Traffic above pre-recession in Jan-2011 but rising fuel costs could spoil the party
Airlines worldwide reported further increases in air travel and freight volumes in Jan-2011, according to IATA which noted that traffic has rebounded to above pre-recession levels. However, despite the positive start to the year, IATA warned that rising fuel costs are a “big problem” for the industry.
Air travel volumes were 18% higher compared with the low point reached early 2009 and some 6% above the pre-recession peak of 1Q2008. Air freight in Jan-2011 was 39% above the low point reached by the end of 2009 and some 6% above the pre-recession peak. Freight has, however, fallen 2% since its May-2010 peak, which was at the height of the re-stocking bubble.
“We begin the year with some good news. January traffic volumes are up - 8.2% on January 2010 and 2.6% on December. With most major indices pointing to strengthening world trade and economic growth this is positive for the industry,” IATA Director General and CEO Giovanni Bisignani said. “We are all watching closely as events unfold in the Middle East. The region’s instability has sent oil prices skyrocketing.”
Surging oil prices could create ‘very, very big challenges’
Mr Bisignani stated surging oil prices due to the instability in the Middle East could create “very, very big challenges” for airlines. “Oil is a big problem because it could change completely the picture” for the sector, he added.
Fuel costs have surged amid concern that the turmoil in Libya will affect supply and IATA estimates that every USD1 increase in the per-barrel price of oil costs the airline industry USD1.6 billion.
IATA in Dec-2010 forecast the industry would report a net profit of USD9.1 billion in 2011 based on oil at USD84/barrel. Crude oil is trading more than USD15 above this level at present at above USD100, near a 29-month high. Oil represents around 27% of airline costs on average. IATA plans to issue a revised 2011 forecast on 02-Mar-2011.
IATA also warned of the negative impact of government taxes. “As if the rising price of oil was not challenging enough, governments are increasing the cost of mobility with a growing contagion of taxes. In 2010 the industry was hit with billions of dollars of new or increased taxes in the UK, Austria and Germany. Now we see South Africa and Iceland planning increases. Governments need to improve their finances and restart their economies. Mobility is a catalyst for economic growth. Governments must understand that taxing air transport out of the range of price sensitive travelers and businesses makes very little economic sense,” Mr Bisignani said.
Traffic growth of 8.2% in Jan-2011
International scheduled traffic (RPKs) rose 8.2% in Jan-2011, following growth of 5.4% in Dec-2010. Capacity (ASKs) increased at a faster pace, by 9.1%.
IATA international passenger traffic: May-2005 to Jan-2011
Load factors declined but remain quite high, a sign that yields may start levelling.
Passenger load factors in Jan-2011 remained high at 75.6%, but declined by 0.5 ppts year-on-year. Load factors stood at 77.7% when adjusted for seasonal fluctuations, slightly below the 78-79% range seen for most of 2010 and 1.1 ppts below the peak seen in Oct-2010.
IATA Jan-2011 vs Jan-2010 traffic results
This suggests that supply-and-demand conditions may be weakening slightly and that yields may start leveling. Recent US Air Transport Association data shows that year-on-year growth rates of US airlines’ international yields have slowed down to 9% in Jan-2011 compared with growth of 10% in Dec-2010 and 12% in Nov-2010.
Demand and supply conditions for freight stabilising
Demand and supply conditions for air freight stabilised in Jan-2011. Demand and capacity for freight have been expanding at average year-on year growth rates of 10-11% since Sep-2010 and freight load factor have remained within a range of 52-54% since mid 2010.
International airfreight volumes expanded at fairly robust 9.1% in Jan-2011 after revised 7.3% growth in Dec-2010 and 6.9% growth in Nov-2010. Freight volumes accelerated in Jan-2011 and are now trending since Sep-2010 at an average month-to month growth rate of 1.2%.
International freight traffic: May-2005 to Jan-2011
International freight growth by region: Dec-2010 vs Jan-2011
During Jan-2011, freight load factor stood at 49.2% while the seasonally adjusted freight load factor was 53%. For all regions, freight load factors are similar to the level reported one year ago.
Freight load factor by region: Jan-2010 vs Jan-2011
Freight wise, IATA noted that “prospects for 2011 are quite positive”. In Jan-2011, the confidence of manufacturing and service businesses rose to its highest level since Apr-2006. “This suggests that world trade expansion is likely to continue and air freight operations will benefit from the carriage of goods shipped by air to fulfil final consumer demand,” IATA stated.
Air travel trending above historical long-term line
Air travel and freight rebounded in January having been depressed in Dec-2010 by severe winter weather conditions in Europe and North America. IATA estimates that this weather-related disruption reduced international traffic (RPKs) by 1-2% in Dec-2010.
Compared with Dec-2010 and adjusting for seasonality, air travel grew by a strong 2.6% in Jan-2011 with freight 2.6% higher. This indicates that air travel continued to grow quite strongly, trending at an average growth rate of 8% for over the 12 months to Jan-2011, above the historical long-term trend levels of 5-6%.
IATA Jan-2011 vs Dec-2010 traffic results
As is generally the case, there were regional difference in international passenger growth in Jan-2011. For more information on regional differences, see Appendix.
