In volatile economic environment, it is imperative for the airlines to implement appropriate derivative hedging strategies. In non-volatile economic environment, there seems to be different views that support non-implementation and implementation of derivative hedging strategies within the non-dominant school of thought as it can be inferred from Carter et al. (2004). Risk management should take into account everything that affects the financial positions of the airlines from initial stage to the final one with proper monitoring in between. While designing a derivative hedging strategy, the risk manager should take into account all these factors and implement the best possible derivative hedging strategy.

Airlines industry is very volatile during changing economic environment due to the numerous factors that affect the airlines' financial position. While implementing the derivative hedging strategy, the risk manager needs to instigate a well-developed and designed derivative hedging strategy in order to minimize the losses which are most likely to be incurred by the airline. Carter et al. (2003), Carter et al. (2004), Lookman (2004) and Schwartz (1997) stated that hedging within airlines industry is fairly complex; however, the risk management strategies need to be fairly as simple as they could be.

The most common variables that need to be hedged within airlines industry are operating costs, currency fluctuations and oil prices. In hedging operating costs, the risk management strategy needs to differentiate between fixed and variable costs. Fixed costs are easier to hedge than variable ones as fixed costs can be predetermined for a specific period of time. On the other hand, variable costs, especially in rapidly changing economic environment are fairly difficult to be held constant for some time. Lookman (2004) and Sclavounos (2007) recommended swaption as one of the derivative hedging strategy for rapidly changing commodity prices.

Derivatives Market Journal, Volatile Economic Environment, Derivative Hedging Strategies, Airlines Industry, Risk Management Strategy, Commodity Prices, Dynamic Hedging Strategy, Commercial Airline Industry, Jet Fuel Hedging Strategies, Economic Environment, British Airways, Option Pricing Theory, Financial Statements.