We thank participants at the 2009 Eastern Finance Association, 2009 Financial Management Association, and 2010 Financial Management Association European meetings for their helpful comments. In particular, we thank Martin Glaum for his suggestions.
Does Operational and Financial Hedging Reduce Exposure? Evidence from the U.S. Airline Industry
Version of Record online: 17 JAN 2014
© 2014 The Eastern Finance Association
Volume 49, Issue 1, pages 149–172, February 2014
How to Cite
Treanor, S. D., Simkins, B. J., Rogers, D. A. and Carter, D. A. (2014), Does Operational and Financial Hedging Reduce Exposure? Evidence from the U.S. Airline Industry. Financial Review, 49: 149–172. doi: 10.1111/fire.12029
- Issue online: 17 JAN 2014
- Version of Record online: 17 JAN 2014
- operational hedging;
- financial hedging;
- risk management;
- airline industry;
We examine the effects of both financial and operational hedging on jet fuel exposure in the U.S. airline industry. Specifically, we investigate two operational hedging strategies: the extent to which airlines operate different aircraft types and the degree to which airlines operate fuel-efficient fleets. We find that both financial and operational hedging are important tools in reducing airline exposure to jet fuel price risk. However, operational hedging strategies appear to be more economically important, which suggests that hedging with derivatives is more likely to be used to “fine-tune” risk exposure, whereas operational choices have a higher order effect on risk exposure.