The impact of currency fluctuations is devastating for companies in which fuel is one of the biggest expenses. As exemplified in the case study of Korean Air Lines, the financial burden of managing currency differences is tremendous compared to similar expenses experienced by US airlines. The reason why Korean Air Lines meets more disadvantages is that oil is generally priced in US dollars, which means that a devaluation of another currency will negatively affect the transaction (Hill 309). Foreign airlines can, however, minimize certain limitations related to exchange rates.
Planning and forecasting are essential when it comes to predicting when the US dollar will be most profitable to buy, which ultimately decreases the risks of economic losses as a result of a less valuable national currency. Namely, looking at such variables as relative monetary growth, inflation, and nominal interest rate can facilitate is a relatively safe prediction of when to approach the exchange and when to avoid buying foreign currencies (Hill 325). However, certain situations are difficult to predict since they generate uncertainty that affects all industries.
The COVID-19 pandemic and travel restrictions have certainly created an environment in which airlines could not maintain the same profit, organizational environment, and the number of customers as prior to the outbreak. Similar to past tragedies such as 9/11, airlines have had to experience challenges due to decreasing consumer demand and fluctuations in currencies (Jeon 923). Moreover, the won has continued to depreciate due to the challenges with export and import as well as investors’ aim to purchase a more stable currency. Thus, the depreciation makes it more challenging for Korean Airlines and Asiana Airlines to purchase fuel, facilitating the prices of tickets to raise which minimizes demand. However, the market has not yet fully recovered from the restrictions and the subsequent economic crisis that followed. The market will be able to support both airlines if the economy recovers and new global challenges that disrupt supply chains and economic relationships do not create a new limitation.
Hill, Charles W. Global Business Today. McGraw Hill LLC, 2022.
Jeon, Ji-Hong. “The Impact of Tourism Uncertainty on Airline Stock Markets in Korea: A Quantile Regression Approach.” Journal of Business Economics and Management, vol. 22, no. 4, 2021, pp. 923–939., Web.