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Flying with(out) a safety net: Financial hedging in the airline industry

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  • Merkert, Rico
  • Swidan, Hassan

Abstract

This paper re-examines risk management theories in the airline context and investigates whether financial hedging (fuel, foreign exchange and interest rates) is an effective strategy for enhancing operational profitability. Based on data from 100 international airlines over six years, we evaluate the impact of hedging on financial airline performance. Our results suggest that fuel price hedging significantly decreases EBIT margin volatility (hence effective in mitigating financial risks) but has no significant effects on profitability (hence ineffective as a speculative tool) and operating costs. Low current ratios are shown to increase operating profits, highlighting the importance of liquidity in capital-intensive industries.

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  • Merkert, Rico & Swidan, Hassan, 2019. "Flying with(out) a safety net: Financial hedging in the airline industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 127(C), pages 206-219.
    • Handle: RePEc:eee:transe:v:127:y:2019:i:c:p:206-219
    DOI: 10.1016/j.tre.2019.05.012
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