Growth in worldwide airline shares stabilizes

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FEB 10, 2015: Airline financial performance continues to improve, according to initial Q4 financial results. A sample of 12 airlines shows that the industry financial performance improved on the year ago period at the operating and net level. The increase was driven by North American airlines, where consolidation and cost cutting has resulted in a significant boost to profitability. The small sample of Asia Pacific airlines shows signs of improvement, but that could change as more results are reported – the region’s financial performance has been weak for some time, hampered by over-capacity and weakness in cargo revenues. Growth in worldwide airline shares stabilized in January, with a rise of just 1% compared to December. Nonetheless, airline shares outperformed the broader market, with the FTSE Global All Cap declining 2% in January compared to December. Airline shares had increased 40% in 2014, helped partly by falling energy prices in the latter months of the year. The current easing in the upward trend in airline shares is likely a result of the recent rally in crude oil prices. Airline share prices were subdued in all regions; except for Asia Pacific which was up 8%. This however, was driven by outstanding share price increases of a few airlines. Crude oil prices had fallen below $50/bbl in January, the lowest price seen for the past 6 years. Jet fuel prices had followed suit, dropping below $65/bbl. At the start of February, however, was a rally in crude oil prices, pushing them up to $58/bbl. US passenger yields appear to be breaking a trend of flat growth during Q2 and Q3 2014 with a rise toward the end of 2014. Underlying demand drivers remain positive, and there are no signs of downward pressure on yields from the decline in fuel related costs. Air freight volumes were able to sustain recent gains, decent a small contraction in December compared to November. The trend in air trend demand has been positive throughout H2 2014, despite recent concerns about the health of the global economy. Air freight demand has been driven by strong growth in Emerging Asia trade activity. After falling more than 50% by the end of 2014, crude oil and jet fuel prices stabilized in January. Initial Q4 financial results show improvements continuing to be driven by US carriers.  Passenger yields in the US show small year-end gains as fares in other regions fall further.  Air travel growth remained strong in December and air freight demand sustained recent gains, despite developing concerns over the health of the global economy.  Growth in available seats accelerated in December, but is still below the pace of growth in demand, which should support aircraft utilization rates. Passenger load factors trended improved in December, but air freight load factors lost ground on significant growth in capacity in Asia Pacific.
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