AVIA1902 Airline Financial Analysis And Decision Support

1.1   Assessment tasks

• Individual Assignment 1

An Excel Spreadsheet in the Assignment section of Moodle entitled “AVIA 1902 Assignment Data.xlsx” includes information about Air France/KLM fuel costs inclusive of hedge gains and losses denominated in Euro dollars, Air France/KLM ASKs, Air France/KLM fuel consumption per barrel and the Euro price of 1 US$ over the quarterly time period Mar-11 to Dec-21. You are to use the data in this spreadsheet to answer the following questions.

Question 1

Construct a calendar annual line graph in Microsoft Excel of Air France/KLM fuel costs per barrel in US dollars between 2011 and 2021. Ensure that your axes are properly labelled and that the graph you construct is of a high quality. Build the graph in Microsoft Excel and copy the graph into a word document. Marks will be allocated to the quality of the graph you construct. (1 Mark)

Question 2

Construct a calendar annual line graph in Microsoft Excel of Air France/KLM fuel cost per ASK in US cents per ASK between 2011 and 2021. Ensure that your axes are properly labelled and that the graph you construct is of a high quality. Build the graph in Microsoft Excel and copy the graph into a word document. Marks will be allocated to the quality of the graph you construct. (1 Mark)

Question 3

Use the data you constructed in Question 1 on Air France/KLM fuel cost per barrel in US dollars between 2011 and 2021 to find the compound annual growth rate of Air France/KLM fuel cost per barrel in US dollars between 2011 and 2021 using the regression-slope method. Compare this to the estimated compound annual growth rate using the end-point method. Discuss the reasons why the estimates are different, and which is preferred. (4 Marks)

Question 4

Use your estimates of Question 1 to draw a graph of Air France/KLM fuel cost per barrel in US dollars against the U.S. Gulf Coast spot price of jet fuel per barrel over the calendar annual period 2011 to 2021. Build the graph in Microsoft Excel and copy the graph into a word document. Marks will be allocated to the quality of the graph you construct. To complete this task, you will need to find data on the U.S. Gulf Coast jet fuel price over the relevant time period. Discuss why the Air France/KLM fuel cost per barrel in US dollars may be greater than or less than the Gulf Coast jet fuel price. (5 Marks)

Question 5

Find the correlation between the Air France/KLM fuel cost per barrel and the Gulf Coast jet fuel price both in the current time period for the Gulf Coast price, and the one period lagged value of the Gulf Coast price. The correlation will need to be estimated over the time period 2011 to 2021. To find the estimates of the correlations you will need to study and use the function in Microsoft Excel “=correl(range 1, range 2)”. Discuss and explain the differences in the answers you obtain. (5 marks)

Question 6

In the case of your question 2 estimate of fuel cost per ASK in US c/ASK, what type of factors would you expect to be causing this metric to change over time? (4 Marks)

Question 7

Discuss in a single paragraph of no more than 100 words why Covid-19 raised the likelihood that airlines would make significant hedge losses if they used financial instruments to hedge against the movement in jet fuel prices in 2020 and 2021. (5 marks)

Question 8

Find the variance of Air France/KLM fuel cost per barrel in Euro and compare this to the variance of Air France/KLM fuel cost per barrel in US dollars over the calendar annual period 2011 to 2021. In

100 words or less discuss and explain your results. To find the estimates of the variance you will need to study and use the function in Microsoft Excel “=var(range)”. (5 marks)

Word Limit

The total world limit for this task is 1,500 words.

1.3   Individual Assignment 2

In this assignment you are to write an article for the business section of a major newspaper with the heading: “Should Bonza Hedge its Jet Fuel Exposure”. In this article you are to write about the arguments for and against the ultra-low-cost domestic Australian carrier Bonza hedging its exposure to jet fuel prices using financial instruments. In your article you may wish to discuss the following:

• the financial instruments that Bonza is likely to use in the current jet fuel price environment;
• the risks associated with hedging;
• the decisions the airline must make when it chooses to hedge fuel using financial instruments;
• the out-of-pocket expenses;
• how the benefits of hedging are measured; and
• the alternative to hedging using financial instruments, including natural hedges and an operational

The document is to be submitted to Moodle Turn-it-in as a PDF. Students who demonstrate that they have researched the key issues in this assignment widely will be rewarded.

Word Limit

The total world limit for this task is 800 words.