Travel Retail and Duty Free Business Intelligence    Friday 31 October 2014

AIRLINES

Global passenger traffic maintains momentum with early year growth

Published: 05/03/13

Source: ©The Moodie Report

By Dermot Davitt

"Even with headwinds—real and potential—we still see underlying support for continued and potentially even strengthened growth."
Tony Tyler
Director General & CEO
IATA
INTERNATIONAL. Airline passenger demand climbed by +2.7% year-on-year in January, according to figures released today by the International Air Transport Association (IATA). The growth figure was ahead of the +2.2% rise in capacity. Load factors stood at 77.1%.

IATA noted that Chinese New Year falling in February (as opposed to January 2012) distorted the month’s figures. “The comparisons to such a strong month made January 2013 demand look weaker than the underlying trend would indicate,” IATA said.

After adjusting for such seasonal factors, IATA estimates that the actual growth would have been +3.5%. This growth is still lower than the +5.3% 2012 average. However, it added that air travel growth slowed sharply through the year and the results of the past few months represent an acceleration of demand.

IATA Director General and CEO Tony Tyler said: “Passenger travel is growing in line with business confidence levels. Recent months have seen some positive economic signs emerge in both the US and China, and the Eurozone crisis seems to have stabilised. Of course risks remain; the impact of US budget cuts has yet to play out and fuel prices are high. But even with those headwinds—real and potential—we still see underlying support for continued and potentially even strengthened growth.”

International traffic
International markets outperformed the global industry average in January with a +3.7% increase in demand against a +2.7% capacity expansion. This led to load factors of 77.6%.

Asia Pacific airlines captured over half of the growth in demand between October and January. The year-on-year growth rate in January (+0.1%) was distorted by the timing of the Chinese New Year. After adjusting for seasonal factors, January saw demand growth in the region of +3.0% for Asia Pacific airlines compared to a year ago. Load factors for the region’s airlines stood at 77.8%.

Middle East airlines posted the strongest growth rates for January with a +14.3% increase in demand. This was nearly evenly matched by a +14.4% growth in capacity and load factors for the region were above the global average at 78.6%. The region’s carriers have tapped into demand from emerging markets with the strength of their network structures and efficient hubs, said IATA.

African airlines posted +9.4% growth, ahead of a +5.8% capacity expansion. Despite this, the region’s airlines recorded the weakest load factors at 67.9%. Economic growth rates in many African nations are strong—particularly those in resource-rich West Africa. This is providing the demand for a sustained market expansion.

Latin American airlines posted the second highest growth in demand at +12.2%. This was outpaced by capacity growth of +13.7%. Load factors stood at 79.0%, only exceeded by North American airlines. The growth is being fuelled by expanding economies—particularly Bolivia, Chile, Colombia and Peru—where reduced unemployment has boosted consumer demand, IATA noted.

North American carriers reported a +1.5% expansion in demand even as capacity was trimmed by -0.8% when compared to year-ago levels. Demand is strong on the back of improved economic performance in the US, and airlines are tightly managing capacity. The region’s airlines posted the highest load factor at 79.4%.

European airlines were among the weaker performers, with +2.1% demand growth on +0.4% capacity expansion. Load factors stood at 77.1% which was below the global average. While demand was up on the year-ago period, it should be noted that the region’s airlines have posted no growth in international markets since October. And when compared to December levels there was a -0.3% decline in demand. The Eurozone crisis may have stabilised, but the region’s economies are not growing and its airlines remain burdened by high taxes, onerous regulation and infrastructure constraints, said IATA.

Domestic traffic
Domestic air travel expanded by +1.1%, slightly behind a capacity expansion of +1.4%. Load factors were 76.4%, but after seasonal adjustment, the load factor reached a record high, exceeding 80%. China is the second largest market for domestic air travel and was the most skewed by the shift in Chinese New Year from January in 2012 to February this year. Adjusting for this, IATA estimates that domestic market demand expanded by about +5% compared to the year-ago period.

Chinese domestic travel was up just +0.1% on previous-year levels. The load factor was 77.4%, slightly better than the global average.

Japan saw a -3.0% decline in domestic travel, matched by a -2.9% decline in capacity. The Japanese domestic market is still -12% below pre-tsunami and earthquake levels. A combination of factors has negatively impacted domestic travel in Japan. These include a gradual weakening of its export-led economy and the impact of the strong Yen which has made international travel options more competitive. Domestic load factors were weak at 56.4%.

Brazil’s domestic market demand contracted by -3.7% in January compared to the previous year. High income growth and low unemployment should provide a stimulus to domestic demand. However this is being compromised by slower-than-expected economic growth, high costs and infrastructure constraints, claimed IATA. In response, airlines have cut capacity by -9.1% compared to January 2012.

India’s domestic market was also in negative territory with a -4.9% decline in demand and -5.3% capacity reduction. Load factors stood at 75.9%. One of the major domestic players has effectively exited the market, economic growth is weak, infrastructure costs are rising and the impact of high fuel prices is being exaggerated by excessive taxation (particularly at the state level).

Domestic demand for air travel in the US was up +3.2% on year-ago levels, ahead of a +2.4% capacity expansion. Load factors were the highest at 78.8%. The extent to which US budget cuts could impact the domestic aviation market remains to be seen, IATA noted.