.. As global airline share prices jumped by 7.5% in November
The International Air Transport Association, IATA’s latest financial results from Q3 2016 continue to indicate another solid quarter for industry profitability, although there are ongoing signs that momentum in the profitability cycle has weakened.
Global airline share prices jumped by 7.5percent in November, driven by a 16.4percent increase for North America carriers.
Brent crude oil prices recently reached a 17-month high, following the agreement by OPEC to restrict oil supplies.
The oil market is gradually re-balancing, with prices expected to trend upwards modestly in the coming years.
While passenger yields edged down in September, the intense downward pressure on yields has eased since earlier in 2016, in keeping with the change in the trend of oil prices seen over the period.
The premium segment continues to be an important buffer for airline financial performance. While premium traffic growth has lagged, premium airfares have held up better than those in economy on many routes so far this year.
Annual growth in passenger volumes remains broadly in line with its 10-year average.
Despite easing in October, the seasonally-adjusted load factor remained above the 80percent-mark
Air freight volumes have been boosted by a stronger-than-expected peak season in 2016, with traffic up more than 8percent year-on-year in October. The freight load factor has rebounded from its early-2016 low.
Financial indicators Global airline share prices jumped by 7.5percent in November, led by a surge in North America .
Global airline share prices jumped by 7.5percent in November – the biggest monthly increase since October 2015. This was led by carriers in North America, whose index surged by 16.4percent during the month, in part reflecting investor confidence that airlines will be able to halt the declines in unit revenues during 2017. By contrast, the Asia Pacific share index fell for the fourth month in a row (-0.6percent) and European airline shares increased by a more modest 2.2percent.
Global airline shares have lagged behind the wider global equity market so far this year. But with share prices now up by more than 30percent since their June low, the margin of under performance has narrowed in recent months. Industry-wide financial performance remains solid, but momentum has eased.
The latest results from Q3 2016 showed that industry-wide financial performance remains robust by historical standards. However, with operating conditions becoming more challenging, there are ongoing signs that momentum has weakened.
The EBIT margin in its sample of 67 airlines edged down to 15.6percent in Q3 2016, from 15.7percent in the same period in 2015. Profit margins dropped in North America, reflecting volatile fuel and labour costs, but remained solid nonetheless. Margins increased modestly in the other regions, with the pick-up in Asia Pacific helped by a good Q3 for air freight
Free cash flow edges up in Q3 2016, as capex falls by more than cash from operations
Net cash flow in IATA’s sample of 52 airlines eased to 10.5percent of revenues in Q3 2016, from 11.5percent in the same period last year. Net cash flow (ie, cash from operations) fell in N.America, Asia-Pac and Europe, but rose in our sample of Latin American carriers. Q Capital expenditure in our total sample eased slightly as a share of revenues in Q3 2016 compared to the same quarter in 2015. As a result, free cash flow in Q3 edged up to 1.0percent of revenues from 0.7percent a year ago. Free cash flow allows airlines to return cash to investors or to repair their balance sheets by paying down debt. Fuel costs OPEC agreement to cut oil supply has pushed crude prices to a 17-month high.
