Fuel Price Risk
Possible fluctuations in fuel price may potentially generate a huge volatility in the cash flow and corporate profitability. In order to keep this effect at the minimum level, the Company has developed a fuel price risk hedging strategy.
In line with the strategy, hedging transactions are done for the tenor of at most the next 24 months and up to 60% of the forecasted fuel consumption of the following month. Swaps and options-with/without premium are used for these purposes.
In fuel price risk hedging transactions, derivative products designed on crude oil, as the underlying asset, are used since the crude oil and jet fuel prices are strongly correlated, besides, crude oil has much more market depth with respect to jet fuel.
Foreign Exchange Risk
Since Turkish Airlines generates a large portion of its revenues in EUR, and its expenses are mainly in USD and TRY, fluctuations in these exchange rates cause the exchange rate risk.
In the management of exchange rate risk, the first objective is to provide natural hedging. In this context, the basis currency of the contracts to be signed by the Company is determined as to ensure the balance between revenue and expense currencies.
In line with the exchange rate risk management strategy, a cumulative and layered hedging methodology is applied. In this context, in order to hedge the projected short USD position with long EUR position, hedging transactions are executed for the tenor of at most the next 24 months and up to at most 60% of the forecasted short position for the next month. Forward and option-based zero-cost derivatives are used for these transactions. Likewise, in order to hedge the projected short TRY position with long EUR position, hedging transactions are executed for the tenor of at most the next 18 months and up to at most 50% of the forecasted short position for the next month. Forward derivative instruments are used for these transactions.
Interest Rate Risk
The Company has a long-term debt liability due to the financing of its investments, especially the aircraft financing. In order to keep interest risk at a reasonable level, hedging transactions are executed by using swap and option-based derivative instruments.
On the other hand, the Company prioritizes cash flow planning, and manages the interest rate risk arising from the return of cash portfolio by focusing on the tenor-return relationship at an optimum level.