Key points:

  • The initial airline financial releases for Q3 2018 indicate that the squeeze on profit margins from higher input costs persisted into the quarter, and point to a modest decline in free cash flow generation relative to Q3 2017 as well. 
  • Global airline share prices fell by 10.1% in October – the biggest monthly decline since June 2016. Investor concerns over the impact of rising costs on industry profitability mean that the global airline share price index has underperformed the wider equity market by some margin since start-2018. 
  • Oil and jet fuel prices both reached four-year highs during October, but have fallen back sharply since. At the time of writing, the Brent crude benchmark is around 20% lower than its early-October peak at around US$69/bbl. 
  • Global passenger yields have continued to edge higher in recent months (recall that our series covers base fares only). The premium cabin has provided a useful buffer for airline financial performance over the past year or so. 
  • The industry-wide passenger load factor remains elevated by historical standards, although passenger demand momentum weakened in Q3. Meanwhile, although the upward trend in freight demand remains moderate, cargo yields are still holding up. 

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