Paratus CEO and founder Gus Majed called for airlines to more effectively hedge jet fuel.
“Many of us have seen the headlines over the years; airline suffering significant balance sheet hits as a result of derivative edges over the years,” Majed said at this year’s Airline Economics’ Growth Frontiers London 2024. “These are the headlines that keep CEOs, board members, and shareholders up at night. But when you study the data and look at the frequency, it happens far, far more often than one would imagine.”
He said jet fuel price risk is “as existential a risk as any other for an airline”, with the risk being “100 times more likely to impact the airline’s bottom line than any of these other risks,” he explained.
With an estimate 60% of airlines hedging around 60% of their fuel requirements, Majed said the general response from the airline industry has been one of complacency, following the path of how other companies operate.
He questioned why the industry continues to “run and retain this level of risk”. added: “One of the responses we get quite often is ‘don’t worry, we get it back in ticket prices’”. However, he warned the industry is “getting into a period of very tight margins”.
The solution, he argued, is insurance. “Everybody generally understand insurance,” Majed said. “You pay a premium. It protects the risk… the airlines effectively are able to lock in their budget costs anywhere from one month out to three years forward.” For this reason, he founded Paratus: an energy risk management tool for the aviation and shipping industry.