Airbus plans derivatives exchange to temper ticket-price turbulence
Leaving your flight booking until the last minute can take a big chunk out of your wallet. Airlines don’t like it, either. Now, the world’s biggest plane maker has come up with a solution.
AirbusAIR, +0.69% , the European aerospace and defense company that competes against U.S.-based BoeingBA, -2.36% , has launched the first-ever trading venue for derivatives designed to help its airline customers hedge against highly volatile ticket prices.
Skytra, a subsidiary of Netherlands-based Airbus, will offer futures and options contracts based on newly developed indexes that track live price changes in air travel across the U.S., Europe and Asia-Pacific.
Shares in Airbus were slightly up at almost €138 at 11:30 GMT.
The launch of the trading venture comes as many airlines’ share prices have been rocked by scandals such as the one surrounding the Boeing 737 Max, which has been grounded since March last year following two crashes in the space of a few months. Flight bookings have also been hit by uncertainty over the U.K.’s imminent departure from the European Union.
The air-travel business uses derivatives to hedge against the risk of adverse changes in borrowing costs, fuel expenses and foreign-exchange rates. But airlines don’t have the ability to hedge against changing ticket prices, which can move dramatically in response to supply-and-demand surges, political issues, economic uncertainty and weather.
One of the biggest examples of this in recent years was when the Eyjafjallajökull volcano erupted in Iceland, disrupting travel plans for hundreds of thousands of passengers across Europe.
Airbus’s new product would help reduce the cost of such events by protecting against fluctuations in supply and demand for tickets. The majority of airline tickets are sold in the last five weeks before takeoff, which can cause uncertainty for carriers.
The launch of Skytra comes as the number of flights taken annually is expected to double in the next 15 years from 4 billion to 8 billion, according to the International Air Transport Association.
“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 Finnish airline FinnairFIA1S, -0.48% .
Airbus hopes to secure the required regulatory approvals for the indexes from U.K. watchdog the Financial Conduct Authority by the middle of 2020 and the platform by year-end.
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