European airline shares slump

Volcanic ash and Greek sovereign debt crisis blamed

Share
prices in airlines worldwide were down by 15 per cent in May compared to the
previous month.

The
decrease was attributed to the volcanic ash incident closing much of European
airspace on several occasions, according to a new report by the International
Air Traffic Association.

Another
factor was concern around the Greek sovereign debt crisis, said the report, which
also noted that investor concern was generally focused around Europe and that
in other parts of the world share performance was generally better.

European
share prices are down 20 per cent on a yearly basis and fell 25 per cent in May
alone, but by contrast so far this year shares in US Airlines are up by 9 per
cent. On a worldwide basis, May’s 15 per cent downturn notwithstanding, results
are still 50 per cent better than the lowest share price of early 2009.

“First
quarter financial results are always weak for seasonal reasons; airlines
typically make 80 per cent of their earnings in the second and third quarters,”
the report stated. “This year there were signs of a significant improvement in
all regions at the operating level, though Europe stands out as the weakest
performer – even before the impact of the ash plume.

“Asia-Pacific
airlines have improved most, but North American airlines have also moved from
loss into operating profit in the first quarter,” read the report.

Fuel
costs

Fuel
costs have dropped from nearly US$100 per barrel to around $80. This $20
fluctuation, said the report has been a consistent range for six months, and
there appeared to be no reason for prices to break out of the range in the
future as ample supply existed in inventories.

Demand
has rebounded for the year as a whole, despite the ash-created blip, and
capacity is being reintroduced slowly both for freight and passengers. As this
means aircraft are fuller in general, supply and demand dictates that average
fares will rise. Premium fares are rising by 10 per cent a year, and economy
fares by around 5 per cent. This is an indication of stronger market
conditions, said the report, which warned that despite the rise the average premium
fare was still 16 per cent lower than pre-recession levels. Cargo yields are up
15 per cent compared to 2009, with profitability back to pre-recession levels
in the United States.

WORLDairwaysAWASTORY

European airline shares have slumped, but US airlines are showing signs of a return to profitability.
Photo: File