Airline stocks ticked down in October amidst concerns about the impact of rising jet fuel prices
Airline stocks ticked down in October amidst concerns about the impact of rising jet fuel prices on airlines’ operating costs.
The fall was broad-based across all regions, and was the most significant in North America, where stocks are down by 7.2% as compared to September.
The global airline share price index has been trending sideways at well below pre-pandemic levels throughout most of 2021 amidst uncertainty about pandemic outbreaks and their impact on the air travel recovery.
Indeed, the metric rose by only 1.8% year-to-date, compared with a 15.2% increase in wider equity markets over the same period. Amongst the regions, European airlines have on average the weakest share price performance (down nearly 7% YTD).
The initial Q3 2021 results show that financial losses of airlines at the aggregated level diminished compared with Q2 2021, with some carriers reporting their first profitable quarter since the crisis started. In the sample of 27 airlines, the industry-wide EBIT margin improved to -2% of revenues in Q3.
The improvement has been driven by passenger travel recovery on some domestic and short-haul routes where travel restrictions were lifted during the traditionally busy Q3.
North American airlines were amongst the best performers, benefitting from the traffic in the US domestic market despite a negative impact from COVID outbreaks in Aug-Sept period.
The US airlines’ bottom line was also boosted by government payroll-support program. European carriers also recorded a robust recovery on the back of rising intraEuropan traffic.
However, a sharp increase in jet fuel price has been putting an upward pressure on airlines’ operating costs and represents a risk to a further recovery in the industry’s profitability during Q4. Additional challenge comes from rising infrastructure costs and staff shortages (in the US).
The initial financial results indicate that passenger revenues declined by 34% in Q3 2021 compared with the pre-crisis Q3 2019, while cargo revenues rose by 65% over the same period amidst robust cargo demand. Total airline revenues went down by ~30% – a robust improvement on the 46% decline in Q2.
The fall in operating costs in our airline sample was lower than the fall in revenues, at -18% (vs. Q3 2019). The rising fuel prices increased pressure on fuel costs (down 27% in Q3 2021 vs -45% in Q2 2021).
However, other variable costs have also been rapidly returning with the traffic restart, reinforcing the need for all partners in the air transport supply chain to carefully manage costs in a still weak revenue environment.