...schools, provide aircraft repairs and maintenance, provide fuel and provide pilot support with weather and flight planning facilities. As such they are the backbone of general aviation. Airport Tenant – An airport tenant is a person, firm, or corporation leasing or using airport property solely for the purpose of storing an aircraft and is not engaged in or providing any aviation related commercial activity or service at the airport. An airport tenant is not authorized to function as or provide the services of an FBO Current Products and Services With committed capital and deep industry experience in general aviation services transactions (having closed over thirty transactions in the last fifteen years), we can move quickly and discreetly with minimum disruption of day to day operations. Ideal FBO acquisition candidates will have: • Annual general aviation fuel uplift in excess of one million gallons • Long term lease rights at its airport operating location • Ancillary business segments such as maintenance and charter will be considered but should be anchored by a strong core line service segment • Both single operations and multi-location chains will be considered . The financial backing of Moelis Capital Partners affords us the wherewithal to quickly consumate transactions. For more information please contact Steven Levesque or any of our other firm professionals. Source of Revenue: • Sale of aviation fuel – piston aircraft...
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...Fuel Hedging in the Airline Industry: The Case of Southwest Airlines Executive Summary From December 21, 1998 to September 11, 2000, jet fuel prices increased 255%, from 28.50 cents/gallon to 101.25 cents/gallon. While jet fuel prices have declined from their highs, at a price of 79.45 cents/gallon, they are still significantly above the December 1998 lows. With the future price of jet fuel being unpredictable, Southwest has decided to implement a trading strategy in an effort to mitigate its exposure to adverse price movements in jet fuel. To do this, Southwest has settled on 5 possible strategies: (1)Do nothing; (2) Hedge using plain vanilla jet fuel or heating oil swap; (3) Hedge using options; (4) Hedge using a zero-cost collar strategy; or (5) Hedge using a crude oil or heating oil futures contract. The merits and demerits of each strategy are discussed in depth below. After evaluating the possible scenarios, it is our recommendation that Southwest implement a hedging strategy that involves a combination of the jet fuel swap and the heating oil swap. The combined strategy will allow Southwest to achieve the lowest net jet fuel costs, while limiting the risks associated with the strategies individually, such as counterparty risk for the jet fuel swap and basis risk for the heating oil swap. Concerning the split between the two strategies, a 50/50 even split is recommended. Why Hedge? Hedging is a financial strategy that enables airlines or other investors...
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...the global rising demand, oil has increased in its value, which results in many oil price crises recently. For all those industries using large amount of oil in operation, the risk of rising oil price is an extensive problem. The most efficient method to hedge against this risk is by using oil futures contracts. Because of its effectiveness, oil futures contracts are playing a key role in risk management for a number of industries including transportation and manufacturing. This report provides principal knowledge about oil futures and its role in hedging the risk of oil price volatility. A case study of US airline industry with most updated data obtained from Bloomberg system is also discussed, which suggests the effectiveness of oil futures in risk management for most airlines companies. However, in some case, the inflexible use of oil futures may create a burden in financial costs while not producing effectiveness in risk hedging. 2 TABLE OF CONTENTS LIST OF FIGURES 3 I. INTRODUCTION In the world of industrialisation, the role of oil is becoming more and more crucial especially for transportation and manufacturing industries. Those industries consume a large amount of oil, which constitutes the major part of their operational costs. However, having gone through the three oil crises in early and late 1907s and recently in mid 2000s, those...
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...SOUTHWEST AIRLINES FUEL HEDGING AND RELATIONS TO PROFITABILITY 1 Southwest Airlines Fuel Hedging and Relations to Profitability A Case Study in Cost-effective Fuel Management SOUTHWEST AIRLINES FUEL HEDGING AND RELATIONS TO PROFITABILITY 2 Abstract In order to stay airborne, a passenger airline has to consistently generate profits. Profits come only from paying passengers, hence all stratagems must be customer oriented. In a scenario where there are many airlines competing with each other, one way of attracting passengers is to keep the cost of flying low, while providing value for money. On the other hand, expenses must tightly controlled to reach and stay at the lowest possible. Certain expenses are unavoidable; however, one variable that can be kept low through decisive planning and foresight is the cost of fuel, which, at best, can be called volatile. A good way to achieve this is by hedging fuel cost, which is a complex, but rewarding process, as Southwest Airlines proves beyond doubt. SOUTHWEST AIRLINES FUEL HEDGING AND RELATIONS TO PROFITABILITY 3 Southwest Airlines Company: A Case Study in Managing the Cost of Aviation Fuel Introduction: Southwest Airlines Company, an American low-cost airline is the third largest airline in the world as well as the U.S.A. by the number of passenger aircraft among all of the world's commercial airlines (Arlene Fleming, About.com Guide; nationsonline.org), operating more than 540 Boeing 737 aircraft today between...
