Airlines see continued strong demand with traffic now above pre-crisis levels: IATA

Mr Bisignani however noted that the pace of recovery "will likely slow" towards the end of the year, as recovery enters a "slower phase", commenting: "The jobless economic recovery is keeping consumer confidence fragile, particularly in North America and Europe. This is affecting leisure markets and cargo traffic. Following the boost of cargo demand from inventory re-stocking, further growth will be largely determined by consumer spending which remains weak".

This comments echo sentiments expressed by Association of Asia Pacific Airlines Director General, Andrew Herdman. See related report: Asia Pacific passenger and cargo traffic volumes return to pre-crisis levels

Highlighting this slower growth, IATA noted that during 2H2009, demand was rebounding at an annualised rate of 12% for passenger and 28% for cargo, while in the year to July, the annualised growth rates had dropped to 8% for passenger and 17% for air freight. However, IATA noted that this is "still considerably above the industry's traditional 6% growth trend".

IATA traffic results: Jul-2009 vs Jul-2010 growth levels

	RPK Growth	ASK Growth	PLF	FTK Growth	AFTK Growth
Africa	13.0%	10.4%	71.7%	35.2%	12.9%
Asia/Pacific	10.9%	5.1%	80.8%	25.3%	20.1%
Europe	6.2%	4.6%	84.5%	12.1%	2.2%
Latin America	14.2%	9.0%	79.9%	25.3%	11.4%
Middle East	16.8%	12.8%	81.0%	30.1%	17.1%
North America	7.9%	5.8%	87.2%	27.1%	8.9%
Industry	9.2%	6.1%	82.9%	22.7%	11.9%

Source: Centre for Asia Pacific Aviation & IATA

IATA traffic results: Jan-Jul-2009 vs Jan-Jul-2010 growth levels

	RPK Growth	ASK Growth	PLF	FTK Growth	AFTK Growth
Africa	13.1%	9.2%	68.3%	42.5%	13.4%
Asia/Pacific	10.6%	1.6%	77.8%	33.2%	15.6%
Europe	3.6%	0.2%	78.5%	12.5%	-3.6%
Latin America	10.9%	4.6%	75.6%	44.3%	22.7%
Middle East	19.4%	13.2%	75.9%	33.2%	16.0%
North America	6.3%	1.0%	82.0%	30.6%	2.7%
Industry	8.1%	2.5%	78.0%	27.5%	7.7%

Source: Centre for Asia Pacific Aviation & IATA

Traffic increases in Jul-2010

During the month, international passenger demand continued to strengthen, with international passenger traffic (RPKs) increasing 9.2% year-on-year, although this was lower than the Jun-2010 levels of 11.6% (which was the best year-on-year month of traffic growth in over 12 months).

IATA noted that the apparent slowdown was "entirely due to the fact that by July 2009 traffic was already starting to recover" (although the growth was still off a negative base in Jul-2009). After adjusting for seasonality, the improvement in demand was faster month-to-month in Jul-2010 than it was in Jun-2010, according to IATA.

IATA airlines RPK growth by region: Jun-09 to Jul-2010

Source: Centre for Asia Pacific Aviation & IATA

Capacity growth reaches fastest rate in over 12 months; load factors reach new highs

During the month, traffic (RPKs) growth occurred at a fastest rate than capacity (ASKs) growth of 6.1%, although this was again the strongest of capacity growth in over 12 months, coming off a capacity reduction in Jul-2009.

IATA airlines ASK growth by region: Jun-2009 to Jul-2010

Source: Centre for Asia Pacific Aviation & IATA

The gap between traffic and capacity growth pushed up the international passenger load factor to historic highs of 82.9%.

IATA airlines passenger load factor by region: Jun-2009 to Jul-2010

Source: Centre for Asia Pacific Aviation & IATA

Strong surge in cargo traffic; freight volumes 4% above pre-recession peak

Cargo demand has also rebounded with Jul-2010 global cargo demand 4% higher than pre-crisis levels in early 2008, with industry-wide freight growth of 22.7% in the month. However, IATA predicts a slowdown in air freight markets is expected in the second half as the economic cycle "moves into a new phase".

This follows "extraordinary" freight growth rates in late 2009 and early 2010, "supported by businesses re-stocking their inventories". IATA continued: "With the re-stocking cycle completed, air freight demand will be driven by consumer spending and business capital expenditure", adding: "Weak consumer confidence in Europe and North America will be a negative factor. But strengthening corporate profits are supporting an increase in capital expenditure that could continue to drive robust freight growth".

IATA also noted that the two-speed recovery continues to see weak growth by European carriers of 12.1% in Jul-2010, less than half the 25.3% increase by Asia Pacific carriers or the 27.1% growth recorded by North American carriers.

