Investors expect airline industry improvement

Investors
are expecting the airline industry to improve, according to a new report that
says airline share prices worldwide have risen 7 per cent this year.

The
International Air Transport Association says first-quarter financial results
have improved to break-even or better in most regions aside from Europe.

Share
prices for May recovered from the April disruptions in Europe, when services
were significantly affected by a volcanic ash cloud from Iceland. The rebound
on a month-to-month comparison was 10 per cent, but this is still 6 per cent
down on the year and 11 per cent below pre-ash levels.

Share
prices in the United States have seen a 20 per cent rise during 2010, which
represents a 50 per cent recovery toward pre-decline share prices.

“Clearly
financial markets think airlines in different regions face very different
prospects this year. But worldwide airline share prices are 7 per cent up on
the year so far,” the report says. “Since the FTSE Global All-Cap index is 6
per cent down this indicates that investors are taking a positive view on
global airline financial prospects.”

Kerosene prices

Jet
kerosene prices have also been kept relatively low because of economists’ fears
of a ‘double dip’ recession, but an upward trend is still evident. While this
upward trend is not as steep as the sharp rises of early 2009, the fluctuations
continue.

“Whether
or not austerity budgets in Europe and fears of a double dip recession in the
developed economies stop or reverse the trend increase in fuel prices remains
to be seen,” said the association.

Kerosene
prices are back up above US$91 per barrel, a rise of $10 over April but close
to the prices of January 2010.

Demand
has increased despite the European disruptions. Air travel volumes for
passengers were 11.7 per cent higher in May 2010 compared to the same month
last year, and freight was 34.3 per cent higher. There are geographical
fluctuations in demand, and a business inventory boost to air freight figures
is coming to an end, noted analysts, who nonetheless flagged up considerable
momentum driving demand into the second half of 2010.

Capacity
has also increased. Passenger capacity during May 2010 was 4.8 per cent higher
than last year and freight increased by 12.3 per cent. Although these figures
are lower than the corresponding demand increases, the capacity rise since November
2009 has matched demand, and the transport association said it believed the
next six months would continue to see similar addition to capacity.

Load factor

Average
passenger load factor in May was high internationally compared to previous
years, with a seasonally-adjusted figure of 79 per cent reported.

“However,
aircraft utilization is not as high as seat utilization. Single-aisle aircraft
daily hours are still around 5 per cent down on pre-recession levels, while the
twin-aisle average is 7 to 8 per cent down.

“Freight
load factors – on a weight basis – have always been below passenger load
factors,” the association report said. “However, the direction and pace of
improvement looks to be better for the freight than the passenger business at
the moment. In May freight load factors rose further to around 56 per cent,
which is a considerable improvement on a year earlier.”

Average
fares are rising significantly, with premium fares up 16.4 per cent during
April compared to the same month in 2009. Economy fares have risen 7 per cent,
with higher load factors tightening supply and demand conditions.

The
association noted that while air travel and freight volumes are above
pre-recession levels, premium fares are still down by 15 per cent and economy
fares are down 10 per cent compared to the pre-recession peak.

Supply
and demand may be affected by 106 aircraft being taken out of storage during
May. Conversely, fewer retired aircraft were reported.

“So
far the threat of excess capacity has been kept at bay by the strength of the
post-recession rebound in demand,” the report said. “Increases in capacity have
been more than soaked up by increased air travel and freight. However [this]
shows that tight supply-demand conditions and improving yields may not
persist.”

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Airline share prices have increased.
Photo: File
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