The Research Of Hedge Strategy For Airlines Company

In the second half year of2008, to cope with the continuously increasingoil price, China Airlines engaged in a set of hedging transactions. As theresult, the China Airlines suffered a huge loss which was estimated aroundRMB800million at the end of2008.On the other side, the American Southwest Airlines keeps the profitabilitylevel in the trend of oil price rising via long term hedging strategy.With the comparison of hedging strategies and tactics of these twocompanies, it is found that good hedging strategies can help the companiessave a great amount of operational cost, especially in the oil price fluctuationperiods.Through calculate the risk value of China Airlines case and theperformance simulations of both airlines companies, it is proved that thecompanies need to set up long term and stable hedge strategies with strict riskestimation management in order to provide the suitable response andoptimization for unexpected changes of markets. It is not recommended totake the hedge as short term speculation and act against the hedge rules,which could lead to unexpected loss.