Among the greatest expenses associated with airline operations are fuel costs. In past years when fuel prices were rising rapidly, airlines used hedging methods to reduce the procurement risks for sourcing fuel. The two articles listed below highlight the experiences of three large airlines using different fuel hedging approaches. Locate the articles in the Hunt Library and review them.
- Liu, Chin-Yen A., & Jones, K.J. (2016). Integrated risk management on fuel hedging program: A case study on Southwest and China Eastern airlines. Academy of Business Research Journal. 2, 74-85.
- Manuela Jr., W.S., Rhoades, D.L., & Curtis, T. (2016, August). An analysis of Delta Air Lines’ oil refinery acquisition. Research in Transportation Economics 56, 50-63.
Write a case study report to analyze the effectiveness and value of fuel hedging by airlines. In your case study report begin with a summary overview outlining the main logistics issues facing the companies. Then, add detail and analysis by responding to the following topics and questions.
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- Describe how each airline used procurement methods to hedge against fuel cost increases. Explain what internal and external considerations are relevant to the airlines’ decision to hedge fuel prices?
- Evaluate the relative effectiveness of each airline’s approach to hedging. Provide an analysis of which method was most successful and describe what factors made the difference in success or failure of the hedging method.
- Discuss the logistics lessons to be learned from the hedging efforts of the airlines. Do you think airlines, in general, will continue to use fuel hedging in the coming months and years? Explain why you think so. Justify your answer with data or findings from the research and professional literature in the Hunt library.