Global airline share prices fell by 1.5 per cent in March, partly unwinding recent gains. The global index is now unchanged from a year ago, while global equities overall are up 13 per cent over the same period.

According to an airlines financial monitor report released bu Iata,this month's decline was driven by US airline share prices which fell by 6.3 per cent and are 2.4 per cent lower than the start of the year. However, over a 12 month period, North American airline shares remain the clear standout performer, currently up a robust 7.1 per cent.

The Asia-Pacific and Europe airline indices gained 1.1 per cent and 3.1 per cent respectively in the month and have both increased at a double-digit rate since the start of 2016. Even so, both are still solidly lower compared with their levels of a year ago.

The latest Q4 financial results confirm a successive quarter of decline, although margins remain robust.

The EBIT margin in the sample of 62 airlines eased by one percentage point compared with a year ago, to 8.3 per cent. The decline in the margin for North American and European airlines outweighed the gains in other regions.

Free cash flow negative in Q4 2016, but broadly in line with Q4 2015

Of the 41 airlines reporting data, net cash flow from operations fell moderately – by 1pp, to a still robust 8.1 per cent of revenue – in Q4 2016 compared with Q4 2015. The report notes that Q4 is a seasonally weak period for the industry overall.

Capital expenditure was a little lower than a year ago (down 0.6pp to 14.2 per cent of revenue), leaving free cash flow almost unchanged from Q4 2015.

Latin America was the only region with a positive free cash flow outcome, mainly due to a significant drop in capex.

Fuel costs

After a very steady month in February, the benchmark Brent oil price fell sharply in the early part of March, mid-month, losing 5 per cent. The oil price has stabilised in the period since to end the month at US$52.40/bbl, around 6.4 per cent lower than its level at the end of February.

Notwithstanding this significant shift, and clear indications that a rebalancing in the oil market is underway, financial markets views over the medium to long term oil price outlook were little changed. A modest increase in oil prices, to around $60 is expected over the coming years.

The US$ pared recent losses, rising to around 130 on a trade-weighted basis, broadly unchanged from its level at the end of last year.

Yields and premium revenues

Last month a tentative uptick in the (seasonally adjusted) constant exchage rate measure of passenger yields was noted. This month, we saw another upward movement in this series – as well as the first upwards shift in the non-adjusted series since April last year.

Although too early to be certain, both of these developments give a little more confidence that passenger yields have bottomed and may start drifting higher, alongside the trend increase observed in some key input costs.

Even so, yields are still well down compared with their year-ago levels; down 9 per cent yoy in the headline measure and down 8 per cent in constant exchange rate terms.

Annual growth in premium passenger traffic lags its economy counterpart in seven of the top 10 premium markets. The exceptions are within Asia, Asia-Southwest Pacific and routes on the North and Mid-Pacific markets.

Premium O-D international journeys accounted for 5.2 per cent of the global total over last year as a whole, down from 5.6 per cent in 2015.

However, premium airfares have generally held up better than those in the economy cabin. Of the top 10 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.

Demand

The clear upward trends in both the passenger and freight volume data in H2 2016 and into the start of this year has waned. In seasonally adjusted terms, the level of RPKs was relatively unchanged in Feb while the level of FTKs fell.

Even so, the year-on-year growth rate comparison remains favourable; RPKs were up 4.8 per cent and FTKs 8.4 per cent year-on-year in February – around 8.6 per cent and 12.0 per cent respectively allowing for the extra day in February 2016.

As always at this time of year, the data are disrupted more than usual and it is too early to call an end to the strong upwards trend – we will be seeking a clearer signal from upcoming data.

Capacity

Developments in capacity over recent months bear a clear resemblance to the trends observed in demand.

In seasonally adjusted terms, the level of industry –wide available seat kilometres (ASKs) has paused its upward trend, and the level of available freight tonne kilometres (AFTKs) has slipped a little lower.

In growth terms, ASKs are a sturdy 6 per cent higher compared with their level of a year ago while AFTKs are up a more modest 2 per cent.

The number of available seats in the global airline fleet increased by 0.3 per cent month-on-month in February, and by 6.4 per cent compared with Feb 2016.

A total of 115 new aircraft were delivered in February – slightly ahead of those seen in February 2016 (112). The timing of holiday periods, particularly in China, can affect aircraft delivery schedules at the start of each year. Looking across January and February combined, 199 aircraft were delivered in the first two months of 2017, compared to 187 during the same period last year.

So far in 2017, the passenger load factor (PLF) has consolidated the gains made in late 2016. The PLF was 81.4 per cent in February, the fourth consecutive month at a historically high level.

The strong recovery in the freight load factor over the course of 2016 has been partly unwound in recent months, as the easing in demand has outweighed the reduction in capacity. The freight load factor has slipped back from a peak of 44.8 per cent in December to 44.0 per cent now. - TradeArabia News Service