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Airline shares drop 4 percent in Sept

Q2 financial results show continued improvement, driven by US carriers but worldwide airline share prices fell 4% in September, reflecting investor concerns over weak economic data in some regions and the spread of the Ebola virus.

Jet fuel prices eased further in September as increased supply and a fragile demand outlook pushed crude oil prices down to levels not seen since mid-2012 US passenger yields remain up on a year ago, but weakness continues in other regions.

Air travel volumes continued to expand strongly and the trend in air freight volumes remains positive, supported by improving conditions in Asia and the US, including a rebound in trade volumes.

Growth in available seats slowed further in August to an annualised rate of 3.5 %, below expansion in demand. Passenger load factors rose on the back of strong expansion in volumes, but air freight load factors eroded some of the improvement in previous months with a 0.4% fall in August compared to July.

Global airline share prices fell 4% in September but are up 11% so far this year. Worldwide airline shares fell 4% in September compared to August. The fall reflects broader market concerns over latest economic data which shows signs of weakness in Europe and China.

Share prices were also impacted by investor concerns over the spread of the Ebola virus.

The latter is likely to have had a relatively stronger impact on airlines share prices. Carriers in all regions experienced a fall in share values, but airlines in North American and Asia experienced the biggest decline (4%).

Despite weakness this month, worldwide airline share prices are up 11% so far this year.

But Q2 financial results show continued improvement, driven by US carriers. Airlines earn a majority of revenue in Q2 and Q3, so the expectation is for solid results at this time of year.

The sample of 66 airlines shows that airlines improved financial performance compared to the corresponding period of the previous year, at the operating and net profits levels.

The improvement was driven by the performance of North American airlines. By contrast, a combination of weakness in cargo revenues and rising cost pressures for Chinese carriers due to depreciating local currency weighed on regional financial performance in the Asia Pacific.

Crude oil prices continue to fall, slipping 5% in September as supply conditions improve. Crude oil prices fell by 5% in September compared with August. Present price levels are down 16 % on the most recent (mid-year) peak.

Jet fuel prices have now fallen below $120 per bbl, sitting at $112 per bbl in September, a level not seen since mid-2012. Concerns over several geopolitical threats to crude oil supplies have been more than offset by increases in supply in other regions, including the US.

Moreover, there is still some pessimism about the demand outlook, with key regions like Europe showing signs of slowing economic growth. Passenger yields in the US still up on a year ago, but remain weak in other regions.

The trend in US passenger yields improved in the second quarter and although there has been no further increase over recent months, levels are still 2% higher compared to a year ago.

Underlying demand drivers remain positive and this trend is likely to continue. By contrast, the weak trend in global fares in US$ is largely continuing. The trend in global fares reflects weakness in Asia and exchange rate distortions.

The fare data excludes fuel surcharges and ancillary revenues, which provide some relief to the decline in core fare yields.

Air freight volumes increased in August compared to July.

Gains in world trade and business activity paused in Q1, but the latest data show improvement in some regions. Recent air freight improvements have been driven by Asia Pacific carriers, where trade volumes have fully rebounded after declines throughout Q1.

Air passenger volumes increased strongly in August, with all regions recording expansion in volumes.

Recent deterioration in the Eurozone economy, however, presents a down-side risk to regional air travel growth.The rise in passenger capacity came mostly through a strong increase inASKs on international markets in August compared to July.

However, growth in demand was stronger and resulted in a rise in load factors over the month.

 

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