Fuel Price Risk
Possible fluctuations in fuel price may potentially generate volatility in the cash flow and corporate profitability. In order to keep this effect at the minimum, the Company has developed a fuel price risk hedging strategy.
In line with the strategy and depending on market conditions market conditions hedging transactions are executed for the next 24 months at most 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
Considering our wide geographical reach, any mismatch between revenue and expense currencies may cause 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 accordance with the FX risk management strategy, Turkish Airlines can use the most convenient derivative instrument based on the market conditions such as forward and zero-cost option collars to manage the fluctuations in FX rates in case of need.
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 can be 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.