International scheduled traffic for July showed continued strengthening of demand for both passenger and cargo traffic, the International Air Transport Association (IATA) reports. Compared to July 2009, international passenger demand was up 9.2 percent while international scheduled freight traffic showed a 22.7 percent improvement. After adjusting for seasonality, the improvement in demand was faster month-to-month in July than it was in June.
“The recovery in demand has been faster than anticipated. But, as we look towards the end of the year, the pace of the recovery will likely slow,” said Giovanni Bisignani, IATA’s director general and CEO, warning of the need for airline profitability. “The jobless economic recovery is keeping consumer confidence fragile, particularly in North America and Europe. This is affecting leisure markets and cargo traffic. Following the boost of cargo demand from inventory re-stocking, further growth will be largely determined by consumer spending which remains weak.”
IATA noted that these year-on-year comparisons for July were less than the June growth data showing 11.6 percent and 26.6 percent increases for passenger and cargo traffic, respectively. The apparent slowdown was entirely due to the fact that by July 2009 traffic was already starting to recover, IATA says
“It is clear that the recovery has entered a slower phase,” IATA says. “During the second half of 2009, demand was rebounding at an annualized rate of 12 percent for passenger and 28 percent for cargo. In the year to July, the annualized growth rates had dropped to 8 percent for passenger and 17 percent for air freight. However, this is still considerably above the industry’s traditional 6 percent growth trend.”
July global passenger traffic was 3 precent higher than the pre-crisis levels of early 2008. North American carriers recorded a 7.9 percent improvement in passenger demand in July over the same month in the previous year. Over the first seven months of the year, the region’s carriers recorded a 6.3 percent increase, but kept capacity expansion to just 1.0 percent, raising load factors to 82 percent and producing strong gains in unit revenues that will support the region’s return to profitability this year.
“Improving demand is an important component of the recovery,” said Bisignani. “But it must translate to the bottom line. The anticipated 2010 profit of $2.5 billion is only a 0.5 percent return on revenues. Hence, the financial situation of the industry remains fragile. We must go beyond recovery to secure sustainable profitability at levels exceeding the 7-8 percent cost of capital. For this, we need a change in the industry’s structure. Costs are a critical element. This year has been marked by strikes and threats of strikes at airlines, and with airports and air navigation service providers. Avoiding strikes at BAA and AENA, Spain’s provider of air navigation services, were major accomplishments. We are all in this together—including all our partners in the value chain and those who work in this financially fragile industry. It is not the time for strikes. We must work together to secure our future by finding solutions to reduce costs.”
Bisignani also noted the need for a regulatory structure that facilitates consolidation across political borders. “The crisis has seen consolidation in Europe and the US. This month’s merger announcement by LAN and TAM brings Latin America into the picture,” he said. “And trans-national brands are serving customers effectively in many parts of the world. But we remain an industry of over a thousand players with only very limited opportunities to consolidate as a result of the antiquated bilateral system’s restrictions on ownership. The business realities of the industry are changing. It is critical that governments find a modern regulatory structure that is free of outdated ownership restrictions and able to facilitate opportunities for consolidation globally—something that other industries take for granted.”