Skytra Weekly Report Highlights Need for Risk Management Instruments for Aviation Industry
As the transportation industry roils from countries issuing travel restrictions to stop the spread of the novel coronavirus, Airbus’ wholly-owned subsidiary Skytra has begun issuing weekly insights on the impact of COVID-19 on regional revenues of the global air travel industry. The report, which covers the change in the value of tickets, year-over-year ticket sales comparison, geographical analysis of ticket sales and booking behavior for future flights, has highlighted the need for dedicated risk management tools for the industry.
“The challenges confronting the global air travel industry are formidable,” said Skytra Chief Executive Officer Mark Howarth. “Through this data, we hope to inform the discussions about the airline industry during the COVID-19 pandemic.”
Skytra’s weekly report leverages the company’s unique pricing and ticketing database that is created using Skytra’s proprietary methodology. Part of the reason why this database is so unique is their partnership with the International Air Transport Association (IATA), the world’s largest data provider of air travel ticketing information. IATA brought three aspects together, according to Elise Weber, co-creator, chief sales and marketing officer at Skytra. IATA has a comprehensive transaction-based database, covering 83% of worldwide ticket transactions by value. The association, a 70-year-old industry body with 300 airline members, offers a “reliable long-term partnership” with the same interests as Skytra: “to act for the benefit of the aviation industry,” said Weber.
The first weekly report illustrated the severe impact of COVID-19 on the global aviation industry. Between March 26 and April 1, airline revenue in Asia-Pacific (APAC) in 2020 fell 93% compared to the same period in 2019. In Europe and North America (Canada and U.S.), revenues are also down 102% and 96%, respectively. Data on booking behavior for upcoming months also indicates that refunds are outstripping sales in certain markets. According to IATA estimates, airlines’ revenues may fall by 44% by year end, or $252 billion, as a result of the coronavirus. Skytra estimates that for the year to date (1st of April) cumulative revenues are down more than 60% for the Asia-Pacific market due to the duration of the crisis.
In the most recent report, refunds continued to keep pace with ticket sales in most markets, “so effectively revenues for the industry have dropped by 100% or more than 2019 for this past week.” Ticket sales for the upcoming months remain generally low as well. The price per kilometer of air travel for economy class has softened as the coronavirus spread. The report reveals that the Asia-Pacific market appears to have bottomed out about 15% lower than could be expected for this period. That trend continues in North America and Europe with prices down 30% and 25%, respectively.
“COVID-19 shows the volatility and vulnerability of the air travel industry and the need for new risk management instruments,” said Weber. “Skytra’s air travel derivatives referring to our Skytra Price Indices will support our customers to reduce their risk exposure to the volatility of air travel prices – also driven by major events such as COVID-19.”
Airbus established Skytra to help the $1 trillion per annum air travel industry hedge its revenue risk through the trading of cash-settled futures and options contracts based on a series of Skytra Price Indices. Skytra selected Nasdaq to deliver a full suite of marketplace systems, including the core matching engine, the regulatory reporting required under MiFID II, and the market surveillance and pre-trade risk management solutions needed to safeguard the integrity of the trading venue. The systems will be hosted in Nasdaq’s data centers and the public cloud.
While the airfare derivatives market has not launched yet, Skytra has applied to the U.K.’s Financial Conduct Authority to be registered as a Benchmark Administrator of its air travel price indices and for a license to operate multilateral trading facilities (MTF), where derivatives based on the indices will trade. Both applications are currently being processed, according to Weber. In the meantime, Skytra will continue its weekly updates about the impact of COVID on the aviation industry, and would likely do so for any future health or environmental crises.
“Skytra’s large and deep database permits detailed industry analysis on an airline, country, regional or world-level. In addition to historical analysis, the Skytra data also provides a clear view of future revenues over the coming 12 months,” said Weber. “Therefore, it is likely that Skytra might produce similar reports in the future.”
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