Strong February Performance But Outlook Remains Fragile

Several factors inflated February 2012 results and distorted comparisons with the year-ago period. These included weaker traffic during the Arab Spring a year ago and the occurrence of Carnival in Brazil in February, a month earlier than in 2011. Cargo demand was also subject to positive distortion by the occurrence of Chinese New Year in January which pushed some deliveries into February. When comparing to January 2012 levels, the picture becomes much more moderate, with passenger demand growing by 0.4% and cargo demand declining by 1.2%.

Global passenger capacity expanded by 7.4% compared to previous-year levels, lagging behind the 8.6% increase in demand. This has had a positive impact on load factors, which airlines have maintained at 75.3%better than the 74.4% recorded in February 2011.

Freight demand continued to be relatively stable. This trend started to develop in September 2011 and is consistent with improvements in business confidence.

The outlook is fragile. Improvements in business confidence slowed in February. This will limit the potential for business class travel growth and it implies that an uptick for cargo is not imminent. At the same time, airlines trying to recoup rising fuel costs could risk reduced volumes on price sensitive market segments. Weak economic conditions and rising fuel costs are a double-whammy that an industry anticipating a 0.5% margin can ill-afford, said Tony Tyler, IATAs Director General and CEO.

9.3%

7.3%

74.4

5.1%

7.7%

7.6%

7.5%

76.7

5.7%

4.1%

8.6%

7.4%

75.3

5.2%

6.9%

7.3%

5.6%

75.6

-1.6%

3.1%

7.0%

5.8%

76.7

-0.4%

2.2%

7.2%

5.7%

76.0

-1.5%

2.9%

International Passenger Markets

International air travel stood 9.3% above February 2011 levels. Capacity expanded by 7.3% and load factors stood at 74.4%. It should be noted that except for Asia-Pacific, all regions saw demand expand ahead of capacity when compared to February 2011.

• Asia-Pacific carriers saw a 5.9% increase in demand with a 6.2% increase in capacity. Load factors stood at 75.4%. Following a small spike in international travel over the Chinese New Year period in January (6.4% growth) February traffic declined.
• European carriers saw a 7.6% increase in international demand, well ahead of the 5.0% increase in capacity. This growth occurred despite the continuing sovereign debt crisis and weakened consumer confidence. Load factors stood at 74.4%, up significantly from the 72.6% recorded for February 2011.
• North American carriers showed the weakest growth in demand at 4.9%, which was still ahead of 4.3% growth in capacity over the previous year. The average load factor was the lowest among the major regions at 72.1%. While this performance was weak in comparison to other regions, it was significantly better than January, when international demand contracted by 0.3%. This improvement follows strengthened consumer confidence and economic conditions.
• Middle East carriers posted 23.4% international growth which is distorted by the poor performance in February 2011 owing to the impact of the Arab Spring. Capacity growth stood at 16.1%. Average load factors for the region showed the most dramatic improvement to 76.9% in February 2012 compared to 72.4% in the previous year. Stripping out the distortions, we estimate that the region has now fully recovered.
• African carriers also saw a positively distorted performance in February due to the Arab Spring with 24.7% growth in demand and 20.2% growth in capacity. The first impacts of the Arab Spring were felt in the Northern Africa regionprimarily Egypt and Tunisia. Load factors for the region stood at 62.7%. Although this was the lowest among all the regions, it was significantly better than the 60.5% for February 2011. Our estimate is that African carriers have fully recovered from the traffic losses resulting from the Arab Spring.
• Latin American airlines posted a 13.3% increase in demand against a 10.8% increase in capacity. Load factors stood at 78.3%, the highest among the regions and well ahead of the 76.6% achieved for February 2011. Carriers in the region benefitted most from the traffic spike on Brazil routes associated with Carnival.

Domestic Passenger Markets

Overall domestic demand expanded by 7.6%, only slightly ahead of the 7.5% increase in capacity. Average load factor was 76.7%, which was higher than the 74.4% achieved on international routes.

• Brazil experienced the fastest growth in February compared to the previous year. Demand was up by 17.9%, but lagged behind the 20.9% increase in capacity. Load factors stood at 66.5%, the weakest with the exception of Japan.
• India experienced the second strongest growth among the major domestic markets at 12.3%. This lagged behind the 16.3% increase in capacity over previous-year levels. Nonetheless, Indias carriers filled 75.4% of seats. The strong traffic growth masks financial weakness resulting from high operating costs and taxation.
• Chinas domestic market stood at 10.1% above previous-year levels. This is significantly down from the 17.3% growth in January owing to strong Chinese New Year traffic. Load factors were the highest among domestic markets at 79.3%.
• The US domestic market saw considerably improved performance in February with 5.2% demand growth. After keeping capacity flat for several months, demand improvements were met with a 4.4% increase in capacity. Load factors strengthened to 78.8%
• Japanese domestic performance continues to suffer from the impact of last years earthquake and tsunami combined with a tightening of capacity due to industry restructuring. Demand was 8.8% below previous-year levels while capacity stood at -6.0%. Load factors were the weakest among the major domestic markets at 61.4%.

Air Freight (Domestic and International)

• Air freight volumes increased in February from a year ago by 5.2%. This was largely as a result of cargo shipments that were postponed in January due to the Chinese New Year holiday and the comparison to the previous year which was impacted by weak demand associated with the Arab Spring. Air freight volumes showed a decline on Januarys performance of 1.2%.
• Cargo growth was led by Middle East carriers with an 18.2% increase in demand which was matched exactly with an 18.2% increase in capacity. The largest volume contributor to Februarys growth, however, was the Asia-Pacific region which posted a 10.2% year-on-year gain.
• European and North American carriers saw year-on-year declines in cargo traffic of 1.4% and 0.3% respectively. Latin American airlines saw the most significant decline with a 3.6% fall compared to previous-year levels.
• African carriers posted growth of 3.2%% over the previous year demand levels but on very small volumes.

The Bottom Line

We are ending the first quarter with a considerable amount of uncertainty. While the threat of a European financial meltdown seems more remote than it did only a few months ago, the political risks that aviation faces are growing. The rapid increase in the price of oil is already biting hard. The UK is increasing the onerous Air Passenger Duty. Europe is adding to the burden with the inclusion of international aviation in its emissions trading schemethe extra-territorial aspects of which are creating the possibility of a trade war that nobody can afford. The exact conditions vary from country to country, but around the world we see ill-conceived policy initiatives that over-regulate, excessively tax or otherwise restrain the aviation industry. This prevents it from being the catalyst for economic growth that it can be, said Tyler.

The latest study by Oxford Economics on the global benefits of aviation calculates that the industry supports 56.6 million jobs and enables $2.2 trillion of economic activity. With 35% of the value of goods traded internationally travelling by air, the connectivity provided by air transport is one of the key enablers of global business.

Aviation has transformed the world into a global village. We did this even while making profit margins of less than 1% in a policy framework best described as tax-and-restrict in many markets. Aviation could achieve much more with competitiveness-enabling policies that support sustainable growth, said Tyler.

View February traffic results

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