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Case
-
Reference no. UVA-F-1697
Authors:
Published by:
Darden Business Publishing (2013)
Version:
1 March 2016
Revision date:
17-Mar-2016
Length:
23 pages
Data source:
Published sources

Abstract

In early 2012, an equity analyst was examining the jet fuel hedging strategy of JetBlue Airways for the coming year. Because airlines cross-hedged their jet fuel price risk using derivatives contracts on other oil products such as WTI and Brent crude oil, they were exposed to basis risk. In 2011, dislocations in the oil market led to a Brent-WTI premium wherein jet fuel started to move with Brent instead of WTI, as it traditionally did. Faced with hedging losses, several US airlines started to change their hedging strategies, moving away from WTI. But others worried that the Brent-WTI premium might be a temporary phenomenon. For 2012, would JetBlue continue using WTI for its hedges, or would it switch to an alternative such as Brent?

Topics

Airlines; Hedging; Risk management; Financial analysis
Industry:

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