Oil spike prompts big October fall in airline shares

November 15, 2018
Airline investors
Photo: Wikicommons

Global airline investors suffered their biggest hit in more than two years during October as airline share prices fell by more than 10 percent as oil prices peaked at their highest levels in about four years.

The 10.1 percent fall was the biggest monthly decline since June 2016 and was led by stocks in Europe and North America.

Europe led the field with a 12.5 percent fall with North America not far behind with a drop of 11.5 percent.

The decline in the Asia-Pacific was more subdued at 8.2 percent, according to the International Air Transport Association’s latest financial monitor.

The falls mean the global share price index has now fallen 19.8 percent since the start of 2018 and is 12.4 percent lower than a year ago.

“The underperformance of airline shares relative to global equities over both periods reflects investor concerns about the impact of rising costs on airline financial performance,’’ IATA said.

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IATA said its initial airline financial data for the third quarter of 2018 showed that the squeeze on airline profit margins was continuing.

It looked at the earnings before interest and tax (EBIT) margin for 27 airlines and found it fell from 13.5 percent of revenues in the third quarter of 2018 compared to 16.5 percent a year ago.

Net profits were around $US1.2 billion lower.

The airline group said the October spike in crude oil and jet fuel prices were driven in part by concerns about the impact on global supply of US sanctions on Iran.

“But oil prices had fallen back sharply as the market reassessed near-term supply and demand,’’ it said.

“Indeed, oil markets posted their longest ever losing streak in early November, with the Brent crude benchmark price falling for 10 out of 11 trading sessions.

“At the time of writing, Brent is around 20 percent lower than its early-October peak at around $US69/bbl.

“To be clear, this is still around 8 percent higher than it stood a year ago.

“Nonetheless, there has been a big turnaround from the greater than 50 percent annual growth rates seen just a month ago.”