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Adopting a Rule-Based Approach to Hedging

Lufthansa Group is a complex, global business operating in an industry that has experienced considerable volatility in recent years.

In this article, Ronald Kern, Head of Treasury, describes how Lufthansa's treasury approaches risk management, and the success for the approach that the company has taken.

Key Points

  • Lufthansa implemented a new risk management framework in 2005, following on-going review of the Group’s financial activities the previous years
  • The company adopted a rule-based approach to hedging market and credit risk, as opposed to basing its strategy on market forecasts
  • The author itemises the different risks which affect the business, including FX and fuel risk, interest rate risk and liquidity risk
  • The benefits of this approach include increased simplicity and transparency in risk management and the layering strategy described in the article makes it easier to respond to changes

 

Written by

Ronald Kern
Head of Treasury
Lufthansa

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