Does Operational and Financial Hedging Reduce Exposure? Evidence from the U.S. Airline Industry
24 Pages Posted: 18 Jan 2014
Date Written: February 2014
Abstract
We examine the effects of both financial and operational hedging on jet fuel exposure in the U.S. airline industry. Specifically, we investigate two operational hedging strategies: the extent to which airlines operate different aircraft types and the degree to which airlines operate fuel‐efficient fleets. We find that both financial and operational hedging are important tools in reducing airline exposure to jet fuel price risk. However, operational hedging strategies appear to be more economically important, which suggests that hedging with derivatives is more likely to be used to “fine‐tune” risk exposure, whereas operational choices have a higher order effect on risk exposure.
Keywords: operational hedging, financial hedging, risk management, airline industry
JEL Classification: G30, G31, G32, L93
Suggested Citation: Suggested Citation
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Does Operational and Financial Hedging Reduce Exposure? Evidence from the U.S. Airline Industry
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