Can Selective Hedging Add Value to Airlines? The Case of Crude Oil Futures
Can Selective Hedging Add Value to Airlines? The Case of Crude Oil Futures

Summary/Abstract: Recent studies have presented evidence suggesting that firms’ hedging decisions are influenced by market-timing considerations – a strategy known as selective hedging. Moreover, observed airlines’ hedging behavior is consistent with this notion. Therefore, the purpose of this study is to estimate whether selective hedging strategies can realistically be expected to add value to carriers. I find that jet fuel spot and crude oil futures prices exhibit seasonal tendencies, but not reliable behavior following new highs in prices. I estimate that the potential value to the airline industry from selectively hedging these tendencies may be in excess of $578.3 million.

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