Hedging
Based on the case study materials that you presented with your team, compose a case-write up in no-more than 1.5 pages per case:
1) A brief discussion of the overall subject of the case study
2) 2-3 specific aspects of the case that merit further analysis. For example, you could focus on a key decision point in the case and offer your suggestions on how to proceed
3) A closing discussion of what this case tells us about how economics helps in strategic decision-making and how it can help executives in similar sectors learn from the case.
General guidelines for case summaries
Do not summarize case facts. You should use the information to lend support to your analysis and recommendations.
Do not attempt to address all issues of the case. Identify and elaborate only the most important points.
Use the page wisely. Think very carefully about how best to express your ideas in a concise manner, which is a very critical skill for your future career and highly demanded by potential employers.
You are highly encouraged to use annexes (created by you, not cut and paste from the case or other sources) in your analysis. Most, if not all, good reports and proposals contain insightful and nicely presented annexes.
A manager has to sell his/her ideas to a host of audiences. It is important that your ideas, however marvellous they are, have to be presented clearly. It is expected that the case write-up that you turn in is a product of at least 1 – 2 revisions.Fuel Hedging: Southwest Airlines – January 27, 2022
Team 2
Using economic theories, what is the purpose of hedging (hint: managing price uncertainty)?
Team 7
How does hedging contribute to the business strategies of airlines? (hint: costs and
revenue management)
Team 10
Evaluate each of the five proposed hedging strategies in the case. What are the
benefits of each hedge based on two fuel price scenarios in one year? In other
words, assume in June 2002 that one of these scenarios occurs
Calculate your net cost of jet fuel under each scenario incorporating the hedging strategies used. (Note:you can analyze the hedges under as many price scenarios as you wish, but be certain to include the following two scenarios.) For both scenarios, consider full hedging and a 50% hedge strategy.
SCENARIO 1: 39.3 cents/gallon spot price for jet fuel; 38.8 cents/gallon spot price
for heating oil, or $14.10 per barrel spot price for crude oil, and
SCENARIO 2: 119.6 cents/gallon spot price for jet fuel; 118.6 cents/gallon spot
price for heating oil, and $40,00 per barrel spot price for crude oil.
Discuss the pros and cons of each hedging strategy.
Describe how a combination of the hedging strategies can be used