Airlines are to be offered a risk management system to help manage their exposure to ticket price volatility.
The Skytra initiative is due to be launched this year by Airbus, allowing airlines to hedge against ticket price fluctuations.
It plans to operate derivatives trading venue, enabling carriers to transfer risk and manage revenue volatility through the use of hedging instruments, such as financial futures and options contracts.
Airlines have long used derivatives markets to hedge themselves against swings in fuel prices, foreign exchange and debt costs.
Sktra would be the first financial product to allow them to mitigate their exposure to fluctuations in air fares, which can be affected by issues including air traffic controller strikes and tax changes, The Times reported
Airlines often have to make commitments spanning years for aircraft and airport landing slots despite lacking the same visibility on revenues, because they sell most of their tickets in the five weeks before a flight departs.
Skytra, which has been under development for three years, has devised 28 indices that track average ticket prices across a range of regions and routes. These indices will be used to develop derivatives such as futures and options, which will be traded at a venue that Skytra is setting up.
Skytra is applying to the UK Financial Conduct Authority for a licence to manage its indices and to operate a trading venue.
A spokeperson said: “Airlines have little visibility into future revenues. Ticket prices are volatile and up to 90% of the tickets are only sold in the last 90 days before take-off. Yet they have long-term investment decisions with multi-year financial commitments to manage.
“Today airlines already use financial instruments to reduce risk exposure to unpredictable changes in the cost of fuel, interest rates on loans and foreign currencies.
“Currently hedging is only available on the cost side of the balance sheet, as there have been no products available to do the same on the revenue side, until now.
“Skytra’s risk management products will help the air travel industry manage revenue risk and help predict future income.”
Finnair head of treasury Christine Rovelli said: “Finally, we will have a risk management instrument tailor-made for the air travel industry.”
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