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Worst May be Over for Airlines But Not a Full Recovery

October 29, 2009 By: George Dooley

The International Air Transport Association (IATA) reported international scheduled traffic results for September 2009, noting that passenger demand was essentially unchanged, increasing 0.3 percent compared to September 2008. Load factors for passenger and cargo have returned to pre-crisis levels of 77.1 percent and 50.8 percent respectively, IATA said, but warned that the apparent year-over-year improvement in demand is misleading.

“It is far too early to call this a recovery. The worst may be over in terms of the fall in demand, but yields continue to be a disaster and costs are rising. The airline industry remains firmly in the red with a fragile business environment,” said Giovanni Bisignani, IATA’s director general and CEO. “It is largely due to comparisons with an exceptionally weak September 2008 when traffic fell sharply (-2.9 percent for passenger and -7.7 percent for cargo). Seasonally adjusted statistics show a 0.3 percent drop in passenger volumes and a 1.4 percent fall in cargo volumes for September 2009 compared with August 2009. This reflects the pause seen in the economic recovery in the US and elsewhere in the past few months.

“Airlines continue to carefully manage capacity," Bisignani continued. "Seasonally adjusted passenger capacity has remained unchanged throughout the year while cargo capacity has edged up only slightly in the last two months. Load factors have risen to pre-crisis levels which should help to correct the precipitous fall in yields (-14 percent for economy, -18 percent for premium and –20 percent in cargo)."

Rising costs are also a concern. As airlines adjust capacity to match demand, aircraft are flying fewer hours (-3 percent for some aircraft types). This is raising non-fuel unit costs. At the same time, oil prices have risen to above $75 per barrel considerably higher than the $43 per barrel level at the start of the year.

Passenger demand is now 5 percent better than the low point reached in March 2009, but 6 percent below the peak recorded in early 2008. North American carriers saw demand largely unchanged (-2.4 percent in September compared to -2.5 percent in August). This flattening-out is related to a dip in consumer and business confidence.

IATA also criticized the United Kingdom’s Air Passenger Duty hike as the wrong response to the industry trauma. “The policies of some governments in light of the industry’s trauma are disappointing," Bisignani said. "The UK is a case in point of a government detached from reality. The global economic crisis makes cost reduction a matter of survival. What is the UK government doing? From 1 November it is increasing its Air Passenger Duty (APD) to collect GBP 2.5 billion annually from air travelers in the name of the environment. They have it all wrong. Taxes won’t reduce emissions. And making travel more expensive will not stimulate the economy.”


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