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Friday 27-Aug-2010 International air passenger demand up by 9.2 per cent in July 2010: IATA

The International Air Transport Association (IATA) has announced international scheduled traffic statistics for July 2010 which show continued strengthening of demand for both passenger and cargo traffic.

By  Traveltechie Bureau | Mumbai

The International Air Transport Association (IATA) has announced international scheduled traffic statistics for July 2010 which show continued strengthening of demand for both passenger and cargo traffic. Compared to July 2009, international passenger demand was up 9.2 per cent while international scheduled freight traffic showed a 22.7 per cent improvement.

These year-on-year comparisons for July were less than the June growth data showing 11.6 per cent and 26.6 per cent 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. After adjusting for seasonality, the improvement in demand was faster month-to-month in July than it was in June.

It is clear that the recovery has entered a slower phase. During the second half of 2009, demand was rebounding at an annualised rate of 12 per cent for passenger and 28 per cent for cargo. In the year to July, the annualised growth rates had dropped to eight per cent for passenger and 17 per cent for air freight. However, this is still considerably above the industry’s traditional six per cent growth trend.

Giovanni Bisignani, Director General and CEO, IATA said, “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 to be slow. 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.”

Passenger
July global passenger traffic was three per cent higher than the pre-crisis levels of early 2008.
Asia-Pacific carriers outperformed the industry average with a 10.9 per cent growth in July. This is consistent with the region’s 10.6 per cent growth measured year-to-date. A July capacity increase of less than half the demand growth (5.1 per cent) pushed load factors higher. Leading the industry recovery, the region’s carriers are expected to report a profit of USD 2.2 billion. This will be the largest gain in dollar terms in 2010 compared to 2009.
European airlines, beleaguered by the region’s weak economy, saw little growth when the recovery took off in the second half of 2009. These airlines are now benefiting from long-haul expansion in 2010. In July, passenger demand was up by 6.2 per cent over the same month in 2009. But the region’s slow start in the recovery process has seen it deliver the weakest demand performance among all the regions over the first seven months of the year (+3.6 per cent).
North American carriers recorded a 7.9 per cent 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 per cent increase, but kept capacity expansion to 1.0 per cent, raising load factors to 82.0 per cent and producing strong gains in unit revenues that will support the region’s return to profitability this year.
African airlines are now benefiting significantly from the economic and travel upturn, outperforming the industry with 13.0 per cent growth in passenger demand in July, which is consistent with the year-to-date improvement of 13.1 per cent. Capacity is quickly coming back into the market with a 10.4 per cent increase in July, limiting improvements in both load factors and financial performance.
Latin American carriers outperformed the global average with passenger growth of 14.2 per cent in July (10.9 per cent for the first seven months of the year). Faster capacity additions have seen load factors drop, which will limit gains in financial performance.
Middle Eastern carriers continue to add the largest amount of capacity (12.8 per cent in July and 13.2 per cent over the first seven months of the year). The region’s carriers have managed to increase demand at even higher levels (16.8 per cent in July and 19.4 per cent over the first seven months of the year). Load factors and financial performance will record improvements this year.
Cargo
July global cargo demand was four per cent higher than pre-crisis levels in early 2008.
A slowdown in air freight markets is expected in the second half of the year as the economic cycle moves into a new phase. Extraordinary freight growth rates in late 2009 and early 2010 were supported by businesses re-stocking their inventories. With the re-stocking cycle completed, air freight demand will be driven by consumer spending and business capital expenditure. Weak consumer confidence in Europe and North America will be a negative factor. But strengthening corporate profits are supporting an increase in capital expenditure that could continue to drive robust freight growth.
The two-speed recovery continues to see weak growth by European carriers of 12.1 per cent in July, less than half the 25.3 per cent increase by Asia-Pacific carriers or the 27.1 per cent growth recorded by North American carriers.
“Improving demand is an important component of the recovery. But it must translate to the bottom line. The anticipated 2010 profit of USD 2.5 billion is only a 0.5 per cent 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 seven-eight per cent cost of capital. For this, we need a change in the industry’s structure,” said Bisignani.

“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,” said Bisignani.

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 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 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,” said Bisignani.