North American carriers see smaller decline in EBIT margins, but fuel prices continue to cause concern globally.

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By Patrick Appleton

The squeezing of industry-wide airline profitability moderated in the final quarter of 2018, according to the latest International Air Transport Association (IATA) data.

IATA’s Airlines Financial Monitor said the ‘intense squeeze’ has lessened, with North American carriers experiencing much smaller declines in EBIT margin compared to Q2 and Q3.

In addition, movements of airline share prices were largely muted in February, an underperformance on the global equity index at industry-wide and regional level.

Base fare yields enjoyed a modest rise overall—excluding ancillaries and surcharges—although downward trends remain.

European carriers are doing well and they have significantly improved their balance sheets. Their financials [situations] are much better than they were

Airlines have recovered some of the rise in fuel and other costs in the less price-sensitive premium cabin yields, and Q1 guidance has overall yields sitting positively, at least in the US.

In an interview with CNN Money the day before the Financial Monitor was published, IATA Director General and CEO Alexandre de Juniac said that although comparison with US carriers was less favourable, worries over the health of Europe’s carriers are misplaced.

“They are making decent profit—not comparable to the US—but still European carriers are doing well and they have significantly improved their balance sheets. Their financials [situations] are much better than they were,” he told the broadcaster.

“The rising in fuel prices has been sharp in the first half of 2018, but it declined in the second half and this has impacted those carriers’ profit and loss. The traffic has been good in Europe, so I’m not worried about the region’s carriers—they are still strong.”

The Financial Monitor found both oil and jet fuel prices to have moved higher for a second consecutive month in February, averaging at $64 and $80 per barrel, respectively.

IATA said the oil price outlook remains uncertain due to sanctions in Venezuela and Iran, Organization of the Petroleum Exporting Countries (OPEC) supply cuts, and rising shale production in the US.

On the issue of global traffic, the IATA report has noted a positive start to 2019 for passenger demand, but freight growth continues to drop amid trade tensions and rising tariffs.

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