This 95 page paper is the first part of a full length dissertation to assess whether or not there is a correlation between hedging for fuel and the profitability of airlines. The paper presents the first three chapters; the introduction, the comprehensive literature review and the methodology. The introduction outlines how and why this is important, looks at the nature of the research, presents two hypotheses and gives relevant definition. The literature review is the longest section and looks at existing theories and research that examines the impact of heading of a firm and the different influences looking at the general as well as the airline industry. The theory of constraints is also considered as a framework to be used for application to the research. The methodology presents an approach which can be used for gathering of both quantitative and qualitative data and explains the way in which the data will be analyzed. The bibliography cites 54 sources.
Study 22 Significance of the Study 25 Definitions 28 Summary 34 Chapter 2: Literature Review 35 Hedging 36 Hedging in the Airline Industry 57 Theory of Constraints 73 Summary 78 Chapter 3: Research Method 81 Research Methods and
Design(s) 81 Participants 88 Materials/Instruments 89 Operational Definition of Variables (Quantitative/Mixed Studies Only) 90 Data Collection, Processing, and Analysis 91 Methodological Assumptions, Limitations, and Delimitations 93 Ethical Assurances 94 Summary 96 References 97 Glossary 102 Chapter 1: Introduction
Hedging for fuel costs is a common activity in the airline industry. There are a number of studies which indicate that hedging is able to protect profits and well as
have the potential to increase them (Brooks, 2008; Carter et al, 2006). Southwest Airlines, one of the most successful airlines in the US when considered in terms of consistent financial
performance, has been cited as an example of hedging supporting profitability. In 2004 the airline posted a profit for the 53rd consecutive quarter, in annual terms it was the firms
33rd consecutive profitable year (Southwest Airlines Form 10-K, 2006; p. 12). The airline has realized specific quantified financial benefits as a direct
result of hedging; $40.8 million in 1999, consistent gains each year leading to gains of $634 million by 2006 (Brooks, 2008). This means that even in years where many airlines
faced losses and even bankruptcy, Southwest Airlines remained profitable, with hedging cited as having a significant influence (Carter et al, 2006). 2008 saw the string of positive results end, with
a loss posted in the third quarter (Pae, 2008). However, without hedging the airline would have faced losses much earlier; losses would otherwise have been seen in 2004 (Gimbel, 2008).
This case appears to indicate that hedging can provide some significant financial advantages. However, despite this case, there is not universal agreement