Air Freight Traffic Volumes Improve, But Rising Costs Mean Profitability Remains Distant

IATA figures show demand continuing to drop, but at slower rate; return to growth predicted for 2010 as International Air Transport Association calls for liberalization of ownership rules

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Geneva — September 30, 2009 — Air freight demand in August fell by 9.6 percent against the year-ago figures, but that figure represented an improvement compared to the 11.3 percent drop in July, according to figures released by the International Air Transport Association (IATA) this week.

Compared to August 2008, passenger demand also was down 1.1 percent, an improvement compared to the 2.9 percent decline in July, the IATA reported.

Seasonally adjusted freight demand has improved by 12 percent compared to the low point of December 2008 but remains exceptionally weak at 16 percent below April 2008 levels when the fall in demand began. All regions saw improved demand conditions in August compared to July.

North American carriers saw a slightly larger improvement from -14.6 percent in July to -12.1 percent in August. This is similar to the -16.2 percent to -14.5 percent improvement registered by European carriers.

Elsewhere, Asia Pacific carriers, representing 44 percent of the global freight market, saw year-on-year demand improve marginally from -9.5 percent to -9.0 percent in August compared to July. African carriers saw the largest improvement - from -25.9 percent in July to -5.1 percent in August, although this region's small market size exaggerates any shifts.

Latin American and the Middle Eastern carriers were the only regions to report growth of 3.9 percent and 3.0 percent respectively. For 2010 IATA's industry outlook anticipates average international freight growth of 5.5 percent, compared to an expected full-year decline in 2009 of 14.5 percent.

"Even with improving demand, there are few bright spots in the industry. This must point us to the need for some fundamental rethinking," said Giovanni Bisignani, IATA's director general and CEO. "At the top of the list for change are the industry's antiquated rules of the game, which restrict access to markets and to international capital. This industry needs to operate as a normal business. Liberalization of ownership rules could be a lifeline for airlines as we approach a difficult fourth quarter."

Passenger Numbers

Compared to August 2008, passenger load factors improved by 1.2 percentage points, to 80.9 percent. Despite the tighter supply and demand conditions average fares continue to be depressed (-22 percent for premium seats and -18 percent for economy).

To match capacity with demand, airlines have reduced daily aircraft utilization in recent months. For example, average daily hours for the global Boeing 777 fleet dropped by 2.7 percent to 11.1 hours per day through the first eight months of the year. Lower utilization helps load factors, but spreading fixed asset costs over fewer hours in the air pushes up unit costs.

"Demand continues to improve, but profitability remains ever distant," said Bisignani. "Fares have stabilized, but at profitless levels. Meanwhile cost pressures are mounting from reduced aircraft utilization and rising oil prices. The industry is not out of the woods yet."

Compared to the low point of March 2009, seasonally adjusted passenger demand has improved by 6 percent, but traffic levels remain 5 percent below May 2008, when the fall in demand began. All regions, except the Middle East, saw improved demand conditions in August compared to July.

In particular, Asia-Pacific carriers recorded the most significant improvement, moving from a -7.6 percent drop in July to -1.6 percent in August. This improvement is somewhat exaggerated as August 2008 was the start of the steep decline in passenger demand for the region's airlines. This region is where second and third quarter growth has been strongest, boosted by massive government and central bank stimulus packages and fewer problems with consumer debt and bank balance sheets.

European and North American carriers saw smaller improvements driven by exposure to more robust long-haul markets, rather than local economies. European carriers saw demand fall 2.8 percent compared to August 2008 (up from the -3.1 percent recorded for July). For North American carriers, the improvement was to -2.5 percent in August compared to -3.2 percent in July.

Middle Eastern carriers were the only region to show year-on-year growth with demand expanding by 10.8 percent. This is below the 13.2 percent recorded in July due to a distortion resulting from the earlier start of Ramadan compared with last year. Middle East carriers continue to win market share on long-haul travel via their expanding hubs.

Latin American carriers saw demand improve to -2.3 percent in August (from -3.5 percent in July). Passenger confidence, dampened by Influenza A(H1N1) is returning with the end of flu season in the southern hemisphere. Meanwhile, African carriers showed the weakest demand at -4.9 percent in August. This was a slight improvement on the -5.5 percent recorded in July.

For 2010 IATA's latest industry outlook anticipates average international passenger growth of just over 4.0 percent, compared to an expected full-year decline in 2009 of almost 5.0 percent.

IATA represents some 230 airlines comprising 93 percent of scheduled international air traffic.

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