Jet fuel hedging - analysis of the European aviation industry

Lukas Eichmann & Konstantin Magnus Fuchs

Studenteropgave: Kandidatprojekt


This paper examines if there are differences in risk exposure to jet fuel price movements between low cost carriers (LCC) and full-service network carriers (FSNC) within the civil aviation industry, as well as if hedging strategies have a different significance for the two different business models. It draws inspiration from a 2014 paper by Berghöfer and Lucey.
Data from 23 European airlines (9 LCC and 14 FSNC) was collected over a timespan of ten years (2006-2015), resulting in a total of 176 airline periods. First, exposure coefficients were estimated per airline per year, before regressing them in a pooling regression against hedging variables collected for each airline from their annual reports. The analysis shows that there is actually no difference between LCC and FSNC and that they both face the same exposure to jet fuel price movements. All of the four hedging variables (percentage of fuel requirements hedged and corresponding maturity, load factor, and fleet diversity) were found to be insignificant; the only statistically significant variable with regard to exposure was the control variable firm size - larger firms appear to be more exposed, corroborating prior research findings.
The discussion attempts to explain these findings and also offers potential future research directions.

UddannelserVirksomhedsledelse, (Bachelor/kandidatuddannelse) Kandidat
Udgivelsesdato19 dec. 2016
Antal sider40
VejledereJohannes Kabderian Dreyer