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Markets

Wall Street's next trading innovation: Air-fare derivatives

Key Points
  • Just like airlines use oil futures to hedge against the volatility in fuel costs, they will soon be able to do the same with the swings in ticket fares.
  • Airbus is partnering with the Nasdaq exchange to launch a platform called Skytra that will enable airlines to manage its revenue risks for the first time by trading futures and options contracts based on proprietary indices.
  • The company said it has been developing benchmarks to track the daily changes in the price of air travel for two years.
An Airbus narrow body plane
Nicolas Economou | NurPhoto | Getty Images

European planemaker Airbus is working with Nasdaq to develop a derivatives-based trading platform that will allow airlines to protect against swings in ticket prices.

Just like airline companies use oil futures to hedge against the volatility in fuel costs, they will soon be able to do the same with the swings in ticket fares, which fluctuate drastically during holidays, events and different weather.

73棋牌The London-based platform Skytra will enable airlines to manage its revenue risks for the first time by trading futures and options contracts based on its proprietary indices. The company said it has been developing benchmarks to track the daily changes in the price of air travel for two years.

73棋牌Nasdaq will provide technology to ensure functionality including matching, surveillance, risk management and regulatory reporting.

Airbus has partnered with a company that "tracks every ticket price, pretrade and aftertrade," Adena Friedman, president and CEO of Nasdaq, said on CNBC's "" on Thursday at the World Economic Forum in Davos, Switzerland. "They are able to look at certain routes and certain regions in the world and they can say how much the price has changed and they create an index on that."

73棋牌"It's also really helpful for travel agency businesses too," Friedman said. "They are not offering this right now to consumers. It's definitely a professional market, but at the same time, the consumers use travel agencies ... they should be able to pass that benefit on."

73棋牌"Skytra has been created in collaboration with the air travel industry and players outside it to enable more financial predictability in a volatile market," Christian Scherer, Airbus' chief commercial officer, said in a statement.

73棋牌Airlines have long been exposed to uncertainties around short-term revenue. Up to 90% of the tickets are booked within 90 days before take-off, and reduced demand or increased seat supply can hurt sales significantly, according to Airbus.

73棋牌Financial Times first reported Airbus' plans to launch such a venue.

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