The Value Of The Airline

Hedging is a significant measure of financial risk management. Since the 1970s, the increasing number of powerful companies started to control the risk of the exchange rate, the interest rate and commodity by using financial derivatives. ISDA (2013) based on the Global 500 Annual Report 2012 survey found that 88 percent of companies use foreign exchange derivatives. Modigliani & Miller (1958) believed that if the financial markets were under perfect conditions, for instance, there was no agency costs, asymmetric information, taxes and transaction costs, hedging would not increase the company 's value because investors can hedge by themselves. However, a large number of practical studies have shown that hedging is beneficial

The Airline industry today offers services to nearly every place of the globe. The following economic factors that include consumer behaviour, currency rate, purchasing power of consumers, oil price plus the inflation plays key role in deriving the country’s economy. According to (Macmillan & Tampoe 2000), Airline industry itself is a leading economic force in terms of both its effects on associated industries for example aircraft manufacturing, operations and tourism. In this regard, this paper discusses the economic factors that affect the decision, the board of Air Asia needs to consider before acquiring 10 units of Air Bus model A350-1000 to increase its fleet of long haul airplanes.

In airline industry there are three major suppliers; jet-fuel providers, airplane manufactures and labor. Due to the current economic situation and ever-increasing fuel price, the position of the airline industry to its jet-fuel suppliers is worse. While the power of jet-fuel suppliers is stronger, the influence of airplane manufacture and labor on the airline

American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.

In fuel-intensive arenas such as the Airlines Industry, high and volatile fuel prices can have a significant impact on the bottom line, not to mention adding to the difficult task of budgeting for future fuel expenditures. If fuel costs are not actively managed, they can lead a company into losses. Airlines can mitigate their exposure to volatile and potentially rising fuel costs, as well as natural gas and electricity costs, through hedging. Hedging allows the fuel market participants (companies that consume large

Keep in mind, airlines only make money by having planes in the air; Delta has shown to invest their funds, assets, and efforts into that for the short term measures, as well as the future, whereas Southwest has allocated their assets, so it appears, for only the here and now, limiting the future of their profitability. A further example of this for Delta is their purchase of the oil refinery, increasing their short and long-term debt; however, this also decreased their operating costs with the production from the oil refinery for the short- and long-term reduction of debt through operation and inventory costs. Additionally, the ROA for Delta is double that of Southwest, ensuring that not only is the company excelling but also the shareholders are as well. This is a volatile industry, and one that has had numerous economic issues since the 9-11 tragedy, as well as Delta being much larger than Southwest. The industry is heavily influenced, as well. by political economic policies and standards that are exacerbated in the security and EPA regulatory arenas. The inventory turnover is showing that Southwest has a weaker sales structure than Delta, by far. Asset utilization and management efficiency is shown by this ratio, as well as customer service are shown as high

Airlines aren’t the only companies that hedge their required fuel. But airlines’ sensitivity to fuel costs can be more obvious to consumers, who often feel it in the form of higher ticket prices and international fuel surcharges when oil prices rise.

Airlines Industry is large and growing, it is also the most fiercely competitive sector. It facilitates international trade, world economy growth, tourism and international investment. The airline industry has over time with the use of modern technology been able to take advantage of the short haul, high frequency and gained a competitive advantage over other forms of travel, such as buses and railroad travel. Additionally, the airline industry still holds the market for global travel at a low cost and convenient way to travel. The aviation industry gives a good contribution to the GDP which includes the following: airline services, general aviation, civil airport operations, aircraft manufacturing, and

The main barrier to entry in the aircraft manufacturing market is the sheer size of the industry and the amount of capital investment required to make the aircraft. Moreover, the concerns of the aviation industry are not similar

Airlines use a formula of combining their yield and inventory costs to determine ticket prices. While it is imperative to focus on the idea of being profitable, the focus is to maximize the cost of the flight revenue. One huge factor that encourages an increase in the cost of tickets relates to a customer ordering a ticket close to the departing date, define this as a risk factor because they need to make up for all unsold seats. A high percentage of the revenue is dedicated to overhead costs such as fuel and labor. When a ticket price is higher with one airline than the other, the customer interprets this as being an excessive cost. The demand is greatly affected by the external market

This paper discusses the external economic factors affecting the strategic decision of airline industry and how this decision in turn, affect the market forecast of the aircraft manufacturing industry. Various business issues affect airlines operation either directly and indirectly, and

From its definition it can be noticed that hedging is a strategy employed by companies in an effort to safeguard their economic position and to prevent the company from the losses which are associated with the unforeseen risks. Companies can hedge against risks which are associated with losses by taking control of their future purchases. The commodity prices vary in different markets and are caused or influenced by different economic factors. Some commodities are very scarce and with the increased depletion subject to the global demand in different foreign markets, the prices are set to be hiked in response to the established demand which positions the companies that use those particular commodities to have cash flow problems.

Hedging will be used to lock the price when a manufacturer decides to offset risks due to the fluctuations in the prices of material raw in financial market. “The pricing strategy was named as the most popular operational hedging strategy used by the companies. When it comes to the adoption by the companies various real actions as a response to foreign exchange rate fluctuation, the majority of the companies consider a shift of supplier to foreign locations where it is became cheaper to source due to exchange rate changes” (Hansen, M. A., 2009). Efficiency of hedging can be seen when higher volatility of the price movement

In the airline industry, we have two major industries classified as the traditional airlines and the budget airlines. Traditional airlines have vertically integrated services and purchase their aircrafts directly from their manufacturer. On the other hand, budget airlines lease their aircrafts in order to source their fleet and provide cheaper flights. These cheap flights are supported by the subsidiaries in the secondary airports they flight in and out of.

Another advantage to hedging is that it insulates companies from volatile price movements and ensures stable revenue income as price volatility can have an adverse effect onto revenue and disrupt cash flows. Furthermore, through hedging, a company can ensure certainty in both the production