The relationship between foreign exchange risk Management and profitability of airlines in Kenya

Abstract

The objective of the study was to investigate the relationship between foreign exchange risk management and profitability of airlines in Kenya. The study employed a survey research design. The study sampled 26 out of 46 airlines operating in Kenya. Both primary data and secondary data were used in this study. Cross-sectional analysis was applied to analyze the data. Correlation analysis and regression analysis were used to obtain the results. The study found out that foreign exchange rate risk management has appositive impact on the profits of airlines in Kenya. Currency risk management accounts for 35% of the variability of the profits of airlines in Kenya. The airlines ranked exchange rate risk and fuel price risk as most important risks compared to inflation risk and interest rate risk. The study also found out that all the airlines sampled had a foreign currency risk management policy and had a risk management department headed by a Risk Manager. The results indicated that airlines often used forwards, futures, money market contracts, options and swaps for hedging in the order of merit. The study also found out that the airlines fully hedged using forwards, futures and money contracts but they partially hedged options and swaps. It also found out that majority of the respondents indicated that the percentage of exchange rate exposure the company was hedging was over 80%. Finally, the study found out that all airlines sampled measured the success of foreign exchange rate risk management policy monthly.