Passenger Demand Uptick Continues in 2013

The International Air Transport Association (IATA) released global air travel demand statistics for January showing a continuation of the uptick in passenger travel that began at the end of 2012. Overall, demand was up 2.7% on the previous January which is slightly ahead of the 2.2% expansion in capacity. Load factors stood at 77.1%.

Strong demand for air travel driven by the Chinese New Year has distorted the January figures. Chinese New Year fell in January 2012 and in February this year. The comparisons to such a strong month made January 2013 demand look weaker than the underlying trend would indicate. After adjusting for such seasonal factors, IATA estimates that the actual growth would have been 3.5%. This growth is still lower than the 5.3% 2012 average. However, air travel growth slowed sharply through the year and the results of the past few months represent an acceleration of demand growth.

“Passenger travel is growing in line with business confidence levels. Recent months have seen some positive economic signs emerge in both the US and China, and the Eurozone crisis seems to have stabilized. Of course risks remain; the impact of US budget cuts has yet to play out and fuel prices are high. But even with those headwinds—real and potential—we still see underlying support for continued and potentially even strengthened growth,” said Tony Tyler, IATA’s Director General and CEO.

3.7%

2.7%

77.6

1.1%

1.4%

76.4

2.7%

2.2%

77.1

6.1%

4.2%

78.9

4.0%

3.8%

79.5

5.3%

4.0%

79.1

International Air Travel

International markets outperformed the global industry average in January with a 3.7% increase in demand against a 2.7% capacity expansion. This led to load factors of 77.6%.

• Asia-Pacific airlines have captured over half of the growth in demand between October and January. The year-on-year growth rate in January (0.1%) was distorted by the timing of the Chinese New Year. After adjusting for seasonal factors, January saw demand growth in the region of 3.0% for Asia-Pacific airlines compared to a year ago. Load factors for the region’s airlines stood at 77.8%.
• Middle East airlines posted the strongest growth rates for January with a 14.3% increase in demand. This was nearly evenly matched by a 14.4% growth in capacity and load factors for the region were above the global average at 78.6%. The region’s carriers have successfully tapped into demand from emerging markets with the strength of their network structures and efficient hubs.
• African airlines posted 9.4% growth, ahead of a 5.8% capacity expansion. Despite this, the region’s airlines recorded the weakest load factors at 67.9%. Economic growth rates in many African nations are strong—particularly those in resource-rich West Africa. This is providing the demand for a sustained market expansion.
• Latin American airlines posted the second highest growth in demand at 12.2%. This was outpaced by capacity growth of 13.7%. Load factors stood at 79.0%, only exceeded by North American airlines. The regions’ growth is being fueled by expanding economies—particularly Bolivia, Chile, Colombia and Peru—where reduced unemployment has boosted consumer demand.
• North American carriers reported a 1.5% expansion in demand even as capacity was trimmed by 0.8% when compared to year-ago levels. Demand is strong on the back of improved economic performance in the US. And airlines are tightly managing capacity. The region’s airlines posted the highest load factor at 79.4%.
• European airlines were among the weaker performers, with 2.1% demand growth on 0.4% capacity expansion. Load factors stood at 77.1% which was below the global average. While demand was up on the year-ago period, it should be noted that the region’s airlines have posted no growth in international markets since October. And when compared to December levels there a 0.3% decline in demand occurred. The Eurozone crisis may have stabilized, but the region’s economies are not growing and its airlines remained burdened by high taxes, onerous regulation and infrastructure constraints.

Domestic Air Travel

Domestic air travel expanded by 1.1%, slightly behind a capacity expansion of 1.4%. Load factors were 76.4%, but after seasonal adjustment, the load factor reached a record high, exceeding 80%. China is the second largest market for domestic air travel and was the most skewed by the shift in Chinese New Year from January in 2012 to February this year. Adjusting for this, we estimate that domestic market demand expanded by about 5% compared to the year-ago period.

• Chinese domestic travel was up just 0.1% on previous-year levels. Performance appears weak owing to the shift in Chinese New Year. After adjusting for seasonal factors, we estimate that the actual expansion in demand was about 5%. The load factor was 77.4%, slightly better than the global average.
• Japan saw a 3.0% decline in domestic travel, matched by a 2.9% decline in capacity. The Japanese domestic market is still 12% below pre-tsunami and earthquake levels. A combination of factors has negatively impacted domestic travel in Japan. These include a gradual weakening of its export-led economy and the impact of the strong Yen which has made international travel options more competitive. Domestic load factors were weak at 56.4%.
• Brazil’s domestic market demand contracted by 3.7% in January compared to the previous year. High income growth and low unemployment should provide a stimulus to domestic demand. However this is being compromised by slower-than-expected economic growth, high costs and infrastructure constraints. In response, airlines have cut capacity by 9.1% compared to January 2012.
• India’s domestic market was also in negative territory with a 4.9% decline in demand and 5.3% capacity reduction. Load factors stood at 75.9%. One of the major domestic players has effectively exited the market, economic growth is weak, infrastructure costs are rising and the impact of high fuel prices is being exaggerated by excessive taxation (particularly at the state level).
• Domestic demand for air travel in the US was up 3.2% on year-ago levels, ahead of a 2.4% capacity expansion. Load factors were the highest at 78.8%. The extent to which US budget cuts could impact the domestic aviation market remains to be seen.

The Bottom Line

Global attention is focused on the US to understand the economic impact of mandated budget cuts. For millions of travelers and the aviation industry, the concerns go deeper. There are threats of reduced availability of government-provided services for airport security, border control and air traffic management.

“That the connectivity of the world’s largest economy is being held captive to politics is not acceptable. Airlines pay for air traffic management services through fees and taxes that average 20% of the cost of a typical domestic air ticket. Clearly there are some difficult budget decisions for the US government to make. But compromising connectivity—which supports 9.3 million jobs and $669.5 billion in economic activity in the US—is not the right choice,” said Tyler.