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Fuel Hedging by SouthWest Airlines

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Explain how southwest airlines uses its fuel hedging. How does fuel hedging impact the airline industry.

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https://brainmass.com/business/differentiation-strategies/fuel-hedging-by-southwest-airlines-402338

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The practice of fuel hedging often employed by airline companies, of making advance purchases of fuel at a fixed price for future delivery to protect against the shock of anticipated rises in price.

"If we don't hedge jet fuel price risk, we are speculating. It is our fiduciary duty to try and hedge this risk" says Scott Topping, Director of Corporate Finance for Southwest Airlines.

The study of Carter, et. al (2003) ...

Solution Summary

This solution looks at the practice of fuel hedging often employed by Southwest Airlines. Hedging is a strategy of making advance purchases of fuel at a fixed price for future delivery to protect against the shock of anticipated rises in price.

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How do airlines protect themselves against increases in fuel prices? Do they use commodity futures? Is there much difference in the approaches used by the legacy carriers and the newer carriers?

How do airlines protect themselves against increases in fuel prices? Do they use commodity futures? Is there much difference in the approaches used by the legacy carriers and the newer carriers, say Delta and Southwest?

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