ABSTRACT

This chapter and the next will look at how airlines deal with three risks that stem from decisions on foreign exchange, fuel contracts, and interest rates. It will also cover foreign exchange or currency, followed by interest rates; the next chapter will deal with fuel price risk. These risks 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. No airline can disregard them, although foreign currency risks would be relatively less important to, say a domestic US airline, than one selling and buying in a large number of currencies worldwide. The focus here will be the first two risks and the responses from airlines to minimise their impact on profitability or profit volatility over time. However, interest rate risk will also be addressed in the last section of this chapter.