JetBlue Airways Corporation, or JetBlue, is New York’s Hometown Airline. The airline was, incorporated in, 1998, is a passenger carrier company. The Company operates various kinds of aircrafts, including Airbus A321, Airbus A320 and Embraer E190, providing air transportation services across the United States, the Caribbean and Latin America. JetBlue is the sixth largest passenger carrier in the U.S. (ref). The airline’s business model places emphasis on product and culture differentiation, competitive costs operation and high-value geographies relative to its competitors.( JetBlue, 2016).JetBlue has been engaged in fuel cost hedging to protect itself from volatile fuel prices this has allowed the airline to follow their business…show more content… A fuel hedge is a form of insurance policy, protecting an airline’s cost structure from potentially catastrophic increases or spikes in jet fuel prices due to external factors outside its control. Fuel hedging removes the future uncertainty of volatile jet fuel prices. Knowing fuel prices are locked in, it allows airlines to build and follow their business plans. ( REF ).However we state that hedging will work to the advantage of the airline if as a result of hedging it saves money and to its disadvantage if it loses money in the hedging transaction. The bets can go either way, gains and losses can be substantially high. To this end we discuss airline fuel hedging, together with its advantages and disadvantages to an…show more content… On the other hand risks that cannot be hedged are those risks associated with an asset or an obligation that cannot be effectively neutralized by buying or selling a market instrument; risks such as long term liabilities.
Studies show that airline have hedge Jet fuel risks up about 70% of their jet fuel consumption. (Ref). The extent to which an airline will hedge it fuel purchases depends on how confident they are with their prediction of price changes. Since it is not possible to predict that fuel prices will remain the same; increase or decrease, with 100% accuracy, airlines will not hedge their fuel purchases 100%. Given all the uncertainties, airlines will chose some proportion in below 100%, reflecting their confidence that prices will increase. Also Since the profitability of hedging has great disparity, providing no considerable amount of risk minimization, the optimum level of hedging will depend on extent to which the benefits/costs of hedging are offset by any considerable increase/decrease in the commodity’s spot price.