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...provide such evidence will result in lower or possibly failing grades on the written report. Description of assignment: Underlying information for assignment: The basic scenario: You work for a major US airline, VUL Air, in its fuel purchasing department. During December 2015, your boss, the VP of fuel purchasing for VUL, purchased 2,700 March 2016 light sweet crude oil contracts traded on the CME’s NYMEX exchange to partially hedge the company’s anticipated February 2016 jet fuel consumption of 116 million gallons. The weighted average price of crude oil futures contracts purchased on the NYMEX during December 14 – 18, 2015, was $38.18 per barrel. Your boss has presented you with the plan for liquidating the 2,700 crude oil futures contracts during February 2016. In fact, you have been provided with a spreadsheet template (see “General Files” in the course D2L page) that shows the plan for liquidating the futures contracts (see column K of the spreadsheet template). More background information: • One barrel of oil = 42 gallons of oil. • VUL Air uses jet fuel on a daily basis, and there are only minor deviations in the scheduled routes from day-to-day. Thus, you can assume that the airline uses the same amount of fuel during each of the 29 days of February 2016. • VUL Air employs “first-in,...
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...JetBlue Fuel Hedging Case by Mengni Huang David Niedrauer . 1. the high price of jet fuel at the end of 2011, JetBlue should hedge its fuel costs for 2012. JetBlue’s approach to fuel hedging was to enter into hedges on a discretionary basis without a specific targets. As you can see from Exhibit 1 in the Appendix, it hedged less in 2009 when oil prices were low and increased the percentage hedged again in 2010 and 2011. Dynamic strategies were based on the idea that oil prices followed a mean-reverting process. Ideally, airlines wanted to lock in prices at the low point in the cycle while capping prices at the high end but take advantage of eventual price declines. Besides, the hedge value H is given by the relationship, H = ρ * σ [spot] / σ [futures] where ρ is the correlation between the spot jet fuel price and selected futures contract, σ is the standard deviation, or volatility, of each respective contract. If the price of jet fuel price increases, the hedge ratio will also increase, which means the percentage hedged should be increased. 2. Looking back from 2007 through 2011, heating oil moved closely with the price of jet fuel. The results from question 3 shows that the price of jet fuel moved more closely with price of heating oil than other two fuels. ...
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...values through hedging by reducing taxable income, agency cost and the cost of financial distress. This report provides a qualitative and quantitative analysis of corporate risk management for the company Air New Zealand. We uses a time series OLS regression model. The fair value of derivatives is used as dependent variable to measure the extent of financial instrument usage. The result shows that the use of derivatives by Air NZ fails to add value to the company. FINA781 Report Page 1 1. Introduction Air New Zealand Limited is the national airline and flag carrier of New Zealand. Based in Auckland, New Zealand, the airline operates scheduled passenger flights to 56 destinations locally and internationally. Air New Zealand is a member of the Star Alliance global airline alliance, having joined in 1999. Air New Zealand originated in 1940 as Tasman Empire Airways Limited (TEAL), a flying boat company operating trans-Tasman flights between New Zealand and Australia. TEAL became wholly owned by the New Zealand government in 1965, whereupon it was renamed Air New Zealand. The airline was largely privatized in 1989, but returned to majority government ownership in 2001 after a failed tie up with Australian carrier Ansett Australia. As of 2008, Air New Zealand carries 11.7 million passengers annually. Do hedging create firm value has been a popular topic argued through decades. In this report we are going to identify whether Air New Zealand create value through hedging. In this...
