IATA Says Demand Strong In July But Recovery Slowing
Open Jaw

IATA has announced international scheduled traffic statistics for July showing continued strengthening of demand for both passenger and cargo traffic. Compared to July 2009, international passenger demand was up 9.2% while international scheduled freight traffic showed a 22.7% improvement.

These year-on-year comparisons for July were less than the June growth data showing 11.6% and 26.6% 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 annualized rate of 12% for passenger and 28% for cargo. In the year to July, the annualized growth rates had dropped to 8% for passenger and 17% for air freight. However, this is still considerably above the industry’s traditional 6% growth trend.

“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. 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,” said Giovanni Bisignani, IATA’s Director General and CEO.

Asia-Pacific carriers outperformed the industry average with a 10.9% growth in July. Capacity increase was less than half the demand growth (5.1%) pushing load factors higher. Leading the industry recovery, the region’s carriers are expected to report a profit of US$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% 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%).

North American carriers recorded a 7.9% 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% increase, but kept capacity expansion to just 1.0%, raising load factors to 82.0%.

Aifrican airlines are now benefiting significantly from the economic and travel upturn, outperforming the industry with 13.0% growth in passenger demand in July, which is consistent with the year-to-date improvement of 13.1%. Capacity is quickly coming back into the market with a 10.4% 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% in July (10.9% 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% in July and 13.2% over the first seven months of the year). The region’s carriers have managed to increase demand at even higher levels (16.8% in July and 19.4% over the first seven months of the year). Load factors and financial performance will record improvements this year.

“Improving demand is an important component of the recovery. But it must translate to the bottom line. The anticipated 2010 profit of $2.5 billion is only a 0.5% 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% 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 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,” said Bisignani.

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