Study On Airline Fuel Hedging Strategy

Aviation transportation industry is one of the industries with huge fuel consumption,among which aviation fuel is the most important consumption.Fuel cost is also the most important operating cost of airlines,which always affects the operating efficiency of each airline company.However,as one of the major commodities,the price of aviation fuel is deeply affected by geography,politics,supply and demand,and has strong uncertainty.In order to reduce the risk caused by the fluctuation of jet fuel price,domestic and foreign airlines use derivatives to hedge jet fuel in the financial market.Some airlines have gained good benefits through hedging,but some airlines have suffered huge losses in the abnormal market.This paper studies three typical airline companies in aviation fuel hedging through case analysis.Southwest Airlines is a positive case,while China Eastern Airlines and Air China are negative cases.The differences and profits of the three airlines in aviation fuel hedging strategies are compared by combining the positive and negative cases.Studies show that hedging is a "sword of Damocles" hanging over the head of airlines,and hedging strategies with speculation will lead to huge losses in extreme market conditions.The strategy that aims at long-term stability and is highly sensitive to market changes can help airlines stabilize jet fuel costs and enjoy the benefits of hedging.Therefore,in the hedging scheme design of Shenzhen Airlines,this paper proposes five hedging schemes based on the results of the case study and the company’s jet fuel hedging needs.Through the simulation analysis of historical oil price data and the company’s operating data,it is concluded that different strategies should be suitable for different market environments.Airlines should also choose hedging strategies based on the company’s long-term development goals and the basic prediction of oil price trends.Finally,in order to avoid speculative hedging transactions,this paper puts forward a management system for preventing operational risks,and gives corresponding suggestions from three aspects:organizational structure,implementation process and "three lines of defense".This study can be used as a reference for future jet fuel hedging design of airlines.