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...repayment. This report looks into Air New Zealand in particular to study two of the risks that are significant for an airline company, namely foreign currency risk and fuel price risk. Section 2 of this report gives an overview of the relationships between the operation of Air New Zealand with both the risks. Besides, discussions and suggestions on Air New Zealand risk management approaches are presented in Section 3. Finally, a brief summary and conclusion is included in the last section. 2.0 Risks Description 2.1 Fuel Price Risk The Nature of Fuel Price Risk Fuel price risk is the risk of fluctuations in fuel prices which could adversely affect the financial performance of Air New Zealand as jet fuel is a critical input factor for airlines. Fuel prices are affected by the supply and demand, oil price futures and the downside or upside movement in the US dollar against NZ dollar. In particular, the increase in jet fuel prices adds a significant amount to Air New Zealand fuel cost. This is further compounded by the fuel intensive nature of long haul flying and the inability to fully increase flight ticket price. Air New Zealand exposure to changes in fuel prices will be greater when the fuel prices are on the rise compared to when fuel prices are declining due to their inability to fully pass on the increased in fuel costs to customers....
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...Bus 599 Assignment 1 Dr. Elile Awa CRAFTING AND EXECUTING STRATEGY Submitted by: John-Miguel Onkony Winter Quarter 2011 Strayer University Introduction This document presents an analysis of one case presented in the textbook (Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases: 2009 custom edition (17th ed.). New York: McGraw-Hill-Irwin.), entitled “JetBlue: A Cadre of New Managers Takes Control”. The case describes the reasons for the success of JetBlue, a three-year-old, low-cost airline, operating in the USA. Trends in the U.S. Airline Industry and their Impact on Company’s Strategy Since 2001, the US airline industry has faced an unprecedented set of challenges. Following the terrorist attacks of September 11, 2001, the airline industry reported tremendous losses and several of the largest US airlines went into bankruptcy. To recover from this situation and try to remain financially viable...
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...Airlines has and continues to utilize various methods to overcome these obstacles. One method is fuel hedging and derivative contracts. Southwest began using fuel-hedging strategies, in 1998, to reduce their volatility to fluctuating fuel costs. “Southwest’s oil-hedging prowess has made it the master of the airline universe…locked in low cost fuel prices in advance” (Southwest’s hedge on fuel backfires, 2011). In the past, this has been tremendous savings for Southwest. However, when crude oil prices drop to $69 per barrel, Southwest paid higher prices for their fuel because they are locked into derivative contracts. According to the case, the derivative contracts are over twenty percent for 2011/2012 for roughly $76 - $77 per barrel. “The company was hit with its first quarterly loss in two years…Southwest lost money on its fuel hedges—future purchases of gas for its jets” (Southwest fuel hedge misstep, 2011). Assuming fuel prices continue to decline, Southwest does not have any alternatives solutions in place to combat their derivative contracts. Analysis and experts in the industry have stated this is a “temporary setback” and “still going to benefit going forward from lower oil prices” (Southwest’s hedge on fuel backfires, 2011). However, there is an initiative by the U.S. Agriculture Department, Boeing Co. and the Air Transport Association to develop and bring aviation fuel to U.S. markets. Thus, my research and recommendation is for Southwest Airlines to employ and...
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...dedicated to the highest quality of customer service. The effective skills that Kelly possess that makes him an effective leader is he shows the customers that he care by talking to them and also remembering all the employees names. Kelly always makes sure things are done in an orderly fashion, not only for his benefit, but for the benefit of the company, employees, and customers. Kelley treats his customers as king and queen, but he treats his employee’s even better than the customers, that is a true team leader and in this conclusion Kelly also does things to save the airline money by locking up fuel hedging contracts that results in paying less for jet fuel than competitor airlines. Some of Southwest Airlines’ core competencies are ; They operate only 1 type of aircraft (747) which lowers maintenance and training costs, They save money on jet fuel by; locking up fuel hedging contracts, which allowed them to be profitable when other airlines were losing money, Southwest Airlines have a strong domestic network, They empower their employees to make decisions. Their philosophy is to treat their...
