Date of Award
Bachelor of Arts
This paper investigates whether the common practice of hedging the cost of fuel provides any economic benefits to participating airlines. Our study looks at 7 publically traded U.S. airlines over the course of 8 years, from 2008-2015, to determine whether revenue, income, financial leverage, credit quality, or the percentage of yearly fuel hedged contributes to an increase or decrease in overall firm value. We use Tobin's Q, which incorporates a company's market capitalization, outstanding stock, and assets and liabilities, as a proxy for firm value. We find statistically significant evidence that during this time period, a 1% increase in fuel hedge position results in a 0.01 point decrease in Tobin's Q. When considering that changes in hedge position are often greater than 10%, it is evident that this trend could be very detrimental to airlines value. Our findings are consistent with the previous assertion that fuel hedging practices could have the potential of causing speculative factors that negatively influence US airline’s stock price.
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Volpe, Nicholas, "Do Fuel Hedging Derivatives Provide any Economic Benefit to Commercial Airlines within the United States?" (2016). Economics Student Theses and Capstone Projects. 12.