A weaker rupee makes imports expensive and exports cheaper in dollar terms. Indian airlines, which imports jet fuel from other countries, are therefore likely to face the heat of slump in local currency.
For an airline with international operations such as Air India and Jet Airways, the need to translate cash flows into different currencies, and the uncertainty surrounding the level of future exchange rates, gives rise to the top risk. The size of the foreign exchange risk varies, depending on the nature and
scope of an airline’s operations, as well as its corporate strategy.
For airlines, the main foreign currency exposure is often to the US dollar because key cost items, notably fuel, maintenance, and overhaul costs, along with aircraft purchase and lease payments, are typically priced in US dollar terms.
How do forex changes affect airlines?
i) It affects consumer decisions when making travel plans. Lets take US-India travel route: With the current depreciation in rupee, a tourist planning to travel to India from the US will have to shell out less compared to what he/she might have ended up paying in January.
ii) Changes in exchange rates can also influence airline supply decisions. Airlines may be able to respond to relative price shifts by changing the gauge of aircraft on a particular route or via strategic cancellations. Again we'll take the top example: Now since more tourists based out of the US would be interested in travelling to India, airlines will have to ramp-up their capacity to accommodate more travelers.
iii) Exchange rate fluctuations can also impact airline finances, both day-to-day operating activities (profitability) and balance sheet valuations
18/09/18 CNBC-TV18
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For an airline with international operations such as Air India and Jet Airways, the need to translate cash flows into different currencies, and the uncertainty surrounding the level of future exchange rates, gives rise to the top risk. The size of the foreign exchange risk varies, depending on the nature and
scope of an airline’s operations, as well as its corporate strategy.
For airlines, the main foreign currency exposure is often to the US dollar because key cost items, notably fuel, maintenance, and overhaul costs, along with aircraft purchase and lease payments, are typically priced in US dollar terms.
How do forex changes affect airlines?
i) It affects consumer decisions when making travel plans. Lets take US-India travel route: With the current depreciation in rupee, a tourist planning to travel to India from the US will have to shell out less compared to what he/she might have ended up paying in January.
ii) Changes in exchange rates can also influence airline supply decisions. Airlines may be able to respond to relative price shifts by changing the gauge of aircraft on a particular route or via strategic cancellations. Again we'll take the top example: Now since more tourists based out of the US would be interested in travelling to India, airlines will have to ramp-up their capacity to accommodate more travelers.
iii) Exchange rate fluctuations can also impact airline finances, both day-to-day operating activities (profitability) and balance sheet valuations
18/09/18 CNBC-TV18
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