Travel Retail and Duty Free Business Intelligence    Sunday 21 December 2014

AIRLINES

Growing confidence buoys air travel in February, says IATA

Published: 03/04/13

Source: ©The Moodie Report

By Dermot Davitt

"The industry’s fortunes appear to be moving in the right direction. But the margins are wafer thin."
Tony Tyler
Director-General & CEO
IATA
INTERNATIONAL. Airline passenger demand in February rose +3.7% compared to February 2012, according to the International Air Transport Association (IATA). The association said that demand growth was accelerating on the back of stronger business confidence, particularly in emerging regions.

IATA noted that October 2012 appeared to have been a “turning point” for air travel markets. Since October, passenger demand has been growing at an annualized rate of +9%. This is almost double the growth trend over the first nine months of 2012.

IATA Director General & CEO Tony Tyler said: “February’s performance was good news. Demand for air travel continues to rise on economic optimism and improved business confidence. But that comes with a few caveats. Much of the growth is concentrated on emerging markets. Europe continues to be a laggard. And the handling of the banking crisis in Cyprus has reminded all of us that the deep problems in the Eurozone economies still remain.”

Capacity was up +1.0% on the previous February and the industry load factor stood at 77.1%. “Airlines are carefully managing capacity expansion, which is keeping the load factor at a record high. This is helping the industry to remain profitable despite persistently high oil prices,” said Tyler.

International passenger markets
February international passenger demand was up +3.6% compared to the year-ago period, and +0.9% compared to January. Capacity rose +1.1% versus February 2012 and load factor climbed 1.8 percentage points to 76.3%.

Asia Pacific carriers recorded an increase of +4.5% compared to February 2012. Continuing improvements in China’s economy and growth in intra-Asian trade provided strong support to the passenger business of the region’s airlines, said IATA. With this robust performance, demand associated with Asia Pacific’s emerging markets has been a major driver of the stronger growth in international traffic recently, it added.

European carriers recorded +0.8% growth compared to February 2012. Reflecting the contraction of the Eurozone economy in the fourth quarter of 2012, European carriers have not seen any growth in international demand since October. They have responded by tightly managing capacity, which declined -2.0% year-on-year in February. This pushed the load factor up to 76.5%.

North American airlines’ international traffic rose just +0.3% in February compared to February 2012; however this doesn’t reflect the significant underlying growth trend over recent months. International revenue passenger kilometres for North America are up +3% in February compared to October. The load factor rose to 76%, reflecting a 4.6% reduction in capacity year-on-year.

Middle East carriers saw year-on-year demand expand by +10.6%, the strongest among all the regions. Capacity expansion was held to +9.7% with the result that load factor rose 0.7% points to 77.7%, the highest for any region.

Latin American airlines posted year-on-year growth of +7.0%. A +9.9% rise in capacity, however, pushed load factor down 2.1 percentage points to 76.7%. Robust economic growth in countries such as Colombia, which is experiencing strong demand for commodities exports, is contributing to rising air travel, IATA noted.

African airlines’ traffic climbed +7.7% compared to February 2012, second best among the regions, while capacity rose +3.9%, boosting the load factor 2.3 percentage points to 65.2%. The rise in load factor commenced in mid-2012, supported by an increase in demand and also from tighter capacity management.

Domestic passenger markets
Domestic markets climbed +3.9% in February compared to a year-ago, driven primarily by surging demand in China, as all other markets experienced declines with the exception of Australia, which rose +2.2%. Total domestic capacity was up +0.8% compared to February 2012 and load factor rose 2.3% points to 78.8%.

US traffic dipped -0.6% in February while capacity dropped -2.5%, pushing load factor up to 80.4%, second highest among the domestic markets. As with international traffic, the year-on-year growth rate is masking a recent uptick in the growth trend. The US market has been growing at an annualized rate of +9% since the fourth quarter of 2012.

China’s domestic traffic soared +20.2% compared to a year ago, reflecting the impact of Chinese New Year-related travel, but also the continuing acceleration of the economy. With capacity up +13.7%, load factor jumped 4.5 percentage points to 83.8%, which was the highest for any domestic market. Compared to January, traffic was up +5.3%.

Japan’s domestic market contracted -3.1% compared to February 2012 owing to the flat-lining economy and related weak domestic demand for air travel. Japan’s domestic traffic is -12% below pre-Tsunami levels. Capacity fell -4.7% year-on-year and load factor was the lowest for any market at 62.4%.

Brazil saw traffic fall -4.3% on a -0.6% plunge in capacity as the country’s airlines act to offset downward pressure on profitability, with economic growth continuing to fall below expectations. Load factor rose 4.6% points to 70.7%.

Indian domestic traffic dropped -9.1% in February compared to a year ago. In addition to the slowing economy, Indian airlines have been reducing capacity from previously unsustainable levels. Capacity declined -7.5% in February and load factor slipped to 74.5%.

On 20 March, IATA raised its outlook for the industry’s earnings performance to a net profit margin of 1.6% from 1.3%. “The industry’s fortunes appear to be moving in the right direction. But the margins are wafer thin. And any shock—the continuing Eurozone crisis or budget sequestration in the US—could negatively impact the outlook,” said Tyler.

In the USA, budget sequestration measures began to take effect on Monday, 1 April. Alongside the economic impact of uncertainty and reduced government spending, operational concerns are significant, IATA noted. Passengers in the US could face flight delays and even longer lines then usual at security and border control.

Tyler said: “It’s unfair that air travellers should suffer the impact of sequestration given that airlines and passengers already pay around US$4.5 billion a year in fees and taxes for the essential services of border control and airport security. It is unlikely that the savings that will be achieved from sequestration will offset the damage to the economy if air travel is discouraged by these cutbacks.

"Aviation is an important catalyst for economic growth and prosperity. The cost of the shocks, uncertainty and unpleasant surprises can only hamper efforts to revive the economy. The government’s priority should be on extracting the greatest economic benefit possible from aviation—not making it more difficult to do business.”