Initial airline financial results from Q2 2017 have been more robust than earlier in the year, and suggest that the squeeze on profit margins from higher costs and weak yields peaked in Q1, according to the International Air Transport Association (IATA).
Meanwhile, having trended downwards since 2013, the latest monthly data suggest that passenger yields have now started to trend upwards. Exchange rate-adjusted yields were broadly unchanged from their year-ago level in May.
The report shows that global airline share prices fell in July, driven by a decline in the North America index. Having seen airline shares outperform global equities over the past year, July’s decline appears, in part, to reflect profit taking by investors.
Brent crude oil prices rose back above $50/bbl in July, and ended the month nearly 10 per cent higher than they started it. Nonetheless, the futures market remains consistent with just a modest increase in prices over the medium term.
Passenger and freight demand growth posted their strongest first half of the year since 2005 and 2010 respectively. The seasonally-adjusted passenger load factor remained broadly stable close to an all-time high over the same period, while the freight load factor recovered to its highest level in more than two and a half years.
The pick-up in global trade is helping to support premium passenger demand, particularly to, from and within Asia Pacific. Premium revenues have risen in year-on-year terms on key routes to and from the region so far in 2017.
Global airline share prices fell by 3.2 per cent in July – the first monthly fall since March. Having risen by nearly 15 per cent over the previous three months, and having outperformed the global equity index over the past year, the monthly decline in airline shares is likely to reflect a degree of profit taking by investors.
The European and Asia Pacific share price indices both registered modest declines in July. There has been a wide spread in premium performance by market in 2017 so far.
Premium demand growth has been stronger than economy in a number of markets, particularly across the Pacific and Within Asia.
These ties in with the recent improvement in global trade conditions, which tends to correlate well with premium travel demand. On the other hand, premium demand has been relatively weaker in other cases, notably between Europe and the Middle East.
There has also been a spread in airfare performance too: premium airfares have held up better than those in the economy cabin in a number of cases – notably the North Atlantic – but have lagged in others (eg, Europe-Asia).