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Essay / Research Paper Abstract
This is a 3 page paper that provides an overview of fuel hedging in the airline industry. The connection between hedging and profits is the focus. Bibliography lists 4 sources.
Page Count:
3 pages (~225 words per page)
File: KW60_KFfuelhg.doc
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Unformatted sample text from the term paper:
most prone to unpredictable fluctuation. The interesting thing about this is that it brings to mind questions about the practice of fuel hedging. For decades, fuel hedging was standard practice
throughout the industry, but in recent years, it has come under some degree of criticism; and yet, if fuel hedging were still in place, the current price concerns in the
airline industry would not be happening. That said, what is the real story on fuel hedging? Is it directly linked to airline profitability, and if so, to what extent? In
this paragraph, the student is shown how to adequately express a working knowledge of the practice of fuel hedging. In order to analyze the effect fuel hedging has upon airline
profits, lets closely examine how hedging works in the first place. When a company hedges on the cost of fuel, theyre basically agreeing to pay a certain pre-determined cost for
fuel during some future period (usually a year or two), rather than whatever the cost of fuel happens to naturally be at that point in time (Spinetta, 2006; Morrel &
Swan, 2006). Naturally, this has some inherent risks. If the cost of fuel goes up, then the airline will be in a good position, because it will have hedged for
a lower price than the fuel is now actually worth. On the contrary, if the price of fuel were to drop, the airline would have to pay more than its
actually worth. Generally speaking, however, it is a rare occurrence that the cost of fuel goes down, and so hedging is generally a safe bet (Spinetta, 2006; Morrel & Swan,
2006). When explained in isolation, it seems as if fuel hedging is a choice that airlines make about how they wish to do business. In reality, however, the hands
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