category, depending on the damages caused by different engine pollutants on the human health, vegetation, materials, aquatic ecosystem and climate. The results indicate that the relationship appears to be curvilinear between environmental costs and the traffic volume of an airport. The results and methodology of environmental cost calculation could be applied to the proposed European wide harmonised noise charges as well as the social cost benefit analysis of airports.

A key question is whether the very successful, largely short-haul LCC business model can work over long-haul sectors? This paper compares the cost and other advantages of LCCs and evaluates how far they might be applied to long-haul sectors. It is estimated that cost advantages might be much lower than the 50-60% on shorthauls. Other factors such as the adoption by network airlines of some LCC features and their likely competitive response, the limited potential for market stimulation, the need for dense markets and feed traffic all combine to cast doubt on the widespread establishment of the business model for long-haul flights.

The establishment of Low Cost Carrier offshoots by network carriers has three possible objectives: to spin off profitable businesses; to see off low cost competition in key markets; and to establish a test-bed for adapting low cost business processes to their mainline operations. It is argued that US network carrier offshoots have failed on all three counts. The significant cost differences between network and Low Cost Carriers are identified, and it is shown that network carriers have made little inroads into closing this gap, whether or not they set up Low Cost Carrier offshoots. Some reasons for the failure of the offshoots are proposed by examining operating differences: mixed fleets, keeping interlining and two class cabins and the lack of progress on reducing labour costs. Labour Union restrictions and the lack of separation from the main airline were crucial. r