IATA Warns of Slowing Passenger Demand

While passenger demand was up 4.5 percent over the previous August, this represents a significant slowing from the 6.0 percent recorded in July, the International Air Transport Association (IATA) reports as it announced traffic results for August 2011. The decline in freight markets accelerated, IATA said.

“The industry has shifted gears downward. The pace of growth in passenger markets has dipped and the freight business is now shrinking at a faster pace. With business and consumer confidence continuing to slump globally there is not a lot of optimism for improved conditions any time soon,” said Tony Tyler, IATA’s director general and CEO.

Comparisons of July to August more clearly indicate the slowdown. The total passenger market fell by 1.6 percent in August compared to July. International markets declined by 1.8 percent, while already weak domestic markets shrank by 1.0 percent. The total cargo market fell by 1.3 percent.

Passenger load factors were high at 81.4 percent, almost as high as in July. While this is close to historically high levels reflecting the industry’s ability to efficiently allocate capacity, it too showed weakness—falling by 1.3 percent compared to July. 

International passenger demand was up 6.2 percent in August compared to the previous year. However, when compared to July, demand contracted by 1.8 percent. North American carriers reported the weakest performance with growth of just 2.9 percent, which was partly a result of equally slow growth in capacity. This is a sharp downturn from stronger growth earlier in the year, as reflected in the 5.6 percent year-to-date demand expansion. The region’s carriers posted the highest load factor at 86.1 percent.

Year-to-date domestic demand is up 3.6 percent on 2010. However, domestic demand in August shrank by 1.0 percent compared to July, which brought the August 2011 growth rate down to 1.5 percent.    

The largest source of weakness in absolute terms was the 0.3 percent fall in the U.S. compared to the previous year. U.S. domestic travel accounts for about half of all domestic travel, IATA notes.

August traffic results are in line with expectations for a decline in profitability heading into 2012, IATA reports. Airlines are expected to see total industry profits fall from $6.9 billion in 2011 to $4.9 billion. Historically, the airline industry has delivered collective losses when GDP growth (measured using current exchange rates) falls below 2.0 percent. GDP growth has fallen from 3.9 percent in 2010, to an expected 2.5 percent this year and 2.4 percent is projected for 2012.

“Airlines are bracing for tough times ahead. Economic uncertainty owing to the European sovereign debt crisis and the growing likelihood of a protracted period of slow growth in developed economies mean the industry will be even more focused on reducing costs and improving efficiency. To ensure that airlines can continue to catalyze economic activity, we need governments to review the often onerous tax burden that they place on aviation,” said Tyler.

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