Airbus offers airlines way to guard against fare declines

Airbus SE is developing a derivatives-based trading platform that will allow airlines to protect against declines in ticket prices—and potentially help sustain growth and jet orders.

Clients of the Skytra subsidiary will trade futures and options on a series of indexes that capture fare fluctuations across the industry. The venture is the brainchild of two Airbus veterans and emerged from a workshop with a struggling airline.

“What do you do if you lock in your cost but revenues fall?” said Elise Weber, one of the founders. “We said, can’t we improve the risk management of our customers to be able to plan more long-term, to do long-term investment?”

Airbus says the mechanism will help airlines to insulate against the impact of reduced demand or increased seat supply, just as they already hedge against currency and oil-price movements. On the flip side, businesses whose staff regularly fly could use it to protect against rising fares.

Shares of the European planemaker traded 0.8% higher at 137.84 euros as of 10:49 a.m. in Paris.

London-based Skytra is targeting U.K. Financial Conduct Authority approval for the indexes by mid-2020 and the platform by the end of the year, according to Chief Executive Officer Mark Howarth.

Citigroup Inc. is interested in participating in the venture, which would see airlines trade on the platform through brokers.

“Citi is well placed to serve its many global customers by connecting them to this new market,” Jerome Kemp, global head of futures, clearing and collateral at the bank, said in the Skytra release.