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Global View: Passenger Traffic Hits a Speed Bump in JuneJuly 28, 2011 By: George Dooley Travel Agent
Airline traffic results for June showed a slight softening in demand for both air travel and freight markets, the International Air Transport Association (IATA) reports. Compared to June 2010, passenger demand was up 4.4 percent while freight demand was 3 percent lower.
The trend for passenger travel remains upwards, but at a slower pace than the post-recession rebound, which was at an annual rate close to 10 percent, IATA says. The slowdown reflects slower economic growth and increased costs resulting from higher jet fuel prices, as well as increased taxation in some countries.
Freight volumes have not grown since July-August 2010. May 2010 was the post-recession re-stocking peak, compared to which the June 2011 international freight market was 6% smaller. While world trade is expanding at 7 percent a year, the benefit is being realized more by modes of transport other than air, IATA says.
“Compared to May both passenger and cargo markets contracted by about 1%. For passenger traffic, this is a speed-bump in a gradual post recession improvement. But air cargo continues in the doldrums at 6% below the post-recession peak,” said Tony Tyler, IATA’s Director General and CEO.
“The industry is living in several different realities. With high load factors and an upward growth trend, the passenger business is doing better than cargo. But regional growth patterns are shifting. The Middle East carriers have moderated to a single digit expansion and tighter economic conditions have slowed China’s growth. Meanwhile, Latin America is leading the industry expansion followed by Europe which is growing strongly despite its currency crisis. And North America is underperforming the industry on growth but leading on load factors,” said Tyler.
“What is clear is that the rising jet fuel price is putting pressure on the bottom line. The average price for the second quarter was $133/barrel, which is an increase of $10 over the first quarter. With an expected profit margin of only 0.7 percent, the ability of airlines to recoup this cost is critical to staying in the black for the year. Slower economic growth makes these challenges all the more difficult. It is certainly not the time to burden the industry with increases in other costs, including taxation,” said Tyler.
IATA is forecasting an industry profit of $4 billion for 2011, which is a 78 percent fall from the $18 billion that the airlines made in 2010. On anticipated revenues of $598 billion, this translates to a net industry margin of 0.7 percent. Based on a forecast average oil price of $110/barrel for 2011 and a jet fuel price of $126.5/barrel, the industry fuel bill is expected to be $176 billion, which accounts for 30% of costs.
Highlights of IATA's report:
• Overall demand for international passenger services grew by 5.9 percent and capacity expanded by 7.2 percent. While load factors were maintained at an impressive 79.0 percent, this is 0.9 percentage points below the June 2010 performance.
• Latin American carriers experienced the highest growth levels with a 14.3 percent increase over June 2010. Disruptions following Chile’s Puyehue Volcano eruption contributed to a drop from the 21.3 percent increase recorded in May. Load factors for the region rose to 77.3 percent (from 73.8% in June 2010) which will help the region’s carriers deal with higher fuel costs.
• European carriers are showing the second most robust expansion of demand with 8.9 percent growth compared to June 2010. The weak euro is supporting a strong inbound travel trend and business travel associated with growing exports. Load factors for the region stood at 80.6 percent, the second highest among regions.
• Middle East carriers recorded a 6.4 percent increase in demand against a capacity increase of 8.4 percent for a load factor of 74.8 percent. For the second consecutive month both demand and capacity increases by Middle East carriers have fallen behind those of Europe and Latin America.
• North American carriers saw May’s 4.5 percent demand growth fall to 2.4 percent. With tight capacity discipline, airlines there delivered a load factor of 85.3 percent--the highest among the regions.
• Asia Pacific carriers saw demand grow by 3.3 percent. Demand growth was held at about half the global average due to tightening economic policies and the effects of the earthquake and tsunami in Japan. The weakness in Japan’s international market has knocked 0.5 percent percentage points off the region’s growth. Asia Pacific carriers recorded a load factor of 76.9 percent which is 2.1 percentage points below the global average.
• African carriers continue to experience the weakest demand with a 2.9 percent fall compared to June 2010 levels. The continued political unrest in North Africa is the primary driver of the poor performance which is also reflected in load factors which stood at 64.7 percent, which is 3.9 percentage points below the previous year’s levels.
• Demand in the Japanese domestic market continues to suffer from the effects of March’s tsunami and earthquake, recording a 24.6 percent fall compared to the previous year’s performance. This is a slow improvement on the -27.8 percent recorded for May.
• Brazil led domestic growth with a 15.1percent demand expansion over the previous year, propelled by strong growth in household incomes. Brazil was followed by India at 14.0 percent. While China’s 5.0 percent growth is also impressive, it is a step change from the 14.6 percent recorded in 2010 and the 10.4 percent recorded in May. China, the world’s second largest domestic market, still has enormous potential. As with China’s international markets, the slowdown reflects a squeeze on consumer spending power by tighter economic policies.
• The US, which represents more than 50 percent of domestic travel, posted 1.3 percent growth in June.