Published March 3, 2009

US carriers lead 7% drop in airline stocks last month

SIA counter down 7.8%; Iata revises up 2008 industry loss to US$8b from US$5b

By VEN SREENIVASAN

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AIRLINE stocks continue to dive amid the slide in equity markets. The counters fell 7 per cent in February with US carriers bearing the brunt, the Bloomberg airline index shows.

Fewer fliers and planes: Passenger travel has been falling at a slower rate but remains weak at 5.6 per cent down from a year ago, says Iata. Airlines grounded 73 older planes and retired another 26 in January

The market value of US airlines collapsed 28 per cent during the month and is down a massive 42 per cent so far this year, suggesting financial markets have significantly downgraded their view of US aviation sector amid the deepening slowdown.

Airline stocks in Europe and Asia fared relatively better, sliding an average of 3 per cent and 2 per cent respectively in February. Still, European airline stock prices are now 20 per cent down from the start to the year.

Among leading Asia-Pacific carriers, Singapore Airlines' stock sank 7.8 per cent in February, while Qantas crashed 31.9 per cent and Cathay Pacific slipped 7.4 per cent.

In its latest airline financial health monitor, the International Air Transport Association (Iata) says airline losses in the fourth quarter of 2008 were bigger than expected at US$4 billion because of recession and fuel-hedging losses.

As a result the organisation, which represents over 90 per cent of all network carriers, has upgraded its full-year industry loss to US$8 billion for 2008, from an earlier estimate of US$5 billion.

'Oil prices appear to have reached a floor around US$40 a barrel but the crack spread has now narrowed,' Iata notes. 'Unfortunately, many airlines have part of their fuel bill partly locked, through hedging, into higher prices. Hedging losses were a large part of the larger-than-expected reported Q4 losses.'

Air-freight volume remained extremely low in January, down 23.2 per cent year on year, after a precipitous collapse in November and December.

'Manufacturers are struggling to reduce a very large end-year build-up of inventory relative to sales, which has cut shipments and air freight,' Iata observes. 'There are early signs of this process levelling out, but as yet, no recovery is in sight.'

Passenger travel has been falling at a slower rate but remains weak at 5.6 per cent down from a year ago.

Airlines parked 73 older planes and retired 26 more in January, raising overall fuel efficiency and cutting capacity. But this 2 per cent cut in capacity was outpaced by the fall in traffic, resulting in load factors falling three percentage points - and profitability deteriorating further.

Capacity cuts ranged from a 4.3 per cent by Asia-Pacific airlines to an increase of 10.8 per cent in the Middle East.

In the past five months, 632 older aircraft - 2-3 per cent of the world fleet - have been taken out of service, replaced by 441 new aircraft. Fuel efficiency for the fleet could have been improved by 0.5 per cent, Iata says.