ABSTRACT
This chapter focuses on how airlines deal with three risks that stem from decisions on foreign exchange, fuel contracts and interest rates. These arise from the day-to-day running of an airline, rather than ones such as terrorist threats or epidemics that occur on a periodic or cyclical basis. The chapter also focuses on the first two risks and the responses from airlines to minimise their impact on profitability or profit volatility over time. Cathay Pacific Airways estimated the sensitivity of their 2011 profits with respect to the key currencies in which it trades. Crude oil provides more liquidity and flexibility for hedging, but the spread between crude and jet aviation fuel has tended to widen at times of market instability. The fuel surcharges were those applied by British Airways over the period May 2004 to August 2008, the period when both fuel prices and surcharges increased most dramatically.
