Air Canada’s largest competitors in the airline industry are WestJet, United Airlines and Delta Air. Each of these airlines typically manage their financial risk using a variety of strategies such as hedging foreign currency, fuel prices, and interest rates; buying competitive insurance policies; careful portfolio management; and making strategic investments (Goncalves, 2016). As an example, WestJet has implemented a comprehensive approach to managing its financial risks. This includes creating a comprehensive set of policies and procedures to identify financial risks and mitigate them through diversification, active portfolio management techniques and strong counterparty relationships (WestJet Corporate Financial Risk Management Strategy 2017).
United Airlines is also actively engaged in risk management. The company purchases derivative instruments such as options contracts on certain commodities including jet fuel that enable it to hedge against potential price fluctuations for large amounts of oil purchased over extended periods of time (United Airlines Risk Management Program 2018). It also engages in various other methods of controlling costs such as cross-functional cost optimization teams. Additionally, United uses sophisticated analytics tools to assess its credit risk by evaluating factors such as payment performance from customers or partners (CFO Magazine 2018).
How are Air Canada’s largest competitors managing financial risk? Do their risk management practices create a competitive advantage or disadvantage
Delta Air Lines follows similar practices when managing its financial risks. Its strategy leverages both traditional hedging instruments like derivatives but also innovative technology solutions that make use of real-time data analysis (Vasilakis 2015). For instance, Delta applies predictive analytics models designed specifically for tracking fuel prices across global markets. In addition to direct hedges offered by banks or investment firms, they also participate in options trading with other airlines which allows them to increase their exposure while still maintaining control over pricing volatility exposures (McKinsey & Co 2017).
Overall it appears that the major competitors have managed their financial risks effectively enough so far that none have had any significant downturns due largely in part to those strategies being successfully implemented. Having effective risk management practices can create a competitive advantage because it allows companies to protect themselves from unexpected losses associated with market movements while still taking advantage of profitable opportunities when they arise. In this way they can continue offering services at competitive prices without facing unforeseen costs or disruptions due to unanticipated events (KPMG 2018).
On the other hand ineffective risk management can lead to missed opportunities for cost savings or even considerable losses if not appropriately monitored or controlled consequently leading some firms into bankruptcy protection(KPMG 2018 ). Therefore having an effective system in place is critical for businesses operating within highly volatile industries like the airline industry where profits depend heavily on external sources such stability in oil prices or availability of funds depending on investor sentiments . As a result paying close attention one’s own individual practices related risk managements has become increasingly important particularly considering increasing competition among major players making well thought out decisions related how best utilize resources available often crucial determining who will remain successful long run .