This is the Perspective from today's edition of Europe Airline Daily - the comprehensive new pre-digested daily update on strategic news from Europe, saving you time and keeping you right up to date. Complimentary subscriptions to this report are currently available. Register now!
A slowdown in consumer demand necessarily lags some months behind the arrival of financial constraints like higher interest rates, unemployment, food and energy prices and lower house/wealth values.
Once that slowdown arrives however - and especially if it contains all of these ingredients – it offers all the attraction of thick mud to an Olympic athlete. The impact endures.
IATA’s Jun-08 figures published today continue the expected course, showing a global slowdown in both passenger and cargo growth. Indeed, cargo traffic actually contracted by almost 5% in the world’s cargo engine room, Asia – that region’s second consecutive month of lower cargo volumes. A considerable part of this is due to the US slowdown/recession. Yet it also relates to intra-regional flows, suggesting that the cold winds have already spread widely.
Global international passenger traffic (RPKs) rose only 3.8% in the month (the slowest monthly growth since the SARS outbreak, four years ago), while global cargo volume contracted 0.8%, Even Middle East passenger traffic only grew a relatively modest 9.8%, as Emirates’ CEO Tim Clark announced a likely profit downgrade.
But now take higher oil prices out of this negative demand equation. A price level below USD100 is not impossible – even if Goldman Sachs does predict that it will go to USD200 (or 300 or any other number that happens to come to mind) – as the popular mindset begins to focus on a lower benchmark.
Today’s crude prices are off more than USD20 a barrel from its recent highs and, if oil does keep heading south, airlines will discount to restimulate growth.
Whether enough pain has yet been felt to suppress this near-overwhelming instinct to follow the market down will now be tested.
IATA international passenger traffic (RPK) Jun-08 growth (% change year-on-year): Industry vs Europe
Source: Centre for Asia Pacific Aviation & IATA
That can be a self-defeating course of the worst kind. Taking capacity out of the market in the face of slowing demand seemed like a good idea a couple of days ago.
If that trend is reversed and lower cost, market share battles revive, there will be a well known and often revisited outcome.
This downhill race has all the signs of being longer and steeper than most. Gathering too much momentum just now could lead to unpleasant results.
Want more analysis like this? CAPA Membership gives you access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find out more and take a free trial.