Key points:
- The latest financial data from the industry show that airline profitability was strengthening in Q1 2018 compared to the same quarter a year ago, while cash flow generation in the industry also picked up.
- That said, global airline share prices fell for the fifth consecutive month in June, which indicates that forward-looking investors expect more difficult conditions ahead than was the case in Q1. The global airline share price index has now fallen by 14.3% since the start of the year, compared to a 1.7% decline in the global equity index.
- Oil prices have trended upwards since early-2017 and are a key reason why airline shares are underperforming the market. The price of jet fuel is currently sitting just above US$90/bbl – around 55% higher than it was a year ago.
- The global average passenger yield has tracked broadly sideways since early-2017. However, yields in the less price-sensitive premium-class cabin have trended upwards over much of the past year, which reflects the fact that airlines have been able to pass on higher input costs to a greater extent than in the economy cabin.
- Passenger demand has continued to trend upwards and freight volumes have picked up in the past few months too. A rising passenger load factor is helping to boost unit revenues in the face of the sideways trend in yields.
