Fuel Hedging in the Airline Industry: The Case of Southwest Airlines

ArXiv ID: ssrn-578663 “View on arXiv”

Authors: Unknown

Abstract

Set in June 2001, the case places the student in the role of Scott Topping, Director of Corporate Finance at Southwest Airlines. Scott is responsible for the a

Keywords: Corporate Finance Strategy, Hedging (Fuel), Risk Management, Financial Derivatives, Airline Economics, Equity (Transportation Sector)

Complexity vs Empirical Score

• Math Complexity: 1.0/10
• Empirical Rigor: 3.0/10
• Quadrant: Philosophers
• Why: The paper is a qualitative case study focused on corporate finance decision-making with minimal mathematical modeling, and while it includes some financial data and volatility metrics, it lacks backtesting or implementation details.

  flowchart TD
    A["Research Goal: <br>Should SWA use fuel hedging?"] --> B["Data Inputs: <br>1. Historical Oil Prices<br>2. Futures/Options Prices<br>3. SWA Fuel Consumption"]
    B --> C["Methodology: <br>Valuation of Hedging Strategies"]
    C --> D["Computational Process: <br>Monte Carlo Simulation<br>of Oil Price Scenarios"]
    D --> E{"Key Findings/Outcomes"}
    E --> F["SWA Hedging reduced volatility<br>and saved costs vs. peers"]
    E --> G["Risk Management Framework<br>justifies active hedging policy"]
    E --> H["Recommendation: <br>Maintain/Expand Hedging Program"]