Oil price dynamics and airline earnings predictability

Huabing Wang and Xiang Gao

Journal of Air Transport Management, 2020, vol. 87, issue C

Abstract: This study examines the effect of oil price dynamics on quarterly earnings and their predictability with a sample of 30 airlines for 1994–2017. First, we document a significantly positive impact of demand-driven oil shocks on airline earnings, suggesting that the revenue effect from shifting air travel demands dominates the cost effect of aviation fuels. Regarding earnings predictability, we find evidence of deterioration in oil-volatile quarters as indicated by both the earnings variability based on common benchmarks and the quality of analyst forecasts issued early in the quarter. We further show that supply-driven oil shocks have a more detrimental impact on earning predictability than demand-driven oil shocks. Finally, we do not find supporting evidence for the possible moderating effect of hedging.

Keywords: Airline earnings; Oil price volatility; Analyst forecasts; Earnings predictability; Supply shock; Demand shock (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaitra:v:87:y:2020:i:c:s0969699720300302

DOI: 10.1016/j.jairtraman.2020.101854

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