Global airline share prices rose by 2.5 per cent in April, taking them to their highest level since October 2015. The global airline index has now risen by 10 per cent over the last year, just below the 13 per cent increase seen in global equities over the same period.

According to an airlines financial monitor report released by the International Air Transport Association (Iata), the increase in airline share prices was driven by European airline share prices, which jumped by 10.4 per cent following signs of an improved trading environment in the region. European airline shares are now unchanged from levels seen a year ago.

The Asia-Pacific airline index rose by a modest 0.4 per cent in April, but have gained 12.7 per cent since the star of the year, helped by the recent strength of air freight. By contrast, North American airlines shares have fallen by 1.7 per cent since the start of 2017, but remain more than 23 per cent higher than where they stood last year.

The initial financial results from Q1 2017 highlight the extent that airline profit margins were squeezed by higher costs and weak yields at the start of this year.

The EBIT margin in our small sample of 24 airlines halved to 4.8 per cent, from 9.6 per cent in Q1 2016. EBIT margins were lower in year-on-year terms in all regions except Europe (where Q1 is the seasonal low-point for profitability).

Upward pressure on airline costs mean that the operating environment will remain challenging. But with yields looking to have stabilised, the squeeze on margins may ease over the period ahead.

Negative free cash

At the time of writing there were not enough announcements to focus on developments in Q1.

Of the 49 airlines reporting data in Q4 2016, net cash flow from operations fell moderately in year-on-year terms – by 1.3 percentage points, to a still robust 8.4 per cent of revenue

Fuel costs

Oil prices fell sharply during the second half of April, driven by strong global supply conditions. While the monthly average price of Brent crude was slightly higher than that in March, the price fell by nearly 10 per cent between the middle and the end of the month. The declines extended into early-May, with Brent falling below $50/bbl in early-May for the first time since late-November.

Signs that Opec will extend their agreement to limit oil supply beyond the initial six-month period (which is due to finish at end-June) have provided some support for oil prices since. But the bigger picture is that financial markets are still only expecting a modest increase in oil prices from current levels over the medium to long term.

Yields and premium revenues

Passenger yields remain well down compared to their year-ago levels; down around 8 per cent year-onyear in both the headline measure and when measured in constant exchange rate terms.

However, the most recent data provide a little more confidence that the downward trend in seasonally adjusted yields is bottoming out, and that yields may start trending higher, alongside the trend increase observed in some key input costs.

This is consitent with the results from our latest Business Confidence Index, which was conducted in early-April. Around 45 per cent of respondents reported that they expect passenger yields to increase over the year ahead, up from 23 per cent last time. Moreover, the respondents expect passenger yields to keep pace with costs over the next 12 months.

Premium O-D int’l journeys accounted for 5.4 per cent of the global total over the first two months of 2017, compared to 5.6% in the same period of 2016.

Annual growth in premium passenger traffic has lagged behind its economy counterpart in most of the main premium markets so far this year, although premium travel is growing robustly within Asia and across the Pacific.

Premium airfares have generally held up better than those in economy. Of the main premium markets, in only two (Europe-Asia and North and Mid Pacific) markets did the premium fares underperform economy. This highlights the importance of premium cabin revenues to support overall financial performance: indeed, premium traffic accounted for 26.5 per cent of passenger revenues in Jan-Feb 2017, up from 26.2 per cent a year ago.

Demand

Both passenger and freight posted strong yearon-year growth in traffic in Q1 2017: industry RPKs were 7.0 per cent higher than in the same period a year ago (around 8.1% adjusting for the fact that there was one fewer day in February 2017 than there was the previous year). Meanwhile, FTKs grew by 9.7 per cent year-on-year in Q1 2017 – closer to 11 per cent allowing for the effect of the leap year.

Capacity

Industry-wide available seat kilometres increased by 6.1 per cent year-on-year in March. Airlines have slowed the pace of capacity growth over the recent past: ASKs have trended upwards at an annualized rate of 5.2 per cent over the past six months, compared to 7.4 per cent for demand.

Meanwhile, available freight tonne kilometres grew by 4.2 per cent year-on-year in March. Adjusting for the leap year effect, we estimate that AFTKs have grown by around 3.7 per cent in annual terms in 2017 to date – around one-third of the pace of demand.

The number of available seats in the global airline fleet increased by 0.8% month-on-month in March, and by 6.5 per cent compared year-on-year.

A total of 153 new aircraft were delivered in March – the same as were delivered in March 2016. The timing of holiday periods, particularly in China, can affect aircraft delivery schedules at the start of each year.

Looking across the first quarter as a whole, 352 aircraft were delivered in the first three months of 2017, compared to 340 during the same period last year.

The passenger load factor has held on to the gains made in late-2016, and remains steady close to a seasonally-adjusted record high.

The industry-wide freight load factor has risen by more than three percentage points over the past year and, in seasonally adjusted terms, is currently back to levels last seen in early-2015. - TradeArabia News Service