Jet Fuel Hedging

In: Other Topics

Submitted By eduardomdz
Words 5737
Pages 23
“To Hedge or Not to Hedge: The Dilemma Airlines Face when it comes to Jet Fuel”

“GLOBAL FINANCIAL STRATEGIES”
Instructor: Dr. William Hardin III

FLORIDA INTERNACIONAL UNIVERSITY
Professional Master’s in Business Adminstration Program- Panama

May 5th, 2012

Project Outline

Introduction
1. “Hedging” Defined

2. The Hedging Process

1. The Fuel Hedging Decision-making 2. Steps in the Hedging Process 3. Different types of Hedging Strategies 4. The Accounting Aspects of Hedging 5. Formula used in the Spot Pricing of Jet Fuel

3. Pros and Cons Arguments of Hedging Jet Fuel

4. Risk Factors that may affect the Hedging of Jet Fuel.

5. Conclusion

6. Data Analysis, Graphics and Tables

7. Bibliography

Introduction

The hedging of jet fuel by major airlines is the topic of this project. Hedging is considered by some as a form of insurance, similar to the kind you buy for your personal use (health, life, auto) or for your business (fire, flood, cargo). The process of hedging fuel and its derivatives is far more complicated than going out to buy a homeowner’s insurance policy, for example. We will address the different types of hedging strategies that can and are being implemented by some of the major global carriers and we will also take a look at those carriers who do not practice hedging at all.

Hedging allows airlines to “insure” themselves against a negative event, such as a sharp rise in fuel prices due to a shortage in oil production. Hedging is simply a way that some airlines use to try and reduce the uncertainty and volatility of jet fuel prices. For example, if a major airline is currently generating a profit, they can try to protect that profit by hedging their fuel needs and reduce the risk of loosing large amounts of money.

On the opposite side of the spectrum,…...

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