Lufthansa Group is an international aviation group and so is exposed to financial risks from changes in fuel prices, currencies and interest rates. In addition to the risks described, these financial and economic developments also entail potential opportunities for the Lufthansa Group. Volatility in fuel prices, exchange rates and interest rates can result in lower costs for the Lufthansa Group if the direction taken is better than the assumptions used for planning and forecasting.
Exchange rate movements
Foreign exchange risks for the Lufthansa Group arise in particular from international ticket sales and the purchasing of fuel, aircraft and spare parts. All subsidiaries report their planned currency exposure over a time frame of at least 24 months. At Group level, a net position is aggregated for each currency to take advantage of “natural hedging”. 18 foreign currencies in total are hedged because their exposure is particularly relevant to the Lufthansa Group.
Interest rate risk
The Lufthansa Group generally aims to pay interest on its financial liabilities in euros. To do so, interest rate swaps can be arranged for interest-bearing, fixed-rate financial debt and leasing liabilities in euros, while cross-currency interest rate swaps are used to hedge financial liabilities in foreign currencies. The amount of variable interest rate fixation in the long-term borrowings is aimed overall at the amount of the variable-interest cash investments.
Fuel price risk
Significant changes in fuel prices can therefore have a considerable effect on the Group’s result. Fuel price risk is generally limited by the use of crude oil hedges. The hedging level and the time horizon depend on the risk profile, which is derived from the business model of a Group company. As a rule, up to 4 per cent of exposure is hedged monthly for up to 24 months by option-structures and other hedges. Executive Board approval may be obtained to extend the hedging period and to increase the monthly hedging volume in order to exploit market opportunities. The target hedging level is up to 75 per cent.
Hedged oil price Lufthansa Group 20231)
As of 31 December 2022
1) Including fuel price hedges not allocated to hedging.