Airline Fuel Hedging: Do Hedge Horizon and Contract Maturity Matter?

Siew Hoon Lim and Peter A. Turner

Journal of the Transportation Research Forum, 2016, vol. 55, issue 01

Abstract: Large and unpredictable swings in fuel prices create financial uncertainty to airlines. While there are the risks for going unhedged, airlines that hedge to mitigate fuel price risk face the basis risk. This paper examines whether the length of hedge horizon and distance to contract maturity affect the effectiveness of jet fuel cross hedging. Understanding the effects of hedge duration and futures contract maturity helps improve airline?s fuel hedging strategies. We find that (1) regardless of the distance to contract maturity, weekly hedge horizon has the highest effectiveness for jet fuel proxies like heating oil, Brent, WTI, and gasoil; (2) heating oil is the best jet fuel proxy for all hedge horizons and contract maturities; and (3) the hedge effectiveness of heating oil is higher for one-month and three-month contracts.

Keywords: Financial Economics; Resource/Energy Economics and Policy; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://ageconsearch.umn.edu/record/262651/files/2 ... rlineFuelHedging.pdf (application/pdf)
https://ageconsearch.umn.edu/record/262651/files/2 ... g.pdf?subformat=pdfa (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:ndjtrf:262651

DOI: 10.22004/ag.econ.262651

Access Statistics for this article

More articles in Journal of the Transportation Research Forum from Transportation Research Forum
Bibliographic data for series maintained by AgEcon Search ().