Airbus’ wholly owned subsidiary Skytra announces that one of its key data vendors is the International Air Transport Association (IATA). Since IATA is the world’s largest data provider of air travel ticketing information, the partnership provides Skytra with pricing details of over 83% of global tickets issued by value.
Whilst this strategic data partnership is primarily driven by Skytra’s objective to release regulated air travel indices permitting airlines to hedge their exposure to ticket price volatility, the scale and the depth of the database is extremely valuable for gaining industry insights, such as the impact of Covid-19 on the air travel industry.
Skytra and IATA publish today its first weekly report on the impact of the Covid-19 virus on regional revenues of the global airline industry. This shows that airline revenue in Asia-Pacific (APAC) in 2020 for the week 26th March – 1st April has fallen 93% from the same period in 2019 as the region was first to suffer from the contagion of the virus originally detected in China. In Europe and North America (Canada-US) the decline was 102% and 96% respectively for the same period.
Overall, IATA estimates that the unfolding impact of the pandemic on airlines’ revenues may fall by 44% this year, or $252 billion.
Mark Howarth, Skytra’s CEO, said: “The challenges confronting the global air travel industry are formidable. 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. Our data partnership with IATA is a significant step forward in our mission to support our industry with new financial instruments permitting airlines to manage their revenue volatility better.”
IATA’s data will fundamentally support the formulation and calculation of indices developed by Skytra to underpin a new class of futures and options contracts, enabling the $1 trillion per annum air travel industry to manage its exposure to revenue volatility for the first time.
IATA’s unique data are generated by its payment settlement platforms, reporting the prices paid for tickets sold directly by almost 500 airlines and indirectly sold by them through travel agents. The data captured more than 1.6 billion tickets issued in 2019 covering over 212 countries, a number that has grown each year. This strategic partnership reflects Skytra’s purely data based approach towards its index construction, management and calculation.
Skytra’s indices will measure the daily change in the average price of air travel within and between regions across the globe. The indices’ values will be used as the underlying basis for standardised futures and options contracts that Skytra will admit to trading on its regulated venue. Skytra is currently developing the venue with leading market technology provider, Nasdaq, and expects to start trading in late 2020, subject to regulatory approval.
The ability for the air travel industry to hedge revenues will be a critical tool in managing the volatility risk that exists within the industry. Skytra estimates that, after removing ticket price seasonality, average prices fluctuate between 7-22% annually, depending on the market. Prices change as a result of a multitude of external factors, such as supply or demand surges, political issues, tax and economic uncertainty.
Prior to the Covid-19 pandemic, more than 50% of tickets were sold in the last 30 days before take-off. This proportion is projected to rise in the coming years as demand for air travel grows and bookings become increasingly last-minute. The number of trips taken annually will double in the next 15 years to 8 billion, according to IATA estimates made before the global outbreak of the Covid-19 virus.
While airlines are able to hedge their cost base using derivative contracts – notably currency, interest rate and fuel prices, – there are no existing instruments enabling them to manage ticket price volatility. The impact of this problem is felt by the entire air travel value chain, including passengers, travel agents, airports and aircraft manufacturers.
Skytra’s team has built and back-tested a robust model that captures the daily change in air travel ticket prices. The indices measure the average price a passenger pays to fly 1 kilometre, or Revenue Passenger Kilometre (RPK), within and between regions across the globe. Skytra has normalised RPK into a family of indices, working closely with its data partners and in close collaboration with the industry to reconcile the different methodologies of each airline in calculating this industry metric. Skytra will identity its other data partners later this year.
Skytra has applied to the UK’s Financial Conduct Authority to be registered as a Benchmark Administrator of its air travel price indices and for a licence to operate a Multilateral Trading Facility (MTF), where derivatives based on the indices will trade. Skytra announced in January that it had selected Nasdaq to provide the technology for the planned derivatives trading venue.