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The Impact of Using Derivatives as a Hedging Instrument in Supporting Global Development Trends: An Analysis of the African Aviation Sector
With less than a decade before the impending deadline for the realisation of the United Nations 2030 Sustainable Agenda for Development and with the Covid-19 pandemic having significantly slowed down progress on the Sustainable Development Goals (SDGs), aggressive collaborative efforts from all sect...
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| Format: | Thesis |
| Language: | English |
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Graduate School of Business (GSB)
2022
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| _version_ | 1867613210629111808 |
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| access_status_str | Open Access |
| author | Mhlongo, Samkelisiwe |
| author2 | Biekpe, Nicholas |
| author_browse | Biekpe, Nicholas Mhlongo, Samkelisiwe |
| author_facet | Biekpe, Nicholas Mhlongo, Samkelisiwe |
| author_sort | Mhlongo, Samkelisiwe |
| collection | Thesis |
| description | With less than a decade before the impending deadline for the realisation of the United Nations 2030 Sustainable Agenda for Development and with the Covid-19 pandemic having significantly slowed down progress on the Sustainable Development Goals (SDGs), aggressive collaborative efforts from all sectors of the global economy are required now more than ever, not only for the achievement of the targeted goals but also to aid in an inclusive global economic recovery. With the global airline industry having been identified as one of the key pillars for propelling this agenda forward as it is believed to contribute to at least 15 of the 17 SDGs, exploring ways in which this industry can remain profitable and sustainable, so it continues to contribute towards the unified goal has become an important focus area for those at the forefront of the agenda. One of the identified major threats to the longevity and prosperity of the airline industry is said to be the inherent exposure to the volatility in commodity markets, as fuel expenditure generally makes up the single largest cost component of an airline's operating expense. This dissertation, therefore, investigates the relationship between fuel hedging and the firm value of commercial airlines in order to establish the effectiveness of fuel hedging as a potential lever that can be used to effect the desired change towards the realisation of the SDGs. The study draws on evidence from African, European and North American airlines and makes use of a panel least square estimation technique to estimate the behaviour of the parameters in the selected statistical sample over a 10-year period from 2009 to 2019. Using Tobin's Q as a proxy for firm value, the study computes a series of regressions, incorporating different control variables such as airline size, percentage of jet fuel cost to total operating costs, jet fuel cost per passenger, and profit per passenger - which are all deemed to have significant explanatory power to allow for the isolation of the effect of fuel price hedging. The study further makes use of two hedging variables (percentage hedged and fair value of hedging derivatives to assets) in separate regression equations to ascertain their individual relationships with the dependent variable - Tobin's Q. The analysis of the results in this dissertation reveals a positive correlation between the airlines' hedging activity and airline firm value thereby suggesting that mitigating the risks associated to fuel price volatility could yield positive outcomes for firm value. These findings can prove to be useful for those at the forefront of the 2030 global development agenda, as well as the airline companies themselves in driving the SDG goals. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/35925 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:32:31.718Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2022 |
| publishDateRange | 2022 |
| publishDateSort | 2022 |
| publisher | Graduate School of Business (GSB) |
| publisherStr | Graduate School of Business (GSB) |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/35925 The Impact of Using Derivatives as a Hedging Instrument in Supporting Global Development Trends: An Analysis of the African Aviation Sector Mhlongo, Samkelisiwe Biekpe, Nicholas Development Finance With less than a decade before the impending deadline for the realisation of the United Nations 2030 Sustainable Agenda for Development and with the Covid-19 pandemic having significantly slowed down progress on the Sustainable Development Goals (SDGs), aggressive collaborative efforts from all sectors of the global economy are required now more than ever, not only for the achievement of the targeted goals but also to aid in an inclusive global economic recovery. With the global airline industry having been identified as one of the key pillars for propelling this agenda forward as it is believed to contribute to at least 15 of the 17 SDGs, exploring ways in which this industry can remain profitable and sustainable, so it continues to contribute towards the unified goal has become an important focus area for those at the forefront of the agenda. One of the identified major threats to the longevity and prosperity of the airline industry is said to be the inherent exposure to the volatility in commodity markets, as fuel expenditure generally makes up the single largest cost component of an airline's operating expense. This dissertation, therefore, investigates the relationship between fuel hedging and the firm value of commercial airlines in order to establish the effectiveness of fuel hedging as a potential lever that can be used to effect the desired change towards the realisation of the SDGs. The study draws on evidence from African, European and North American airlines and makes use of a panel least square estimation technique to estimate the behaviour of the parameters in the selected statistical sample over a 10-year period from 2009 to 2019. Using Tobin's Q as a proxy for firm value, the study computes a series of regressions, incorporating different control variables such as airline size, percentage of jet fuel cost to total operating costs, jet fuel cost per passenger, and profit per passenger - which are all deemed to have significant explanatory power to allow for the isolation of the effect of fuel price hedging. The study further makes use of two hedging variables (percentage hedged and fair value of hedging derivatives to assets) in separate regression equations to ascertain their individual relationships with the dependent variable - Tobin's Q. The analysis of the results in this dissertation reveals a positive correlation between the airlines' hedging activity and airline firm value thereby suggesting that mitigating the risks associated to fuel price volatility could yield positive outcomes for firm value. These findings can prove to be useful for those at the forefront of the 2030 global development agenda, as well as the airline companies themselves in driving the SDG goals. 2022-03-06T14:59:08Z 2022-03-06T14:59:08Z 2021 2022-03-06T14:43:08Z Master Thesis Masters MBA http://hdl.handle.net/11427/35925 eng application/pdf Graduate School of Business (GSB) Faculty of Commerce |
| spellingShingle | Development Finance Mhlongo, Samkelisiwe The Impact of Using Derivatives as a Hedging Instrument in Supporting Global Development Trends: An Analysis of the African Aviation Sector |
| thesis_degree_str | Master's |
| title | The Impact of Using Derivatives as a Hedging Instrument in Supporting Global Development Trends: An Analysis of the African Aviation Sector |
| title_full | The Impact of Using Derivatives as a Hedging Instrument in Supporting Global Development Trends: An Analysis of the African Aviation Sector |
| title_fullStr | The Impact of Using Derivatives as a Hedging Instrument in Supporting Global Development Trends: An Analysis of the African Aviation Sector |
| title_full_unstemmed | The Impact of Using Derivatives as a Hedging Instrument in Supporting Global Development Trends: An Analysis of the African Aviation Sector |
| title_short | The Impact of Using Derivatives as a Hedging Instrument in Supporting Global Development Trends: An Analysis of the African Aviation Sector |
| title_sort | impact of using derivatives as a hedging instrument in supporting global development trends an analysis of the african aviation sector |
| topic | Development Finance |
| url | http://hdl.handle.net/11427/35925 |
| work_keys_str_mv | AT mhlongosamkelisiwe theimpactofusingderivativesasahedginginstrumentinsupportingglobaldevelopmenttrendsananalysisoftheafricanaviationsector AT mhlongosamkelisiwe impactofusingderivativesasahedginginstrumentinsupportingglobaldevelopmenttrendsananalysisoftheafricanaviationsector |