Success Story TUI Cruises
Price risk management in times of volatile commodity prices
TUI Cruises was founded in April 2008 as a joint venture between Hanover-based TUI AG and Miami-based Royal Caribbean Cruises Ltd., the world’s second-largest cruise company. Under its brand “My Ship” TUI Cruises has been offering contemporary luxury holidays at sea since 2009 – focusing on the German-speaking market. More than 4,500 crew members currently work on board the five cruise liners, owned by the successful shipping company. A further 370 employees work at its Hamburg headquarters.
TUI Cruises organises cruise holidays using its own fleet of ships. Fuel expenses are one of the highest costs, accounting for 15% of fixed operating expenses. Volatile fuel prices can directly impact the company’s bottom line. The scale of these fluctuations can be significant. In the last 12 months, the fluctuation range of fuel oil prices amounted to more than US$150 per tonne. In comparison: In August 2016 the fuel oil price amounted to US$225 per tonne.
TUI Cruises offers its clients the opportunity to book their holiday up to two years in advance, which means that some of the clients pay a price calculated long in advance of their trip, and thus also long in advance of the fuelling of the vessel. In order to achieve a stable calculation base and given the length of its planning outlook TUI Cruises needs to hedge against Fuel price fluctuations.
Commerzbank has supported TUI Cruises with the development of a tailor-made hedging strategy, covering a four-year time frame, which is rolled over on a quarterly basis. The hedge ratio declines with increasing maturity as the risk from fluctuating prices decreases over time. On average, 80% of the fuel demand is hedged on the basis of the liquid “Rotterdam quotation”, a globally used benchmark. Since 2008, TUI Cruises has benefited from the proactive support provided by Commerzbank’s commodities experts, who never lose sight of their clients’ requirements, whatever the market conditions.