What Is Jetblue Airways Company?
Introduction
JetBlue Airways Corporation, or JetBlue, is New York’s Hometown Airline. The airline was, incorporated in, 1998, is a passenger carrier company. The Company operates various kinds of aircrafts, including Airbus A321, Airbus A320 and Embraer E190, providing air transportation services across the United States, the Caribbean and Latin America. JetBlue is the sixth largest passenger carrier in the U.S. (ref). The airline’s business model places emphasis on product and culture differentiation, competitive costs operation and high-value geographies relative to its competitors.( JetBlue, 2016).JetBlue has been engaged in fuel cost hedging to protect itself from volatile fuel prices this has allowed the airline to follow their business …show more content…
But there were concerns that airlines would suffer losses, because of WTI’s hedge ineffectiveness, which had been caused by a major development in the oil market: WTI, the main U.S. oil price benchmark, had become less well correlated with the global crude oil market (ref). In this case study report we discuss hedging and various financial instruments used. We delve into airlines’ hedging strategies in general; explain the types of derivative instruments used; what they are and how they are used; hedgeable and non-hedgeable risks; the extent of airline fuel hedging; rationale for airlines’ cross hedging strategies; explain crack spread, and the risks involved in fuel …show more content…
This is referred to as “Cross hedging” and it involves using futures on a similar or closely related commodity. (ref). The USA does not trade in Jet Fuel contracts and as such, airlines use Futures on crude or heating oil to hedge jet fuel purchases. (Cobbs Alex).
These futures contracts are based on the underlying commodity which may be crude oil or heating oil, not jet fuel, and as such, they introduce basis risk due to the fact that they may not be perfectly correlated with Jet fuel. The term basis stands for the difference between the spot price of a hedged item and the futures price of selected contract. The Basis risk stems from a varying correlation between the spot price and futures price for the duration of the hedge, as opposed to maintaining a constant relationship, thus generating ineffectiveness. (Cobbs Alex).
Crack
JetBlue Airways Corporation, or JetBlue, is New York’s Hometown Airline. The airline was, incorporated in, 1998, is a passenger carrier company. The Company operates various kinds of aircrafts, including Airbus A321, Airbus A320 and Embraer E190, providing air transportation services across the United States, the Caribbean and Latin America. JetBlue is the sixth largest passenger carrier in the U.S. (ref). The airline’s business model places emphasis on product and culture differentiation, competitive costs operation and high-value geographies relative to its competitors.( JetBlue, 2016).JetBlue has been engaged in fuel cost hedging to protect itself from volatile fuel prices this has allowed the airline to follow their business …show more content…
But there were concerns that airlines would suffer losses, because of WTI’s hedge ineffectiveness, which had been caused by a major development in the oil market: WTI, the main U.S. oil price benchmark, had become less well correlated with the global crude oil market (ref). In this case study report we discuss hedging and various financial instruments used. We delve into airlines’ hedging strategies in general; explain the types of derivative instruments used; what they are and how they are used; hedgeable and non-hedgeable risks; the extent of airline fuel hedging; rationale for airlines’ cross hedging strategies; explain crack spread, and the risks involved in fuel …show more content…
This is referred to as “Cross hedging” and it involves using futures on a similar or closely related commodity. (ref). The USA does not trade in Jet Fuel contracts and as such, airlines use Futures on crude or heating oil to hedge jet fuel purchases. (Cobbs Alex).
These futures contracts are based on the underlying commodity which may be crude oil or heating oil, not jet fuel, and as such, they introduce basis risk due to the fact that they may not be perfectly correlated with Jet fuel. The term basis stands for the difference between the spot price of a hedged item and the futures price of selected contract. The Basis risk stems from a varying correlation between the spot price and futures price for the duration of the hedge, as opposed to maintaining a constant relationship, thus generating ineffectiveness. (Cobbs Alex).
Crack