Airline share prices fall as oil price rises (Updated)

Iata has reported that airline share prices fell 3% in August, underperforming the market as investors view the impact of surging fuel prices as negative for airlines’ financial performance during the second half of this year.

According to Iata’s Financial Health Monitor, jet fuel prices have surged back to earlier levels, after some respite during the second quarter. Iata said crude oil prices had been pushed higher by supply concerns and, possibly misplaced, optimism about economic growth.

Late last week, Mango ceo, Nico Bezuidenhout, issued a statement focusing on the current oil prices. He said that after a couple of months of slight relief fuel prices seemed to have resumed an upward trend.

Nico said that this, along with an unfavourable exchange rate, would likely see additional pressure on consumers and also the transportation industry’s bottom line.

“Airlines, as large consumers of fuel, are particularly impacted by high crude oil prices as it represents between 30% and 40% of operational input cost, dependent on the age of one’s fleet.”

Mango has adjusted its aggregate energy forecast to a price range between US$ 115-120 per barrel for the remainder of 2012.  “This, along with the added pressure on consumer disposable income and an already depressed market will squeeze aviation margins further,” said Nico.

“Mango is fortunate to be well positioned in terms of its uniform new-generation fleet of Boeing 737-800 aircraft and the airline has, during previous peak-oil pricing periods, mitigated it effectively by reducing fuel consumption through exercises such as removing excess weight from aircraft and introducing tighter operational efficiencies. Mango commits to continue working hard to keep operational costs as low as possible in order to maintain affordable fare levels.”

Meanwhile, Iata said that airline financial performance in the second quarter was good, with operating profits held close to last year's level. The second half, however, looks more challenging, with falling business confidence undermining passenger traffic growth, and the modest recovery of air freight markets running out of steam.

Passenger yields have continued to improve so far this year, helped by still tight supply-demand conditions in a number of markets, but also driven higher by rising costs.

Airlines have responded to slower demand and higher fuel prices by slowing capacity expansion.  This has stabilised load factors in both passenger and freight markets, although aircraft utilisation may have fallen.