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...congestion —another factor that leads to faster turnaround and lower fares. Another unique cost savings strategy is Southwest's decision to operate Boeing 737s for all its flights. This simplifies the training process for pilots, flight attendants, and mechanics, and management can substitute aircraft, reschedule flight crews, or transfer mechanics quickly. Jet fuel is an airline's biggest expense. According to the industry's trade group. Air Transport Association, jet fuel now accounts for 40 percent of an airplane ticket versus 15 percent just eight years ago. Southwest's biggest cost savings technique and competitive advantage has long been its program to hedge fuel prices by purchasing options years in advance. Many of its longterm contracts allow the airline to purchase fuel at $51 per barrel, a significant savings especially during the oil shocks of the 2000s that drove oil past $100 per barrel. Analysts estimate that Southwest has saved more than $2 billion with fuel hedging. Because lighter planes use less fuel. Southwest rriakeis its planes lighter by, for instance, power-washing their jet engines to remove dirt each night. It carries less water for bathrooms and has replaced its seats with lighter models. Southwest consumes...
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...sometimes to a department. Direct cost can be linked to a particular product or service. However the indirect cost cannot be linked with a particular product or service and they are usually called general expenses or overheads. Analysing cost this way can be useful for detailed product costing or for control and accountability. For example in Easy Jest and Ryanair costs such as staff cost or rental of the aircraft will be the direct cost as they already know what money they will have to spent on those. However indirect cost will be for example fuel prices as they will not know the price of fuel every month as the fuel prices are changing all the time. Indirect cost must be apportioned to product, services or departments on a appropriate basis and this gives raise to absorption costing. However, the larger the proportion of indirect cost in a business, the less useful this type of analysis can be. It is true that the Ryanair company and easy jet company endeavour to identify costs according to departments, however the methods are used to apportion indirect costs to each department or product are often arbitrary and negate any benefit to be gained from the analysis. Generally this from of analysis is used in businesses where there is a significant tangible product and the company operates...
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...of 2015 Airline X increased their passenger traffic by 22 percent and decreased their fares by 14 percent. Airline X currently carries more passengers domestically than any other Airlines (Southwest Airlines, n.d.). Airline X has employed Team C to explore the connection between the independent (fuel and oil prices) and dependent (the amount of seats available) variables for Airline X. The premise is that if Airline X is filling the planes they already have, does Airline X need to look at purchasing more planes to increase the amount of seats available and to replace the outdated or older jets in their fleet. To accomplish this Team C must develop a research question. The management team for Airline X has decided that the research question should be: If the fuel and oil prices do not continue in a downward trend will it still be feasible for Airline X to order the newest plane in the Boeing fleet the Next-Generation 737 with the seating capacity of 210 compared to the 175 seats their current largest jet has, also how many of the new planes can they afford to take on? ("Boeing", 2016) And the hypothesis statement should be: Airline X will be able to purchase at least 15 of the new jets and still increase their profits. Research Question...
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...Delta 1. (a) Fuel cost drives the airline industry. Fuel cost average anywhere from 30% to 50% of total operating costs in the airline industry and crude oil and jet fuel costs had been on the rise. (b) The refining industry in the US is defined regionally by petroleum administration for Defense Districts (PADD), a system put in place during the Second World War. 2. Rising fuel cost is truly a problem for Delta. In 2011 Delta was hit hard by rising fuel cost. Deltas total fuel cost had risen by nearly $3 billion in 2011. Delta was already a company on the rebound. It closed in 2011 with $35 billion in revenue, up 10 percent from 2010, with profits up 40% to $854 million. Delta was driving profitability by flying fewer planes fewer miles with fuller seats. It had 80,000 employees worldwide and $3.6 billion in cash. Delta was the world’s largest airline in terms of both fleet size and scheduled passenger traffic and jet fuel costs were killing it. 3. Rising fuel costs were the result of growing supplies of domestic oil in the US and its inability to gain access to major refining centers like the US, East Coast and Gulf Coast districts. The rapid development and production of shale oil from domestic sources was landlocked. Pipelines were at capacity and oil was stockpiling. Transportation alternatives like railroads were costly 4. Refineries on the East coast were closing because they were suffering the highest crude acquisition cost. Although East Coast refineries...
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