Geneva - Investors became more pessimistic about airlines’ financial performance, as fuel
prices rose sharply last month and traffic slowed.  Whereas the FTSE Global  AllCap rose 2% between July and August, airline share prices  fell 3%, according to the Bloomberg Worldwide Airlines Index, according to data published monday by the International Airline Transport Associayion (IATA).
Worst hit were  Asia/Pacific airlines’shares, which dropped  by 6% over the month.  On top of higher fuel prices, airlines in this region have faced weakening demand, which has limited their ability to recover costs.
Airline share prices fell 3% in August, underperforming the market, as investors view the impact of surging fuel prices as negative for airline financial performance during the second half of this year;
However, airline financial performance in Q2 was good, with operating profits held close to last year's level;
The second half looks more challenging with falling business confidence undermining passenger traffic growth, and the modest recovery of air freight markets running out of steam;
Jet fuel prices have surged back to earlier levels, after some respite during the second quarter. Crude oil prices were pushed higher by supply concerns and, possibly misplaced, optimism about economic growth;
Passenger yields have continued to improve so far this year, helped by still tight supply-demand conditions in a number of markets, but also driven higher by rising costs;
Airlines have responded to slower demand and higher fuel prices by slowing capacity expansion. This has stabilized load factors in both passenger and freight markets, although aircraft utilization may have fallen;
However, the sharp rise in fuel prices has probably increased break-even load factors. As a result downward pressure on airline profitability looks to have increased at the start of Q3.