Global Air Freight Demand Increases 13% in May: Passenger Demand Moderates from Recent Peak but Stays Strong

The International Air Transport Association (IATA) released data for global air freight markets showing that demand, measured in freight tonne kilometers (FTKs), grew 12.7% in May 2017 compared to the year-earlier period. This was up from the 8.7% annual growth recorded in April 2017 and is more than three times higher than the five year average growth rate of 3.8%.

Freight capacity, measured in available freight tonne kilometers (AFTKs), grew by 5.2% year-on-year in May 2017.

The continued growth of air freight demand is consistent with an improvement in world trade. This, in turn, corresponds with new global export orders remaining close to a six-year high in May. There are, however, some signs that the cyclical growth period may have peaked. The global inventory-to-sales ratio, for example, has started rising. This indicates that the period when companies look to re-stock inventories quickly, which often gives air cargo a boost, has ended.  Regardless of these developments, the outlook for air freight is optimistic with demand expected to grow at a robust rate of 8% during Q3 2017.

“May was another good month for air cargo. Demand growth accelerated, bolstered by strong export orders. And that outpaced capacity growth which should be positive for yields. But the industry can’t afford to rest on its laurels. With indications that the cyclical growth period may have peaked, the onus is on the industry to improve its value proposition by accelerating process modernization and enhancing customer-centricity,” said Alexandre de Juniac, IATA’s Director General and CEO.

Regional Performance

All regions, with the exception of Latin America, reported year-on-year double-digit increases in demand in May 2017.

Asia-Pacific airlines’ freight volumes expanded 11.3% in May 2017 compared to the same period a year earlier and capacity increased by 6.2%. Demand growth has been strongest, between 13-15%, on international routes within Asia as well as between Asia and Europe.  Seasonally-adjusted volumes are now 3% above the volumes reached following the 2010 post-global financial crisis bounce-back.

North American carriers posted an increase in freight volumes of 13.9% in May 2017, and a capacity increase of 4.1%. Seasonally-adjusted volumes rose again in May, after a jump in April, indicating signs of a lasting pick up. The strength of the US dollar continues to boost the inbound freight market but is keeping the export market under pressure.

European airlines posted a 15.0% increase in freight volumes in May 2017 and a capacity increase of 5.7%. International freight volumes grew by 15.2% year-on-year in May with airlines benefiting from strong demand on the Europe-Asia market. The ongoing weakness of the Euro persists in boosting the performance of the European freight market which continues to benefit from strong export orders.

Middle Eastern carriers’ year-on-year freight volumes increased 10.2% in May 2017. This was a sharp jump from the 3.1% dip in April. The recent swings in the growth rate appear to be mainly a reflection of the more volatile monthly data last year. Capacity increased 1.7%. Seasonally-adjusted freight volumes maintained their upward trend. Demand between the Middle East and Europe remains strong, increasing 19% so far this year but traffic to Asia has weakened, growing by just over 1%.

Latin American airlines experienced a growth in demand of 6.7% in May 2017 compared to the same period in 2016. Capacity increased by 7.1% over the same period. Seasonally-adjusted volumes grew slightly in May however they remained 12% lower than at the peak in 2014. The region’s carriers have managed to adjust capacity, which has limited the negative impact on the load factor.

African carriers’ posted the largest year-on-year increase in demand of all regions in May 2017 with freight volumes growing 27.6%. Capacity increased by 14.7% over the same time period. Demand has been boosted by very strong growth on the trade lanes to and from Asia which have increased by nearly 57% so far this year. However seasonally adjusted growth has levelled off in recent months. 

PASSENGER STATISTICS

The International Air Transport Association (IATA) announced global passenger traffic results for May showing that demand (measured in revenue passenger kilometers, or RPKs) rose 7.7% compared to the same month in 2016. This was slower than the 10.9% growth recorded in April. However, this still was well ahead of the 5- and 10-year average growth rates. Capacity climbed 6.1%, and load factor rose 1.2 percentage points to 80.1%, which was a record high for the month. All regions, excluding the Middle East and North America, posted record-high May load factors.

After adjusting for inflation, airfares at the start of the second quarter were around 6% lower than a year ago. IATA estimates that this contributed to around two-fifths of the annual growth in passenger traffic seen in May. However, the degree of fare stimulus is around half that seen in the second half of 2016. This stimulus is likely to fade further in light of rising airline cost pressures, while business confidence has softened. However, passenger demand is likely to remain well supported during the upcoming peak travel months of July and August.

"Passenger demand is solid. And we don’t foresee any weakening over the busy summer months in the Northern Hemisphere. But the rising price of fuel and other input costs is likely to see airlines’ ability to stimulate markets with lower fares taper over the coming months. In parallel, rising trade protectionism and barriers to travel are worrying trends that, if unchecked, could impact demand. As a business airlines depend on borders that are open to trade and people," said Alexandre de Juniac, IATA’s Director General and CEO.

