Coronavirus has led to the creation of a new derivative product: airline tickets.
While the virus has wreaked havoc on air travel, airline ticket derivatives hopes to give airlines some hedging. The Futures Industry Association (FIA) described the new product in a statement.
“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.” The new airline ticket derivatives are looking for approval from Britain’s Financial Conduct Authority (FCA), the FIA noted, and they will use technology from NASDAQ.
“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.”
Skytra recently produced a report showing just how much the devastation from coronavirus has been to the airline industry.
“For the week 26 March – 1 April, refunds are close to or have even outstripped ticket issues in most of the regions of the world, so compared to 2019 the value of ticket issues is close to or more than 100% lower,” the report found.
“Whilst ticket sales in early 2020 had started in line with 2019 for most regions, Covid-19 has had a radical effect as it has spread across the world. The first region affected was unsurprisingly, Asia-Pacific. From mid-January, ticket sales started to decline eventually dropping to 93% by week 14 (26 March – 1 April) compared to the same week in 2019.” The report continued, “The negative effect on revenues was slightly delayed in other regions, following the spread of the virus. First affecting ticket sales of flights from Europe and North America to Asia-Pacific, eventually resulting in dramatic revenue falls in tickets for routes in Europe, Europe-North America and North America which fell by 102%, 104% and 96% respectively.”
Michael Volpe
After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.
