Airbus unit to offer product to help airlines with revenue volatility
* To launch futures, options to predict airline revenue
* Aimed at helping reduce impact of revenue volatility on
* Launch expected by end-2020 pending regulatory approval
By Saikat Chatterjee
LONDON, Jan 20 (Reuters) - A subsidiary of Airbus,
the world’s largest planemaker, is preparing to launch a
financial product aimed at helping its airline customers hedge
against risks to revenue, officials said.
Skytra Ltd, a fully-owned subsidiary, plans to launch listed
financial futures and options on exchanges this year that will
represent airlines revenue and help the industry manage risks
Airlines typically hedge their fuel costs and foreign
exchange exposures but the Skytra exchange is the first of its
kind for the industry.
While airline infrastructure and operational commitments are
planned years into the future, the majority of airline tickets
are sold in the five weeks before take-off, according to a
statement from Skytra.
Even those airline ticket prices are subject to constant
change due to external factors including supply or demand
surges, political issues, or tax and economic uncertainty.
But with no existing financial instrument to manage air
travel revenue volatility effectively despite a fixed cost base,
airlines remain financially vulnerable which Skytra’s product
offering aims to address.
The London-based firm has developed a suite of global and
regional indices that will track the daily changes in the price
of air travel in each geographic market, based on an industry
measure of demand called revenue per passenger kilometre (RPK)
which measures the number of kilometres travelled by paying
“Finally we will have a risk management instrument
tailor-made for the air travel industry that will help us manage
our exposure to ticket price volatility more efficiently,” said
Christine Rovelli, head of treasury at Finnair.
Skytra aims to launch indices for six of the most active
geographic sectors and roll them out to other sectors gradually,
executives at the firm said.
The product will be similar to typical futures contracts
traded on most exchanges with quarterly expiries and offering
contracts of up to two years.
Matthew Tringham, co-founder at Skytra, said he expects the
product to bridge as much as 85% of the gap between costs and
revenue for a typical airline.
The International Air Transport Association (IATA), which
represents nearly 300 airlines, expects industry revenue to
expand by 4% to $872 billion in 2020 with revenue from other
sources taking it to close to $1 trillion.
The products will be overseen by the UK’s Financial Conduct
Authority and regulatory approval is expected in the coming
months ahead of a launch by the end of 2020.
(Reporting by Saikat Chatterjee)
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