Airlines Financial Monitor (December 2021 - January 2022))

Airlines Financial Monitor	December 2021- January 2022
Key points

• The latest financial results confirm that the pressure on the industry's operating profitability eased in Q3 2021. In the sample of 87 airlines, the operating loss - improved from 13.6% of revenues in Q2 to 2.6% in Q3.
• The Global airline share price index picked up in January 2022 amid investors' confidence that Omicron-related disruptions might have a smaller impact on the travel industry than previously expected. Nevertheless, the index remains 30% below pre- crisis levels.
• Jet fuel prices also rebounded from the Omicron-related dip in December and are currently at the highest level since late-2018. The elevated price is adding extra pressure on airlines' operating costs just at the time when travel demand is being hit by renewed travel restrictions.

Global airline share price index rebounds as fears over Omicron disruptions ease

Airline Share Prices

	Index	% change on
US$ indices (Jan 2014=100)	Jan 11th	vs Dec 10th vs Dec 2019 start of year
World airlines	94.7	7.0%	-30.0%	+5.8%
Asia Pacific airlines	76.4	16.2%	-30.5%	-0.5%
European airlines	81.4	-0.3%	-28.1%	+13.4%
North American airlines	119.6	7.8%	-28.7%	+6.4%
FTSE All World $	190.8	0.3%	+31.9%	-0.9%

Index (Jan 2014=100)

200
180
160
140
120
100
80
60
2014	2015	2016	2017	2018	2019	2020	2021	2022
		FTSE All World $		World airlines $

Source: Refinitiv Eikon Datastream

• The Global airline share price index started the year 2022 on a positive note, rising by 5.8% in the first half of January. The improvement was driven by investors' confidence that the new Omicron variant will lead to fewer hospitalizations than other strains and therefore might cause less disruption than previously expected.
• The global index hides some regional variation. Shares of European airlines rose the most significantly in January (13.4%), driven by renewed optimism about the industry's recovery. Meanwhile, airline stocks in Asia Pacific fell by 0.5%, reflecting concerns about the impact of a potential interest rate hike in the US.
• Taking a step back from the short-term developments, the bigger picture remains that airline stocks continue to trade about 30% below the pre-crisis level in all regions.

Industry-wide operating income improved in Q3 amid gradual air travel recovery

		Historical Profitability, full sample			• The latest financial results confirm that pressure on
15		Net profit, US$bn		EBIT margin, % of revenues		60%	airlines' operating profitability eased in Q3 thanks to a
10										gradual improvement in passenger traffic and a
5
0									0%	booming air cargo business. The industry-wide
-5
-10									-60%	operating loss was 2.6% of revenues over the July-
-15									September period, compared with a 13.6% loss in Q2.
-20
-25
-30									-120%	• The EBIT margin improved the most in Europe which
Q4 2019	Q1 2020	Q2 2020	Q3 2020	Q4 2020	Q1 2021	Q2 2021	Q3 2021
airlines benefitted from recovering air travel demand on
Source: IATA Economics using data from the Airline Analyst & Refinitiv Eikon
				intra-European routes. The European metric rose from
Airline Financial Results							-30% to 3% between Q2 and Q3. The improvement was
						smaller in North America where the Delta variant's
Number of				Q2 2021			Q3 2021	spread delayed the air travel recovery. Asia Pacific
airlines in	Regions		EBIT	Net post-tax	EBIT	Net post-tax	airlines showed the weakest operating result in
sample			margin1		profit2	margin1	profit2	aggregate (-20% of revenues), notably due to still very
33	North America	-7%		1,073	1%	2,941	restricted international travel to, from, and within the
28	Asia-Pacific		-15%		-1,866	-20%	-3,170
		region.
14	Europe		-30%		-4,634	3%	31
8	Latin America	-18%		-700	-8%	-1,938	• Looking ahead, some of the North American airlines
4	Others		-20%		-118	4%	-31
		improved their revenue forecast for Q4, stating that
87	Sample total		-13.6%		-6,245	-2.6%	-2,167
1% of revenues	2US$ million								travel demand remained robust during the holiday
							season despite Omicron disruptions. That said, costs
Sources: The Airline Analyst, IATA
										pressures are expected to rise as well.

1	IATA Economics:www.iata.org/economics

Economy class continues to recover faster than premium class at the global level

Global pax numbers by service class, %ch. versus the same month in 2019

20%		3.5
0%		3
-20%		2.5
-40%		2
	Economy class	1.5
-60%		1
-80%	Premium class	0.5
	(First & Business)
-100%		0

Ratio of premium vs. economy class

fares (global)

• Taking a closer look at different sources of passenger revenues, premium class passenger traffic continues to lag the recovery in the economy counterpart.
• Following the peak of the crisis in April 2020, premium was briefly recovering faster than economy. This can be partly explained by premium tickets becoming relatively less expensive than economy tickets (see the blue line in the right-hand chart). However, the price advantage has largely disappeared since July 2020 and the economy class recovery started to outperform. The performance gap between the two has been broadly unchanged since then, at 8-10 percentage points.

Source: IATA Economics using DDS

Jet fuel prices are on the rise again, putting upward pressure on airline costs

US$/bbl						Index (Jan 12 = 100, inverted)	• Jet fuel and Brent crude oil prices bounced back in
160									90
								January, with the former currently at the highest level
									95
140									since late-2018. As with airline stocks, the price
									recovery has been driven by rising optimism about the
									100
120									short-lived impact of the Omicron variant on global
	Jet fuel (LHS)						105
					Weaker US dollar	economic activity, including fuel demand.
100
								110	• The elevated jet fuel price adds pressure on airlines'
									115
80									operating costs just at the time when the revenue side is
60									120	being hit by Omicron-related flight cancellations. This
								125	might delay airlines' financial recovery from the crisis.
40					US dollar trade-			130	• In 2021 as a whole, jet fuel and Brent crude oil prices
	Brent crude oil (LHS)		weighted index (RHS)		surged by 68% and 63% respectively compared with
20						135
	2015	2016	2017	2018	2019	2020	2021	2020, as demand increased with easing lockdowns while
2014	2022	OPEC+ supply remained tight.

Sources: Platts, Refinitiv Eikon Datastream, as of January 11th

The industry burned cash in Q3 2021, but significanly less than in 2020

Airline Cash Flow1									• In the sample of 58 airlines, the industry-wide net
Number of				Q2 2021				Q3 2021		cashflow from operating activities was at -1% of
airlines in	Regions		Net cash	Capex	Free cash	Net cash	Capex	Free cash	revenues in Q3. This represents a significant
sample			flow2	flow	flow2	flow
									improvement versus Q3 2020 (around -50%). However,
16	North America	40%	11%	29%		-8%	6%	-14%
23	Asia-Pacific	5%	11%	-7%		2%	11%	-9%	it is a weaker outcome compored with Q2, partly due to
10	Europe	21%	14%	7%		9%	7%	2%	a negative impact of the Delta variant on ticket sales in
5	Latin America	-12%	7%	-19%		-2%	13%	-16%
										some markets.
4	Africa & Middle East	40%	13%	26%		7%	1%	6%
58	Sample total	26%	11%	15%		-1%	8%	-9%
1% of revenues		2From operating activities						• International bookings for future travel have been falling
Sources: The Airline Analyst, IATA									amid new travel restrictions. This will negatively impact
										some airlines' cashflow over the northern hemisphere
										winter.
										IATA Economics
										[e-mail]
										17 January 2022

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