- Weather-Related Disruptions
Weather conditions are a major source of operational risk. Airlines use sophisticated weather forecasting tools and implement robust contingency plans to manage delays and cancellations caused by adverse weather.
Financial Risks
Financial risks encompass fluctuations in fuel prices, currency exchange rates, interest rates, and broader economic conditions. These factors can affect profitability and financial stability.
- Fuel Price Volatility
Fuel costs constitute a substantial portion of an airline's operating expenses. Airlines hedge against fuel price volatility through derivative contracts, locking in prices for future fuel purchases to stabilize costs.
- Currency and Interest Rate Fluctuations
Airlines operating internationally face currency risk due to fluctuations in exchange rates. Financial instruments such as forward contracts and swaps are used to manage these risks. Additionally, interest rate risks are managed through fixed-rate borrowing and interest rate swaps.
Regulatory Risks
The airline industry is subject to extensive regulation by national and international authorities. Compliance with safety, environmental, and operational regulations is crucial to maintaining certification and avoiding penalties.
- Safety Regulations
