Airline share price fortunes in 2016 varied wildly as European and Asian carrier stocks fell away while those of their counterparts in the Americas grew to the extent that even Warren Buffett ended the year advocating investments in US carriers.
While airline management and strategy can influence share-price performance, it can do little to outweigh major shocks. And 2016 had its share of those. The year began with heavy falls in China which prompted short-lived panic across global markets; was hit dramatically at the midway point by the UK's shock referendum vote to leave the European Union in June; and ended with markets reacting to the similarly surprising Donald Trump victory in the US presidential election.
But the end result has been very different by region, as the share price performance of airlines tracked as part of FlightGlobal's monthly Airline Market Outlook shows.
Asia-Pacific carriers started the year on the wrong foot with the Chinese market falls – to which they were heavily exposed. By mid-year, much of these losses were clawed back, only for many to tail off in the final quarter of the year. This in part reflected concerns that airline costs were creeping up – notably from currency and fuel impacts – while yields are under pressure with increased competition in the region.
This contributed to double-digit falls across the major Chinese carriers – the share price down around 30% at China Southern. Likewise the stock price fell in the second half at under-pressure stalwart network carriers Cathay Pacific and Singapore Airlines, contributing in double-digit falls for 2016 in both cases.
The major exception to Asian carrier stocks tracked by FlightGlobal was AirAsia – which jumped 78% in 2016. This reflected the turnaround in the group's financial fortunes during the year, enabling its share price to regain the ground lost in 2015. But its share price too dipped from mid-year highs amid the deteriorating environment for airlines.
European carriers' stuttering share price performance in the first half was turned into a fully fledged overnight plunge by the Brexit result. While some carriers clawed back these losses, many did not. And the extremely mixed financial performance and outlook among Europe's carriers is illustrated by a range of market reactions in the share price over the second half.
Low-cost carrier EasyJet was among the hardest-hit over the period, as challenging market conditions on yields and disruption compounded the impact of Brexit, ending a six-year run of consecutive profit improvement. While the UK stock market – boosted by weak sterling – ended the year on a record high, EasyJet's share price has failed to make the ground lost in the immediate aftermath of the Brexit vote.
By contrast another budget-sector carrier, Ryanair, recovered from the mid-year fall over the second half of the year – its share price ending 2016 just 2% down across the year.
Shares in Europe's big-three network carrier groups all suffered in 2016. IAG has still to fully recover from the heavy post-Brexit falls, with its share price down more than a quarter for the year. Air France-KLM's share price was down by a similar margin, having slid for much of the year.
Shares in Lufthansa followed a downward trajectory comparable to Air France-KLM's, but have rallied of late – perhaps as the German carrier's continued labour challenges do at least point to a determination from management to address cost issues.
On the other side of the Atlantic, in the USA, the share price had for most airlines already made up for falls seen in the first half – driven in part by concerns on overcapacity and continued yield decline – before an end-of-year spike amid hopes that a Trump presidency will deliver greater fiscal freedom.
US airline stocks performed particularly well in the final quarter as optimism grew that a return to unit revenue growth was finally close at hand. Share prices jumped at United Airlines and American Airlines, outpacing the small rise at Delta. That, though, in part reflects recovering ground lost in 2015 – whereas Delta, by contrast, was the only one of the three to see its share price rise in 2015.
Notably, the strength of the US sector prompted Buffett to reveal in November that his investment firm Berkshire Hathaway had purchased stock in all three US majors, taking various stakes. He has since invested in Southwest Airlines stock too. Buffett had famously stayed away from investing in airlines after writing down a $358 million investment in USAir Group in 1989.
The improving economic picture in Latin America – and Brazil in particular – contributed to a strong pick-up in the share price at Gol and LATAM after heavy falls in 2015.
Source: Cirium Dashboard
