Airline Profitability May Have Peaked, IATA Reports.

IATA has released its report on global airline performance during the third quarter of this year stating that profitability cycle may have peaked.

IATA states, in brief:

• The initial financial results from Q3 2016 point to another solid quarter for industry profitability and cash flow, although they add to earlier signs that the industry profitability cycle may have peaked;
• Global airline share prices rose by 3.6% in October, but have underperformed the wider equity market this year;
• Brent crude oil prices reached a 15-month high during October, but have fallen back so far in November. The oil market is slowly rebalancing, and prices are expected to trend upwards gradually over the coming years;
• There have been further signs that the intense downward pressure on passenger yields eased during the middle part of 2016, in keeping with the change in the trend of oil prices;
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• The premium segment remains an important buffer for airline financial performance. Premium airfares have held up better than those in economy on many of the most important premium routes so far this year;
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• Developments in passenger traffic continue to reflect the net influence of a number of factors. Traffic was resilient in September, and the seasonally-adjusted industry-wide load factor increased to a nine-month high;
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• The upward trend in air freight volumes has accelerated in recent months, helped in part by one-off factors. Nonetheless, the load factor remains at a historically low level, and wider weakness of world trade is still a concern.

EU Cashflow

A review of the figures presented by IATA shows that the three EU airlines sampled had the lowest free cashflow as a percentage of revenue, and highest capital expenditures, when compared to their global counterparts during Q3 2016.

The figures reflect a significant reversal over last year, with a nearly seven percentage point decrease in free cash flow, which stems from an almost four percentage point drop in net cash flow and an increase in capital expenditure of over three percentage points.

“Regional differences will become clearer as more airline results become available in the coming weeks and months,”IATA states.