Fuel hedging, operational hedging and risk exposure — Evidence from the global airline industry

Berghöfer, Britta; Lucey, Brian M.

doi:10.1016/j.irfa.2014.02.007

Cited by 64 publications

(31 citation statements)

References 36 publications

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“…Treanor, Simkins, Rogers, and Carter (2014) found that airlines primarily manage risk exposure through operational hedging, but fine-tune it with derivatives. Berghofer and Lucey (2014), however, concluded that neither financial nor operational hedging actually reduces airline fuel costs or risk. Thus, although theorists argue derivative hedging can generate value, gains appear elusive for airlines.…”

Section: Background and Motivationmentioning

confidence: 99%

Vertical integration as an input price hedge: The case of Delta Air Lines and trainer refinery

Almansur

Megginson

Pugachev

2019

Financial Management

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In April 2012, Delta Air Lines (Delta) purchased a mothballed oil refinery. We use this case to illustrate when, how, and why vertical integration (VI) can hedge input price risk. First, we show that stockholders and creditors expected the move to create wealth. Consistent with their predictions, Delta's exposure to refining margins, cash flow volatility, cost of debt, and default probability all decreased, relative to peers, postacquisition. Our evidence is consistent with the refinery influencing Delta's operating strategies, especially in its most affected markets. The case demonstrates how asset specificity and financial hedging frictions can justify VI.

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Section: Background and Motivationmentioning

confidence: 99%

Vertical integration as an input price hedge: The case of Delta Air Lines and trainer refinery

Almansur

Megginson

Pugachev

2019

Financial Management

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“…To decrease the uncertainty and oil price risk, the use of hedging through futures markets is applied. The existing findings in the literature show some interesting results, such as that hedging does not decrease oil price risk exposure (Berghöfer and Lucey 2014). However, the data sample and frequency are very important issues to bear in mind, as a less volatile sample period could exhibit different outcomes than in times of shocks or crises, where hedging could decrease the uncertainty in the market and be more effective.…”

Section: Discussionmentioning

confidence: 99%

The Lead–Lag Relationship between Oil Futures and Spot Prices—A Literature Review

Zavadska

Morales

Coughlan

2018

IJFS

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Crude oil is the dominant energy resource worldwide. The focus of this paper is on its historical behaviour and subsequent implications for the global economy with an emphasis on the lead–lag relationship between spot and future prices. The paper examines the behaviour of oil spot and future prices and their determinants during periods of market uncertainty, particularly in the context of economic and financial crises. The analysis highlights a key controversy within the extant literature, as to whether spot or futures prices are the main crude oil price indicator. The literature review indicates that the lead–lag relationship is a dynamic one, especially during periods of sustained uncertainty, which leads to significant disagreements and incongruities among researchers regarding the price that plays a dominant role.

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“…Although some previous studies concluded that hedging (operational and or financial hedging) has significant effect in reducing airline's exposure, some researchers found reversely. Berghofer & Lucey [9], similar with a study conducted by Treanor et al [8], they analyzed the impact of financial derivative (financial hedging) and fleet diversity (financial hedging) in reducing airline fuel price risk exposure. Berghofer & Lucey [9] concluded that those hedging activities does not significantly reduce airline fuel price risk exposure.…”

Section: Introductionmentioning

confidence: 93%

“…Berghofer & Lucey [9], similar with a study conducted by Treanor et al [8], they analyzed the impact of financial derivative (financial hedging) and fleet diversity (financial hedging) in reducing airline fuel price risk exposure. Berghofer & Lucey [9] concluded that those hedging activities does not significantly reduce airline fuel price risk exposure. Lim and Hong [10] said that fuel hedging airlines reduce operating cost but this effect is statistically insignificant.…”

Section: Introductionmentioning

confidence: 93%

The Impact of Operational and Financial Hedging to the Airline Operating Performance

Siallagan

Prijadi

2020

KSS

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The airline is a low-profit margin and high competition industry. Increasing competition makes airline unable to easily charge their costs to customers and raise their fare, so that airlines have a narrow profit margin. One of the major costs in the airline industry is jet-fuel cost. International Air Transport Association (IATA), predict that total global fuel cost for period 2019 will rise to USD 200 billion from about USD 180 billion in 2018. In average, Jet fuel will contribute 24.2 percent of total 2019 Airline’s operating cost (IATA [1]). Like most of commodities, jet-fuel price is highly volatile which encourages companies to engage in hedging activities. This paper examines the impact of operational and financial hedging to airline operating performance. We perform an empirical study by using the airline data from 2013 to 2017. To test the impact of hedging in airline operating performance, we regress the operating cost to revenue ratio, operational hedging, financial hedging and other control variables. This study found that financial derivative hedge can reduce the dollar needed to generate airline revenue, while operational hedging increase it. Keywords: Fuel Hedging, Operational Hedging, Financial Hedging, Airline Performance

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Fuel hedging, operational hedging and risk exposure — Evidence from the global airline industry

Cited by 64 publications

References 36 publications

Vertical integration as an input price hedge: The case of Delta Air Lines and trainer refinery

Vertical integration as an input price hedge: The case of Delta Air Lines and trainer refinery

The Lead–Lag Relationship between Oil Futures and Spot Prices—A Literature Review

The Impact of Operational and Financial Hedging to the Airline Operating Performance

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