   ¹% of industry RPKs in 2016   ²Year-on-year change in load factor   ³Load factor level   

International Passenger Markets

International traffic demand rose 7.6%, with airlines in all regions recording growth, led by airlines in Africa for a second consecutive month. Total capacity climbed 5.7%, with load factor rising 1.4 percentage points to 78.5%.

• European carriers’ May demand climbed 7.5% over May 2016, down from the 14.5% year-over-year growth recorded in April. Capacity rose 5.2% and load factor was up 1.8 percentage points to 82.8%, which was the highest among regions. Seasonally-adjusted demand growth has moderated over the past three months, despite growing momentum in the region’s economy. This appears to relate mostly to a pause in the recovery in international traffic within the region.
  
• Asia-Pacific airlines saw their traffic rise 10.5% in May compared to the year-ago period. Capacity increased 7.2%, and load factor jumped 2.3 percentage points to 77.6%. Traffic on the Asia-Europe route has recovered strongly since last year’s terrorism-related disruption, surging at an annualized rate of more than 26% since November. Meanwhile, traffic on inter-Asia routes remains robust.
  
• Middle East carriers had a 3.7% rise in demand in May compared to a year ago, close to an eight-year low. Capacity increased 5.7%, and load factor dropped 1.3 percentage points to 69.8%. Although year-to-year comparisons are distorted by the strong performance for the same period a year ago, the slow-down also reflects the ban on the carriage of large portable electronics devices (PEDs) in the cabin from 10 airports in the region to the US, as well as a wider impact on inbound travel to the US from the Trump Administration's proposed travel bans. Passenger traffic growth in the Middle East to North America market was already slowing in early-2017. But RPKs fell again in April (-1.2%) for just the second time since at least 2010. In view of the recent Supreme Court ruling these impacts could continue. By comparison, the route to and from Europe has continued to trend upwards this year.
  
• North American airlines’ traffic climbed 4.8% in May, down from 10.3% annual growth in April but still a strong result for the region compared to the 5-year average growth rate. While growth has slowed of late, the comparatively healthy regional economic backdrop, coupled with the strength of the US dollar, should support outbound passenger demand, although the latter impacts inbound demand. Anecdotal evidence also suggests that tourists may be deterred by the additional security measures put in place by the US government. Capacity rose 4.2% and load factor climbed 0.5 percentage points to 80.5%.
  
• Latin American airlines experienced a 9.3% increase in traffic in May compared to the same month last year. Notwithstanding ongoing challenges, an improvement in the Brazilian economy is helping to support growth, particularly on intra-South American routes. Airlines are coping well with some political and economic volatility in the region. Capacity climbed 6.8% and load factor climbed 1.9 percentage points to 81.8%.
  
• African airlines’ traffic rose 11.7% in May compared to the year-ago period, which was more than twice as fast as the 5.1% rise in capacity. As a result, load factor jumped 4.0 percentage points to 67.5%. Demand is supported by recovery in the key Europe market. Conditions in the region’s two largest economies are diverging, with business confidence in Nigeria rising sharply over the past six months, while South Africa’s economy fell into recession in the first quarter.

Domestic Passenger Markets       

Domestic demand rose 7.9% in May compared to May 2016, down slightly from the 8.1% year-on-year growth recorded in April. Results varied widely, with China, India, Japan and Russia showing double-digit percentage growth while other regions were in the low single-digit range.

¹% of industry RPKs in 2016   ²Year-on-year change in load factor   ³Load factor level  *Note: the seven domestic passenger markets for which broken-down data are available account for 30% of global total RPKs and approximately 82% of total domestic RPKs               

• Japan’s domestic traffic surged 10.3% year-over-year, which was close to a five-year high. The rise in demand far outpaced the growth in capacity (2.6%) and domestic load factor jumped to a record high for May of 69.1%, although this was still the lowest among the markets. This performance continues to be set against a comparatively robust economic backdrop including economic expansion for five consecutive quarters, which is the longest run in more than a decade.
• Brazil’s domestic market experienced year-over-year growth (2.6%) for only the third time in 22 months amid an improving economic backdrop, although the political backdrop remains fragile. Passenger volumes are still 8% lower in seasonally-adjusted terms than their late-2010 peak.      

The Bottom Line

On 28 June 2017, the U.S. Department of Homeland Security (DHS) announced new enhanced security measures as an alternative to global restrictions on the carriage of large PEDs in the cabin on flights to the U.S. The new measures will be introduced over the next months across 280 locations worldwide. 

"Enhanced security measures are preferable to the expansion of the current ban on the carriage of large electronic devices in the cabin. We have seen the negative impact that this has on demand. But the timeline to implement the enchanced security measures announced by the US DHS is extremely challenging. And there are many unresolved issues that need greater cooperation among states to minimize the impact on air travelers and global connectivity," said de Juniac

View May passenger traffic analysis (pdf)