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 (1). 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.
In addition, Skytra’s suite of business intelligence products, targeted at financial institutions and aviation industry participants, provide forward indications on yields, volumes and revenue data at both airline and regional levels.
Skytra successfully obtained approval by the UK Financial Conduct Authority (FCA) to be a Benchmark Administrator (BA) for their air travel price indices, which means the global aviation industry now has an independent reference price for air travel and can benefit from new ways to negotiate and contract air travel.
Having been involved throughout the process with Skytra on their new price indices, it is exciting to see that the regulatory approval by the UK's FCA will enable Skytra to take the concept of airlines hedging revenue volatility to an actual reality. Greater financial predictability will have other positive knock-on effects on airlines’ balance sheets and will ease the travel industry’s recovery. Skytra Price Indices should become an important component of an airline’s risk management tool box.
Bruno Lecerf, SVP Finance & Treasury Air France