Jet fuel price variations and market value: a focus on low-cost and regular airline companies

Abstract

We analyze the relationship between dynamics to stock prices and jet fuel prices, conditional on financial and company-specific variables, in the airline sector. In particular, our contribution to the literature is in the comparison between regular and low-cost airline companies. We run a set of fixed-effect regressions where the dependent variable, the stock daily return of the airline company (observed between 2008 and 2014) is regressed over three sets of explanatory variables (financial, company-specific and time variables). While large and small companies provide similar results, we find that the company price return – among different variables – correlates only with the jet fuel return and the stock market return. Our work also suggests that there is a difference between regular and low-cost companies. We speculate that this possibly arises because low-cost companies stock-pile in a more efficient way, which depends less on current jet fuel price. Our evidence then sheds light on the efficiency of the low-cost model and may suggest to export part of its practice among regular airline companies.

Keywords:

• jet fuel price volatility
• low-cost airlines
• market value
• airline sector
• risk management
• stock price

JEL Classification:

• M20
• G10

Additional information

Notes on contributors

Barbara Gaudenzi

Barbara GAUDENZI is Associate Professor at the Department of Business Administration at the University of Verona (Italy). She is Director of the Post Graduated Course in Risk Management, and Director of the Master in Supply Chain Management at the University of Verona (Italy). Her research interests focus on risk management, logistics management and commodity price risk management.

Alessandro Bucciol

Alessandro BUCCIOL is Associate Professor at the Department of Economics at the University of Verona (Italy) and Adjunct Professor of Econometrics, University of Padova, Italy.

His research interests span across household finance, savings decisions, behavioral economics, economic incentives, public finance, and in general applied micro-econometrics.