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”. 23 foreign currencies in total are hedged because their exposure is particularly relevant to the Lufthansa Group. Note 45, p. 205ff.
Interest rate risk
Lufthansa aims to finance 100 per cent of its financial liabilities at floating rates of interest. Since the short-term interest rate level is statistically observably lower than the long-term, this procedure leads to a minimization of the average interest expense.
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 5 per cent of exposure is hedged monthly for up to 24 months by spread options and other combinations of 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 85 per cent.
Hedged oil price Lufthansa Group 20211)
As of 31 December 2020
1) Including fuel price hedges not allocated to hedging.