Airline Fuel Hedging: Do Hedge Horizon and Contract Maturity Matter?

Siew Hoon Lim, Peter A. Turner


Large and unpredictable swings in fuel prices create financial uncertainty to airlines. While there are the risks for going unhedged, airlines that hedge to mitigate fuel price risk face the basis risk. This paper examines whether the length of hedge horizon and distance to contract maturity affect the effectiveness of jet fuel cross hedging. Understanding the effects of hedge duration and futures contract maturity helps improve airline’s fuel hedging strategies. We find that (1) regardless of the distance to contract maturity, weekly hedge horizon has the highest effectiveness for jet fuel proxies like heating oil, Brent, WTI, and gasoil; (2) heating oil is the best jet fuel proxy for all hedge hori-zons and contract maturities; and (3) the hedge effectiveness of heating oil is higher for one-month and three-month contracts.

Full Text:




  • There are currently no refbacks.

© 2010 The Transportation Research Forum
All Rights Reserved
ISSN 1046-1469

Published and Distributed by
Transportation Research Forum
NDSU Dept 2880
P.O. Box 6050
Fargo, ND 58108-6050
Phone: (701)231-7766
Fax: (701)231-1945