Airlines and energy prices

Type :

Presentation

Pages :

11 pages

Format :

.doc

Published date :

01/21/2009

Category :

Business & market

Sub category :

Business strategy

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Summary :

Introduction.
1. Course of analysis.
Oil price: A significant risk for an airline.
1. Crude oil and jet fuel.
2. Reasons why oil price is of critical value to Airlines.
3. Southwest Airlines: A special case.
Ways of hedging and reducing exposure to jet fuel price.
1. Risk Management: Best business practices and navigational technologies.
2. Using financial tools hedging strategies.
3. OTC instruments and exchange-traded futures.
Final evaluation and concluding remarks.
Appendix.
References.

Abstract

Business environment is fraught with risks; each company in order to succeed in this unpredictable environment must mitigate risks. Risks can arise from varied sources; the airline industry is like any other industry, also confronted by pressures from several business areas. In the late 90's and beginning of this decade the biggest risk confronting the airline industry was high fixed labor costs and competitive pressure from low cost airlines with substantially less fixed labor costs. Just as the industry reorganized itself to become more competitive and lean from the perspective of labor costs, a new form risk has arisen in the last 3-4 years. Now energy posses the greatest risk to airline industry. The importance of energy in the airline industry is reflected by the fact that airlines like Air India, which had never engaged in energy risk management through hedging using financial derivatives, are now doing so . The objective of this paper is to understand how airlines are mitigating the risks posed by primarily high oil prices.