Airline ticket derivatives venture starts weekly COVID-19 update

Skytra continues to develop futures and options to hedge air travel risk

9 April 2020


Skytra, a subsidiary of Airbus that is developing a derivatives trading venue to help airlines directly hedge passenger ticket prices, is adjusting its plans as the Coronavirus pandemic upends the air travel industry. The London-based venture has announced a data partnership with the International Air Transport Association and a weekly COVID-19 update on pricing trends.

IATA is the world’s largest data provider of air travel ticketing information. Skytra announced on April 7 that it is partnering with the association to publish a series of indices that will allow airlines to measure pricing trends and hedge their exposure to ticket price volatility. IATA data covers more than 83% of global tickets issued by value.

While this data will support Skytra's long-term goal of creating indices to underpin a new class of futures and options contracts, the immediate impact of COVID-19 on the air travel industry prompted Skytra and IATA to also begin publication of weekly reports on regional revenue trends for the airline industry.

"The challenges confronting the global air travel industry are formidable," said Mark Howarth, Skytra’s CEO. "Through this data we hope to inform the discussions about the airline industry during the Covid-19 pandemic. Likewise this crisis illustrates how urgently the air travel industry needs dedicated risk management tools."

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The first-ever Skytra-IATA report shows that airline revenue in Asia-Pacific fell 93% for the week of March 26 to April 1 when compared with the same period in 2019. In the U.S. and Canada, the decline was 96% year-over-year and in Europe the decline was actually more than 100% because of the impact of refunds.

Skytra hopes to roll out derivatives contracts based on these airline ticket indices in the near future to help address the acute need to manage risk. Skytra is currently pursuing regulatory approval from the U.K.'s Financial Conduct Authority to operate as a Multilateral Trading Facility and a Benchmark Administrator. In January, it was announced that Nasdaq will provide the technology software and infrastructure for the trading venue.

Skytra ticket price indices have been developed in partnership with the airline industry. The firm's long-term goal is to support futures and options based on these benchmarks, allowing the $1 trillion global airline travel industry to access financial risk management tools of this kind for the first time.

Airline ticket demand and related pricing structures can be quite unpredictable, with up to 85% of global ticket sales taking place 90 days or less from before take-off, according to Skytra data. Uncertainty can be even greater in local markets, such as Asia Pacific where 90% of all bookings are made a mere 65 days or less before departure.

"It can be very difficult to predict ticket prices even in the near-term. However, those prices have huge influence on long-term investment decisions with multi-year financial commitments," Said Christian Scherer, Chief Commercial Officer, Airbus. "Skytra has been created in collaboration with the air travel industry and players outside it to enable more financial predictability in this volatile market."

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