AirwaySim
Online Airline Management Simulation
Login
Username
Password
 
or login using:
 
My Account
Username:
E-mail:
Edit account
» Achievements
» Logout
Game Credits
Credit balance: 0 Cr
Buy credits
» Credit history
» Credits FAQ

Author Topic: [-] Fuel Hedging  (Read 368 times)

Offline Minto Typhoon

  • Members
  • Posts: 1024
[-] Fuel Hedging
« on: July 12, 2012, 05:57:09 AM »
Although working as designed, there is an error in the logic behind how the fee on top of fuel pricing is measured when I hedge fuel.  

If I sign a 12 month 100% fuel hedge contract, I pay a 7.5% fee on top of the fuel price

If I sign ten 12 month 10% fuel hedging contracts I pay a 0.7% fee on top of the fuel price

Surely the fuel price change risk on both examples above remains remains the same for the bank, so the fee should be the same for both - based around time - rather than % hedged?
« Last Edit: July 12, 2012, 12:43:40 PM by sami »

Offline Jona L.

  • Members
  • Posts: 3361
Re: Fuel Hedging
« Reply #1 on: July 12, 2012, 12:04:11 PM »
Although working as designed, there is an error in the logic behind how the fee on top of fuel pricing is measured when I hedge fuel.   

If I sign a 12 month 100% fuel hedge contract, I pay a 7.5% fee on top of the fuel price

If I sign ten 12 month 10% fuel hedging contracts I pay a 0.7% fee on top of the fuel price

Surely the fuel price change risk on both examples above remains remains the same for the bank, so the fee should be the same for both - based around time - rather than % hedged?

you pay the 0.7% for each contract ;) thus you pay 7% on top ;)

Online Sami

  • Administrator
  • Members
  • Posts: 15098
    • AirwaySim - Are you the next Richard Branson?
Re: Fuel Hedging
« Reply #2 on: July 12, 2012, 12:43:29 PM »
Yes, in my mind this works just fine, as the total volume of fuel you are hedging is less, thus bank's risk is less too (compared to 100%).

Offline chiveicrook

  • Members
  • Posts: 189
Re: [-] Fuel Hedging
« Reply #3 on: July 12, 2012, 12:58:47 PM »
It might make sense to forbid getting 10 hedge contracts on the same day....

 

WARNING! This website is not compatible with the old version of Internet Explorer you are using.

If you are using the latest version please turn OFF the compatibility mode.