International passenger growth by region: Dec-2010 vs Jan-2011
2010 – safest year in aviation history
IATA separately stated that 2010 was the safest in aviation history for passengers flying on Western-built jets. The 2010 global accident rate (measured in hull losses per million flights of Western-built jet aircraft) was 0.61 per million flights, a rate equating to one accident for every 1.6 million flights, just below the previous historic low rate of 0.65 in 2006 and a “significant improvement” over the rate of 0.71 recorded in 2009. The accident rate has been cut 42% from the rate recorded in 2001.
Aviation safety highlights for 2010 included:
- 2.4 billion people flew safely on 36.8 million flights (28.4 million jet, 8.4 million turboprop);
- 17 hull loss accidents involving Western-built jet aircraft compared with 19 in 2009;
- 94 accidents (all aircraft types, Eastern and Western built) compared with 90 in 2009;
- 23 fatal accidents (all aircraft types) compared with 18 in 2009;
- 786 fatalities compared with 685 in 2009.
As in the past, there were significant regional differences in the accident rates, with North America having relatively low rates and Africa having the worst rate as follows:
- North America: 0.10;
- Europe: 0.45;
- North Asia: 0.34;
- Commonwealth of Independent States: 0.0;
- Asia Pacific: 0.80;
- Middle East and North Africa: 0.72 (compared with 3.32 in 2009) with only one accident involving a carrier from the region
- Latin America and the Caribbean: 1.87;
- Africa: 7.41.
APPENDIX: IATA international traffic by region
IATA Jan-2011 traffic by region
Asia Pacific carriers recorded a 5.8% year-on-year demand increase in January, more than double the 2.8% increase recorded in December. On a seasonally adjusted basis this represents a 2.6% growth comparing Jan-2011 to Dec-2010. This is 1.6ppts higher compared with the average month-on-month growth rate reported since Sep-2010. Increasingly strong economic growth is driving an acceleration in travel market growth. Asia Pacific carriers represent about 28% of total RPKs.
Freight carried by Asian carriers grew by 6.4% in Jan-2011. While this annual growth rate is slightly lower than the 7.2% reported for Dec-2010, the volume of freight carried by airlines based in this region actually increased by 2% during January alone – a very strong rate. The growth in Jan-2011 takes the volume of air freight carried to 6% above the pre-recession peak level and 48% higher than the recession trough.
Traffic, on a seasonally adjusted basis, was 0.4% higher compared with Dec-2010 in Jan-2011. This is a lower rate than seen in other regions but may be due to volatility in the data month to month rather than any underlying factors, according to IATA. The month-on-month average growth rate since the beginning of 3Q2010 has been 1.7%. The post-recession recovery observed in this region has been the strongest. Jan-2011 traffic is some 45% higher compared with the low point of Sep-2008 and 15% higher compared with pre-recession peak of Dec-2009. Economic growth in this region looks quite positive for the year ahead with 4.2% GDP growth and this is likely to sustain growth in air travel market. However, political instability in parts of the region is expected to dampen demand in the affected areas. Egypt, Libya and Tunisia combined comprise around a fifth of the region’s international passenger traffic.
Grew by 14.3% year-on year basis and passenger traffic level is now some 28% higher compared to the previous peak reached early 2008. However, this market has a relatively small impact as it represents about 3% of the total traffic. African load factor grew slightly to 68.7%, the lowest of any region.
The bankruptcy of Mexicana negatively affected the average growth rates reported for airlines in Latin America during the later part of 2010. For the start of 2011, IATA has adjusted its Latin American data series to exclude Mexicana so as to better reflect the strong growth being experienced by airlines in the region. Traffic for Latin American airlines, after adjusting for Mexicana, shows a pretty solid 11.0% growth for the January-January comparison. This figure is similar to the 11.3% RPKs growth rate for 2010 published by the Latin American and Caribbean Air Transport Association. Excluding Mexicana, carriers based in this region grew by 5% during 4Q2010. The traffic volume in Jan-2011 is now 16% higher than the previous pre-recession peak. Load factors in the region, despite falling 1ppt to 79.7% in Jan-2011, are still the highest in the world.
Traffic increased 8.7% year-on-year in Jan-2011 with volumes expanding 1.8% month-to-month partly driven by recovery from weather-related disruption experienced at the end of 2010. International passenger traffic carried by North American airlines has now recovered to a level 2% above its pre-recession peak of early 2008.
The volume of freight traffic carried by North American airlines was up 14.1% in Jan-2011 the highest across the regions. The volume of traffic has grown by 11% since Nov-2010 and now sits 10% above the pre-recession peak.
Traffic carried by European airlines grew by a strong 3.6% month-on-month in Jan-2011 after being depressed in Dec-2010 by severe winter conditions. If December had been a more ‘normal’ month, IATA estimates traffic (RPKs) would have increased by 0.6% in Dec-2010. The much weaker economic climate in Europe continues to hold back freight traffic recover for airlines in that region. Volumes were still 11% below the pre-recession peak by Jan-2011.
IATA airlines RPK growth by region: Oct-2008 to Jan-2011
IATA airlines ASK growth by region: Oct-2008 to Jan-2011
IATA airlines passenger load factor by region: Oct-2008 to Jan-2011
IATA airlines FTK growth by region: Oct-2008 to Jan-2011