Global Airline Shares Surge in May

Global airline share prices performed strongly in May, surging 7.8 percent to be up more than 20 percent over the past year. Gains were observed in all three regions, but European airline shares led the way again this month, with a 14.3 percent rise. The latest financial results for Q1 provide further evidence of the squeeze on airline profit margins, reflecting higher costs and weak yields. Industry-wide free cash flow also eased in Q1, compared with the outcome in Q1 2016. The fall in Brent crude prices in April extended into May and despite some recovery, the monthly average price fell almost 4 percent. Jet fuel prices behaved in a similar fashion and were down 5.6 percent for the month overall. The strong start to the year for passenger and freight demand growth has continued. The passenger load factor set a new record high in April while freight loads consolidated recent gains. Growth in premium passenger traffic has exceeded its economy counterpart in many key markets in the past year. Passengers yields remain 3-5 percent lower than a year ago amidst ongoing signs that the downward trend in yields of the past three years may have bottomed. The initial data available for Q1 2017 points to industry-wide free cash flow (FCF) easing to 2.4 percent of revenue, from 3.2 percent in Q1 2016. Q1 is a seasonally soft period for net cash flow, and the fall in FCF comes despite a lower capex spend, at 13.4 percent of revenue vs 17.1 percent a year ago. Bearing in mind the relatively small sample sizes at the regional level at this early stage, free cash flow was negative in both North America and the Asia Pacific in Q1 but actually increased solidly, to a robust 8.8 percent of revenue in Europe.