International Air Demand Slowdown Continues

airplaneGlobal traffic results for August showing demand for air transport continuing to flatten-out, but with significant regional variations, the International Air Transport Association (IATA) reports. Freight volumes shrank as business and consumer confidence continued to slip, IATA said.

Demand for air travel expanded by 5.1 percent in August compared to the same month in 2011, IATA says. This partly reflects a positive distortion owing to the timing of Ramadan. Adjustment for such seasonal fluctuations reveals that passenger demand has been basically flat since June and with only a 1.2 percent expansion since January. Carriers continued to moderate capacity expansion, limiting it to 4.1 percent growth, taking load factors to 82.1 percent.

“Passenger markets have not grown since June and global air freight volumes are below previous year levels. In the face of these adverse conditions, disciplined capacity management has kept load factors high. There are always opportunities and some parts of the world are growing. But, overall, trading conditions are tough,” said Tony Tyler, IATA’s director general and CEO. 

International Passenger Markets: The growth trend for international traffic remains weak, with overall expansion of 5.3 percent heavily dependent on seasonal factors. Compared to July, August growth was flat, and load factors were down. Asia-Pacific carriers appear particularly affected, as airlines face strong competition and shifting trade flows. 

North American airlines saw just 0.5 percent growth in demand while capacity was reduced by 0.5 percent compared to the previous August. This increased load factors by 0.8 percentage points to 86.9 percent, comfortably the highest among the regions. Compared to July there was a 0.5 percent increase in demand.

Domestic Passenger Markets: Overall, domestic traffic grew by 4.8 percent, slightly ahead of a 4.2 perent rise in capacity. The domestic load factor stood at 82.3 percent. All markets, except India and Japan, showed growth compared to the previous August. Chinese domestic travel was the best performer. 

U.S. domestic demand grew 2.4 percent compared to the year-ago period. With capacity growth held to 1.4 percent, carriers reported a load factor of 86.7 percent, consistently the highest among the major domestic markets.

The Bottom Line:  At a global level, airline industry fortunes track developments in the global economy, IATA says. “Sluggish growth in the U.S., the continuing sovereign debt crisis in Europe and concerns over the slowdown in the Chinese economy are taking their toll on both business and consumer confidence. Airlines have responded with, among other things, careful capacity management. While global passenger traffic was up 5.1 percent on the previous August, capacity increases trailed with a 4.1 percent expansion. Along with this, conserving cash and controlling costs are the focus of most airlines as they await more favorable economic conditions,” said Tyler.

IATA currently forecasts a collective $3.0 billion profit for airlines in 2012 for a 0.5 percent net margin. On 1 October IATA will release a revised industry outlook.