The international nature of the aviation industry means that airlines are exposed to currency fluctuation risk. Most carriers incur both costs and revenues in a number of currencies, and the fact that some of these cash flows require conversion into a different currency forms the basis of an airline’s foreign exchange (FX) risk.
In ‘normal’ times, annual changes in exchange rates are typically relatively small, and can be either mitigated or largely absorbed by carriers.
Strong appreciation of the US dollar over the past year or so has been felt more widely; indeed, as a result, many airlines’ USD-denominated costs have risen by 10-15% on average in local currency terms.
Vietnam Airlines started 2023 with a report that the airline lost VND10.09tn ($430mn) in 2022, blaming rising fuel prices and foreign exchange volatility. The airline reported that overall expenses were 3.6 times higher than the same period in 2021. Last year saw Vietnam Airlines reach 70% of pre-pandemic revenues compared to 2019.
The airline’s balance sheet states that Vietnam Airlines’ short-term liquidity pressure is growing. Concluding 2022, the national airline held VND12.3bn ($5.2mn) in short-term assets, including VND3,400bn ($1.45mn) in cash liquidity. Short-term debt totalled VND53,000bn ($2.26bn), including short-term financial lease debt at VND17,600bn ($750mn).
Changes in exchange rates can also influence airline supply decisions. In the airline industry, capacity in the short run is…