Business, 20.10.2021 21:20 elizzabel1944

Large airlines sometimes engage in fuel hedging as a way to avoid wild changes in jet fuel prices. To fuel hedge, an airline purchases a futures contract from an oil company that states they will purchase a set quantity of jet fuel at a specific price in the future regardless of what the actual market price is in the future. a. The value of the hedge will when the price of jet fuel is higher. This is because there is more benefit for a company to protect from by locking in a low price now if the expectation is that jet fuel will be in the future.
b. Southwest Airlines is known for its long-term hedging strategy that has allowed it to remain profitable even in the toughest times. The company was able to shield itself from higher fuel prices by purchasing fuel hedges even when prices were expected to be in the future. When jet fuel prices were actually much higher, the hedging kept their low and helped keep Southwest profitable.

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Large airlines sometimes engage in fuel hedging as a way to avoid wild changes in jet fuel prices. T...

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