A major airline's existing swap programme created a dangerous mismatch between financial hedge settlements and physical fuel costs — exposing the business to uncapped mark-to-market losses and basis risk across its route network. The programme needed a fundamental redesign.
Energovis mapped the airline's physical fuel procurement — across 400,000 MT annual consumption — to its nearest liquid financial indices, establishing a blended index weighting that minimised basis risk. A Seat Curve Hedge methodology was introduced, aligning hedge tenors to the airline's seat booking profile.
Absorbed tail risk with zero negative MtM exposure
Reduced cost in stable market conditions
Governed swap exposure within pre-defined cash limits
A full risk metrics suite was embedded in proprietary software — giving decision-makers a complete forward view of maximum cash at risk before any hedge was executed.
Confidence interval for forward exposure modelling
Daily value-at-risk on hedged and unhedged positions
Quantified impact on unhedged fuel cost exposure
Fuel price shock scenarios stress-tested pre-execution
When COVID-19 caused one of the most severe aviation fuel market dislocations in history, the programme performed exactly as designed. The options-based approach capped all downside exposure in advance.
"Tail risk priced in advance. No margin calls. No emergency unwinds. The hedge absorbed the black swan so the airline could focus on surviving the crisis."
Airlines have often over-hedged in the past, but good hedging is not about maximising hedge volume. It is about balancing forecast confidence, business performance, available cash, and appetite for risk. The goal is to protect the business without creating a second source of instability, and Energovis designs strategies that match underlying exposure and can withstand both normal volatility and black swan events.