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Volcano Crisis, Strikes and Financial Woes Slow Air Growth

May 27, 2010 By: George Dooley

Airline passenger demand slumped by 2.4 percent in April as a result of massive flight cancellations centered in Europe during the six days in April following the eruptions of an Icelandic volcano, the International Air Transport Association (IATA) reports. The fall in traffic interrupted the industry’s recovery from the global financial crisis now being aggravated by strikes.

“The ash crisis knocked back the global recovery— impacting carriers in all regions,” said Giovanni Bisignani, IATA’s director general and CEO. “Last month, we were within 1 percent of pre-crisis traffic levels in 2008. In April, that was pushed back to 7 percent. European carriers bore the worst of the volcano’s impact. Their 11.7 percent drop in passenger traffic could not have come at a worse time. Europe’s slow recovery from the global financial crisis and its currency crisis are already a huge burden on the profitability of its airlines. The uncoordinated and excessive cancellations and unfairly onerous passenger care requirements rubbed salt into the European industry’s wounds.”

The April drop in demand in Europe can be attributed to both the flight cancellations (two-thirds of the total decline) and follow-on cancellations due to uncertainty of the availability of air travel (one-third). Early indications for May show a rebound in travel from the disrupted levels in April.

IATA notes that international scheduled cargo traffic, less impacted by the cancellations, saw the pace of its recovery slow to 25.2 percent growth in April (down from the 28.1 percent improvement recorded in March).

Looking ahead, Bisignani challenged Europe to reform its air traffic management. “The ash crisis was an embarrassing wake-up call for European governments,” he said. “We need leadership to deliver the Single European Sky, fair passenger rights legislation and continent-wide coordination.”

Bisignani also questioned the adverse impact of strikes on airline recovery. “The ash crisis was a shock,” he said. “While there is always a danger of the consequences of renewed volcanic eruptions, the impact on passenger confidence should be limited. Unfortunately, we are trading ash for two additional uncertainties - strikes and a growing currency crisis - both of which are also focused on Europe. The labor unrest plaguing Europe this year is unbelievable. It’s a tough competitive world. Airlines need to reduce costs to be competitive. Labor must realize that their pay checks are supported by the performance of the company. The middle of a very fragile recovery is not the time for striking. This mentality is divorced from reality.”

The scale of the ash crisis saw global load factors drop to 76.9 percent from the 78.0 percent recorded in March. Freight load factors also dipped to 55.3 percent from the 57.1 percent recorded in the previous month. While March traffic was within 1 percent of pre-crisis levels for both passenger and cargo, this slipped to 7 percent for passenger and 3 percent for cargo in April.

The ash crisis accentuated the asymmetrical nature of the economic rebound, IATA reports. European carriers posted an 11.7 percent demand drop in April (compared to a 6.2 percent increase in March). Uncertainty of service reliability in the aftermath of the ash cancellations and major unrest in Greece as a result of the currency crisis added to the weaker European demand during the month. Limited GDP growth expectations of 0.9 percent continue to dampen demand across the continent, IATA reports.

North American carriers posted a 1.9 percent decline in demand, primarily as a result of the impact of the ash crisis on North Atlantic routes. This is a major step backwards from the 7.8 percent growth recorded in March. This fall in demand was less than half the 4.5 percent cut in capacity, pushing load factors to 80.2 percent.



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