Risk Management for commodity consumers -A study of the Airline industry-

The aim of this study is two folded. We wish to investigate if there is a value premium from hedging jet fuel exposure for American and European airlines. We also seek to answer if airlines can affect their probability to default by using Risk Management. During the period 2003 – 2006 there existed a value premium for airlines that hedged their expected future consumption of jet fuel. This premium has, over the 4 year period, on average been 17 percent. There is no support for the theory stating that the value creation form derivative hedging comes from a decrease in the expected cost of default. The value creation is derived from the classification of jet fuel as a non-core risk