Consultancy firm IBA has warned of higher market risk after 81 of the more than 120 airlines that the company monitors for financial performance reported lower EBITDAR margins for 2018.

“In summary, the airline industry appears to be more volatile,” IBA said in its six-monthly Operator Score Index update, released Aug. 15.

The IBA index gives airlines credit scores, based on their financial health, operational efficiency, access to capital, jurisdictional risk and IBA’s own intelligence as an aircraft lessor.

In the latest update, IBA downgraded 28 airlines and upgraded eight. Europe & CIS and the Asia-Pacific regions each saw 10 downgrades. There were three Asia-Pacific upgrades and two Europe & CIS upgrades.

IBA said the heavier weighting towards downgrades reflects higher numbers of loss-making carriers and recent airline failures, including two exits from the index.

“Some of the notable downward movers include Air Astana, Avianca Holdings, NOK, Transat A.T and Aeroflot, which all saw significant decreases in net/comprehensive profits,” IBA said.

However, only five of the monitored airlines reported lower revenues, bucking a generally positive trend. Jazeera Airways, Enter Air and each posted over 40% revenue growth.

But these higher revenues did not translate into higher earnings, with 81 airlines posting lower EBITDAR margins, with an average decrease of 4% year-on-year, ranging to 12% at the extreme.

“Rising fuel prices were the main driver of the reduction in earnings,” IBA said.

At net level, 40 airlines registered a loss compared with 30 airlines in the previous update. “Some of the biggest loss-making airlines were Etihad, Virgin Australia, Hainan Airlines Holding, the LATAM Group, Korean Air Lines, Thai Airways, GOL, Norwegian, Asiana, and the Thomas Cook Group, with net income margins varying from -2% to -22%,” IBA said.

Debt levels are also increasing “across the board,” while 61 airlines also saw a 6% year-on-year reduction in cash as a percentage of total liabilities.

“A number of airline M&As, cash flow issues, and rising input costs, particularly fuel, will exacerbate levels of risk going forward. Of course, each airline/airline group will be slightly different,” IBA said.

Meanwhile, a Bloomberg Intelligence report released Aug. 15 said North American airlines were benefitting from lower fuel prices and better fares from the Boeing MAX grounding. “Balance sheets should improve, though stable credit metrics and sufficient cash balances limit airlines' desire to retain cash or pay down debt,” the report said.

IATA also released its financial monitor for June–July 2019 Aug. 16, highlighting regional variations.

“Second-quarter financial performance improved in the North American region, which is dominating the relatively small sample of airlines that have reported so far. Profit margins are still falling in Europe and, outside India, in much of the Asia Pacific region,” IATA said.

Global passenger yields are showing some signs of stabilizing, IATA said, while fuel-cost pressures have diminished.

Victoria Moores