The International Air Transport Association (IATA) has published its November Airlines Financial Monitor, which states that the ongoing releases of airline financial data for Q3 2018 continue to “point to a squeeze on profit margins from higher input costs relative to a year ago, as well as a decline in free cash flow generation over the period too”.
IATA notes that global airline share prices rebounded by 10.0% in November, which broadly reversed the similar-sized fall seen in the previous month. However, concerns over the impact of rising costs on industry profitability have seen the global airline share price index underperform the wider equity market since the start of 2018.
Oil and jet fuel prices fell sharply in November as concerns turned towards the oil market being oversupplied. At the time of writing, the Brent crude benchmark is around US$60/bbl – 30% below its early-October peak.
The premium cabin has provided a useful buffer for airline financial performance over the past year or so, but there have been renewed signs of downward pressure on economy yields (recall that our series cover base fares only).
The upward trend in passenger demand has moderated over the past six months or so, although the industry-wide passenger load factor remains elevated by historical standards. Meanwhile, despite downward pressure on the industry-wide freight load factor, cargo yields are still rising modestly.