Pricing Fuel Risk: Oil Price Exposure, Fuel Hedging and the Stock Returns of Ryanair, Delta Air Lines and Lufthansa

This study examines the relationship between crude oil price fluctuations and equity returns of three international airlines, Ryanair Holdings, Delta Air Lines, and Deutsche Lufthansa, representing different business models and fuel hedging strategies. Using daily financial data, the analysis investigates airline stock return sensitivity to West Texas Intermediate (WTI) and Brent crude oil futures prices, with the S&P 500 serving as the market benchmark. The methodology combines correlation analysis, multiple regression, scenario-based sensitivity analysis, market beta estimation, and single-factor elasticity regressions. The findings reveal considerable differences in oil price exposure across airlines. Ryanair exhibits the strongest negative relationship, with estimated elasticities of −0.12 for WTI and −0.13 for Brent (p < 0.001), indicating that a 5% increase in oil prices is associated with an approximately 0.6% decline in its share price. Delta demonstrates weaker but statistically significant negative exposure, with elasticities of −0.06 and −0.05 (p < 0.05), respectively, and the highest market beta (1.44). However, oil price movements explain only a limited proportion of daily stock return variations for both airlines. Lufthansa's estimated exposure is negligible, although incomplete price observations limit the reliability of these results. Overall, the findings demonstrate heterogeneous airline equity responses to crude oil price movements, highlighting the potential importance of fuel hedging policies, operating cost structures, and market conditions. The study offers empirical insights into airline financial risk management and investment decision-making.