August Air Traffic Improves But Costs Rising

The International Air Transport Association (IATA) said international scheduled traffic results for August showed limited improvement, but that hopes of profitability remain distant. Compared to August 2008, passenger demand was down 1.1 percent, (an improvement compared to the 2.9 percent decline in July), and freight demand fell by 9.6 percent (also an improvement compared to the 11.3 percent drop in July).

Compared to August 2008, passenger load factors improved by 1.2 percentage points to 80.9 percent Despite the tighter supply and demand conditions average fares continue to be depressed (-22 percent for premium seats and -18 percent for economy), IATA said.

To match capacity with demand, airlines have reduced daily aircraft utilization in recent months, IATA reported. For example, average daily hours for the global Boeing 777 fleet dropped by 2.7 percent to 11.1 hours per day through the first eight months of the year.  Lower utilization helps load factors, but spreading fixed asset costs over fewer hours in the air pushes up unit costs.

“Demand continues to improve, but profitability remains ever distant,” said Giovanni Bisignani, IATA’s Director General and CEO. “Fares have stabilized, but at profitless levels. Meanwhile cost pressures are mounting from reduced aircraft utilization and rising oil prices. The industry is not out of the woods yet,” said Bisignani.

Compared to the low point of March 2009, seasonally adjusted passenger demand has improved by 6 percent, but traffic levels remain 5 percent below May 2008 when the fall in demand began. All regions, except the Middle East, saw improved demand conditions in August compared to July.   For 2010 IATA’s latest industry outlook anticipates average international passenger growth of just over 4.0 percent, compared to an expected full-year decline in 2009 of almost 5.0 percent.

 “Even with improving demand, there are few bright spots in the industry. This must point us to the need for some fundamental re-thinking. At the top of the list for change are the industry’s antiquated rules of the game which restrict access to markets and to international capital. This industry needs to operate as a normal business. Liberalization of ownership rules could be a lifeline for airlines as we approach a difficult fourth quarter,” said Bisignani.


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