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IATA mindset shift needed for booming emerging markets

Strong airline demand emerges in February

What a difference a year makes. In Feb-2009, the airline industry was reeling. International passenger and freight demand down by 10.1% and 22.1% on the same month in 2008, according to IATA. Feb-2009 marked the “bottom of the cycle” for passenger traffic during the global economic recession, according to the industry body, while cargo hit bottom in Dec-2008. Latest traffic data for Feb-2010 showed international scheduled air traffic rose 9.5% year-on-year (ie still 1.4% below pre-crisis levels), while cargo demand rose 26.5% (and has a further 3% to recover to…

What a difference a year makes. In Feb-2009, the airline industry was reeling. International passenger and freight demand down by 10.1% and 22.1% on the same month in 2008, according to IATA. Feb-2009 marked the “bottom of the cycle” for passenger traffic during the global economic recession, according to the industry body, while cargo hit bottom in Dec-2008. Latest traffic data for Feb-2010 showed international scheduled air traffic rose 9.5% year-on-year (ie still 1.4% below pre-crisis levels), while cargo demand rose 26.5% (and has a further 3% to recover to return to pre-crisis levels). But the really interesting numbers are in short-haul and emerging markets.

IATA’s Director General and CEO, Giovanni Bisignani, stated, “we are moving in the right direction – in two to three months, the industry should be back to pre-recession traffic levels”. But he added, “this is still not a full recovery – the task ahead is to adjust to two years of lost growth”. The highlight for February, according to IATA, was improved load factors which stood at 75.5%.

The total industry numbers however blur massive divergences:
1) Short-haul markets are performing more strongly: IATA notes that airlines are maintaining “normal” aircraft utilisation rates on short-haul fleets, but long-haul utilisation is down over 8% compared to 2008 levels. The industry body observed, “the resulting increase in unit costs for long-haul operations may delay the positive impact of stronger demand to the bottom line.

2) Emerging markets are leaving established regions behind: Asia/Middle East/Africa/Latin America traffic is booming while North America and Europe are struggling.

IATA noted, “regional demand patterns continue to reflect the asymmetrical nature of the economic rebound”:

  • European carriers posted the weakest growth at 4.3%. This is the result of sluggish home economies, rising unemployment and labour strikes, according to IATA. Mr Bisiginani added, “it is disappointing to see labour at European airlines engaging in strikes when the fragile industry needs to focus on improving efficiency and reducing costs.”
  • North American airlines posted “weak growth” of 4.4%, but “having cut capacity deeply during the recession (February 2010 capacity was 3.0% below 2009 levels), this is to be expected”, said IATA. Consumers continue to pay down debt rather than increase spending, keeping demand for air travel “comparatively weak”;
  • Asia Pacific carriers posted strong traffic growth of 13.5%, which was “partly boosted” by the timing of the Chinese New Year (Asia Pacific airlines experienced a 6.5% increase in Jan-2010 traffic). Compared with the mid-2009 low there has been a 19% rebound in traffic, according to IATA;
  • Middle Eastern airlines recorded traffic growth of 25.8% – the strongest of any region (following a 23.6% surge in Jan-2010). Travel markets continue to develop within the region creating new demand, while “successful competition on long-haul connections to Asia over Middle Eastern hubs has improved market share for the region’s carriers”, according to IATA;
  • Latin American carriers posted growth of 8.5% on the strength of the performance of the region’s economies, while African airlines have also benefited from strong local economic conditions, with 9.8% growth in Feb-2010.
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