Demand Slowdown Continues

Demand for air travel expanded by 5.1% in August compared to the same month in 2011. 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% expansion since January. Carriers continued to moderate capacity expansion, limiting it to 4.1% growth, taking load factors to 82.1%.

August air freight volumes fell 0.8% compared to the previous year. The minor recovery seen at the start of the year has faded quickly and the stability seen in freight markets during 2012 could be under threat owing to continued economic weakness. Middle East, African and North American carriers bucked the trend and remained in positive growth territory (11.3%, 10.2% and 2.0%, respectively). All other regions saw freight volumes decline, the most significant being for Asia-Pacific carriers at 5.5%.

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, IATAs Director General and CEO.

5.3%

4.1%

82.1

-1.3%

0.7%

4.8%

4.2%

82.3

2.2%

-0.7%

5.1%

4.1%

82.1

-0.8%

0.4%

6.6%

4.6%

79.1

-2.6%

1.5%

4.5%

4.1%

79.7

1.0%

-1.2%

5.8%

4.4%

79.3

-2.1%

0.9%

International Passenger Markets
The growth trend for international traffic remains weak, with overall expansion of 5.3% 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.

• European airlines recorded strong demand growth in August (5.6%), ahead of the 4.7% expansion seen in July. Despite recession conditions in Europe, airlines in the region have continued to expand on international routes, growing capacity by 4.4%. Load factors rose marginally to 84.9%.
• North American airlines saw just 0.5% growth in demand while capacity was reduced by 0.5% compared to the previous August. This increased load factors by 0.8 percentage points to 86.9%, comfortably the highest among the regions. Compared to July there was a 0.5% increase in demand.
• Asia-Pacific carriers were among the weakest in terms of demand growth. They reported a 2.9% growth in demand compared to a year ago, which was an improvement on the 0.1% expansion recorded in July. However, the growth trend showed weakness month-on-month, with demand slipping 0.5% in August compared to July. Load factor rose to 79.4%.
• Middle East carriers were once again the strongest performers, and continue to expand rapidly-- particularly on long-haul segments. However the August growth rate of 16.7% could have been boosted by the impact of Ramadan falling across the whole of August last year. Capacity expanded by 13.3% which took load factors to 78.4%.
• Latin American airlines were the second-best performers in August, with demand rising 7.3% compared to the year-ago period. Growth outpaced capacity expansion of 5.8%, leading to load factors strengthening slightly to 78.2%.
• African carriers demand rose 3.2%, while capacity climbed nearly twice as fast, up 6%. At 68.3%, the regions load factor remains the weakest, falling 1.8 percentage points compared to a year ago.

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

• Indian carriers, affected by the slowing economy and high-cost operating environment, saw domestic demand fall by 2.0% compared to the previous August. Capacity expanded by 0.7% and load factors slipped to 66.6%.
• Japans domestic market continues to struggle. Demand fell 2.1% compared to last August, and the overall market continues to be about 10% below pre-earthquake and tsunami levels. Domestic load factor was 68.0%, which was 0.3 percentage points down on July.
• Brazils economy appears to be on an upward trend and domestic travel was strong in August, growing 9.4%. This was also significantly above the capacity expansion of 1.7% which pushed the load factor to 73.0%.
• Chinese domestic air travel was up 10.8% compared to the previous August. This reverses the sharp slowdown in the middle part of the year. However, growth was below the capacity expansion of 12.2%, and the load factor moderated to 83.6%.
• US domestic demand grew 2.4% compared to the year-ago period. With capacity growth held to 1.4%, carriers reported a load factor of 86.7%, consistently the highest among the major domestic markets.

Air Freight (Domestic and International)
Compared to August 2011, freight demand fell by 0.8%, behind a capacity expansion of 0.4%, and declines in business confidence signal potential further weakness in the months to come. The strongest performers for air freight were carriers from the Middle East, Africa and (to a lesser extent) North America. Freight demand for Asia-Pacific, European, and Latin American airlines contracted compared to last August.

• Middle East carriers saw an 11.3% increase in demand against a 10.4% increase in capacity. This was the strongest performance. North American carriers reported demand growth of 2.0% compared to the previous August, while capacity reduced by 2.3%. African airlines continued their positive growth for the year with a 10.2% increase in demand compared to an 8.1% increase in capacity.
• Asia-Pacific airlines reported a 5.5% decline in demand outpacing the 3.1% trimming of capacity. European carriers showed a 0.8% decline in demand compared to August 2011, even as capacity grew by 1.9%. Latin American airlines recorded a 3.9% decline in demand while capacity grew by 14.0%.

The Bottom Line
At a global level, airline industry fortunes track developments in the global economy. Sluggish growth in the US, 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% on the previous August, capacity increases trailed with a 4.1% 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% net margin. On 1 October IATA will release a revised industry outlook.