IATA airlines FTK growth by region: Jun-09 to Jul-2010

Source: Centre for Asia Pacific Aviation & IATA

Europe remains the weakest region

Europe again exhibited the weakest growth in Jun-2010, with traffic growth of 6.2% in the month, while North America was the other region to report single-digit growth (of 7.9%). In the freight sector, European carriers again showed the weakest growth at 12.1%, to be the only region to experience growth of under 20%.

IATA passenger and freight growth analysis by region: Jul-2010

Region	Passenger growth
Africa	Benefiting significantly from the economic and travel upturn, outperforming the industry with 13.0% growth in passenger demand in Jul-2010, which is consistent with the year-to-date improvement of 13.1%. Capacity is quickly coming back into the market with a 10.4% increase in Jul-2010, limiting improvements in both load factors and financial performance.
Europe	Beleaguered by the region's weak economy, European carriers saw little growth when the recovery took off in 2H2009. These airlines are now benefiting from long-haul expansion in 2010, according to IATA. In Jul-2010, passenger demand was up by 6.2% year-on-year, although the region's slow start in the recovery process has seen it deliver the weakest demand performance among all the regions over the first seven months of the year (+3.6%).
Asia/Pacific	Outperformed the industry average with a 10.9% growth in Jul-2010, consistent with the region's 10.6% growth measured year-to-date. A Jul-2010 capacity increase of less than half the demand growth (5.1%) pushed load factors higher. Leading the industry recovery, the region's carriers are expected to report a profit of USD2.2 billion. This will be the largest gain in dollar terms in 2010 compared to 2009.
Latin America	Outperformed the global average with passenger growth of 14.2% in Jul-2010 (10.9% for the first seven months of the year). Faster capacity additions have seen load factors drop, which will limit gains in financial performance.
Middle East	The region's airlines continue to add the largest amount of capacity (12.8% in July and 13.2% over the first seven months of the year). The region's carriers have managed to increase demand at even higher levels (16.8% in July and 19.4% over the first seven months of the year). Load factors and financial performance will record improvements this year.
North America	Recorded a 7.9% improvement in passenger demand in Jul-2010. Over the first seven months of the year, the region's carriers recorded a 6.3% increase, but kept capacity expansion to just 1.0%, raising load factors to 82.0% and producing strong gains in unit revenues that will support the region's return to profitability this year.

Source: Centre for Asia Pacific Aviation & IATA

Need for "structural change"

Mr Bisignani also stressed the need for a "change in the industry's structure" and an easing of the regulatory structure governing airlines, to facility consolidation across political borders.

He commented: "The crisis has seen consolidation in Europe and the US. This month's merger announcement by LAN and TAM brings Latin America into the picture. And trans-national brands are serving customers effectively in many parts of the world. But we remain an industry of over a thousand players with only very limited opportunities to consolidate as a result of the antiquated bilateral system's restrictions on ownership. The business realities of the industry are changing. It is critical that governments find a modern regulatory structure that is free of outdated ownership restrictions and able to facilitate opportunities for consolidation globally-something that other industries take for granted".

Mr Bisignani also noted the heavy presence of labour disputes in 2010, commenting: "Costs are a critical element. This year has been marked by strikes and threats of strikes at airlines, and with airports and air navigation service providers. Avoiding strikes at BAA and AENA, Spain's provider of air navigation services, were major accomplishments. We are all in this together-including all our partners in the value chain and those who work in this financially fragile industry. It is not the time for strikes. We must work together to secure our future by finding solutions to reduce costs".

Cautiously optimistic but expects some "slowing" in months ahead

While the traffic results represent a marked improvement from 2009 levels, IATA noted that "improving demand is an important component of the recovery" adding that it "must translate to the bottom line".

IATA continued that the anticipated 2010 profit of USD2.5 billion is "only a 0.5% return on revenues", adding that the "financial situation of the industry remains fragile". Mr Bisignani also stressed that the industry "must go beyond recovery to secure sustainable profitability at levels exceeding the 7-8% cost of capital".

IATA global and European 2010 outlook

Region	Previous 2010 forecast (Dec-2009)	Previous 2010 forecast (Mar-2010)	Current 2010 forecast (Jun-2010)
Europe	(USD2.5 billion)	(USD2.2 billion)	(USD2.8 billion)
North America	(USD2.0 billion)	(USD1.8 billion)	USD1.9 billion
Asia Pacific	(USD700 million)	USD900 million	USD2.2 billion
Latin America	USD100 million	USD800 million	USD900 million
Middle East	(USD300 million)	(USD400 million)	USD100 million
Africa	(USD100 million)	(USD100 million)	USD100 million
Global	(USD5.6 billion)	(USD2.8 billion)	USD2.5 billion

Source: Centre for Asia Pacific Aviation & IATA

See related article: IATA boosts forecast: Stronger demand and steady fuel costs to pull airlines back into the black