Global Airlines Financial Monitor [June]

Key Points:
· The latest financial results continue to point to a robust Q1 2016 for industry profitability. Cash flow metrics from the first quarter also improved relative to the same period a year ago, despite higher capital investment;
· Nonetheless, uncertainty following the ‘Brexit’ vote has taken a heavy toll on airline shares, particularly in Europe;
· Brent crude oil ended June slightly below $50/bbl and broadly unchanged from where it started the month. The market still expects prices to remain reasonably low for the foreseeable future (<$60/bbl for the next three years);
· Yields have fallen by around 6% year-on-year in constant exchange rate terms in 2016 so far. But with oil prices up more than 80% since January, the downward influence on yields from lower oil prices is likely to wane;
· Premium airfares have held up better than their economy counterparts on many of the key premium routes so far this year, and the segment continues to offer an important buffer for overall airline financial performance;
· The global air passenger market has made a robust start to 2016 this year to date, although demand conditions have eased in recent months and annual growth in traffic remained unchanged at a 16-month low of 4.6% in May;
· With the wider global trade backdrop remaining weak, annual growth in freight volumes dropped to 0.9% in May. Rising freight capacity and low freight loads are keeping intense pressure on cargo yields and revenues.