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    Iberia Airline: Currency and Fuel Risk Exposures

    Jones A. ; Rahnema Alavi, Ahmad

    English , Spanish

    • Reference: F-795-E

    • Year: 2003

    • Number of pages: 17

    • Geographic Setting: España

    • Publication Date: Sep 6, 2006

    • Source: IESE (España)

    • Type of Document: Case

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    Description

    In mid 2003, Iberia's CFO, Finance Director and Procurement Director must decide what to do with the airline's fuel risk exposure. High fluctuations in jet fuel prices over recent years have caused havoc in the airline industry. After labour, jet fuel is the second largest operating expense for Iberia. An efficient management and control of the fuel cost would enable the management to estimate future earnings more accurately.

    Learning Objective

    The case explains the company as well as the industry's situation in the context characterized by high competition from low-cost airlines and ever increasing price of fuel cost. It also provides students with an opportunity to analyse different risk management alternatives available to Iberia's management for hedging its fuel jet prices exposure.

    Keywords

    Financial analysis Financial instruments Financial strategy Foreign Exchange Market International Markets Options Risk management