Airbus will help airlines hedge volatile ticket prices

THERE IS NOTHING that maddens online shoppers more than seeing air fares rocket just as they are about to click “buy”. Yet price turbulence may be an even bigger headache for airlines. Whereas carriers have some control over fares, these can be buffeted by surges in supply or demand, caused, say, by economic slumps or political rows. Over the past five years, ticket prices on a given date (net of taxes and fees) have varied by an average of 7% in Asia and 16% in Europe. Even in North America, where airlines have more pricing power, volatility hovers around 7%. Most carriers have to wait until less than 90 days before take-off for 90% of their ticket revenues. So they are hard to forecast—a big problem, as airlines often commit billions of dollars years in advance to buy planes.

Fortunately for them Airbus, the world’s largest planemaker, has a fix. On January 20th it launched Skytra, a London-based exchange through which airlines can access futures, options or swaps to hedge against big swings in ticket prices. Those derivatives contracts will be based on indices that track daily changes in the price of travel (measured as a cost per passenger per km). Airlines can buy these through banks and brokers that join the exchange. Skytra expects to get the thumbs-up from British regulators in the summer.

If the new tool helps...

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