Recession Now Biggest Threat to Airlines; Traffic Declines in October 2008

IATA has reported international air traffic figures for October 2008 which show a second consecutive month of global decline. International passenger traffic declined by 1.3% compared to the same month in the previous year - a smaller decline than the 2.9% drop experienced in September.
The October load factor was 75%, approximately 2% below previous year levels. International air freight traffic contracted by 7.9% in October for a fifth consecutive month of increasingly severe drops.

Giovanni Bisignani, IATA’s Director General and CEO, said, “The gloom continues and the situation of the industry remains critical. While the drop in oil prices is welcome relief, recession is now the biggest threat to airline profitability. The slight slowing in the decline of passenger traffic is likely only temporary. The deepening slump in cargo markets is a clear indication that the worst is yet to come.” 

Passenger

Asia Pacific carriers, which represent 31% of global international passenger traffic, saw passenger traffic decline by 6.1% (slightly improved from the 6.8% decline in September). A capacity reduction of 2.3% could not keep pace with the drop in demand, taking load factors for the region’s carriers to 72.2%. Year-to-date growth for Asia Pacific carriers fell to 0.3%, the weakest growth outside of Africa.

North American carriers saw international traffic decline by 0.8% in October compared to the previous year, only slightly changed from the 0.9% drop in September. European carriers saw traffic rebound slightly into positive territory with 1.8% growth in October. While trans-Atlantic traffic growth was flat for the month, with both the European and US economies in recession further declines in international traffic for both regions’ carriers are expected. 

Latin American and Middle Eastern airlines recorded 4.5% and 3.5% growth respectively. While better than the September traffic figures, both regions remain well below the double-digit growth rates experienced over the first half of the year. Economic forecasts for both regions see considerable slowing of GDP growth over the next 12 months to the 2-4% range. Airlines in both regions can expect a continued slowing of growth.

African carriers saw the largest decline with international traffic dropping by 12.9% in October. It is the only region where traffic deteriorated relative to September. This continues the year-long trend of Africa being the weakest market for air traffic with falls in both intercontinental and regional travel.

Cargo

The 7.9% decline in air freight during October has dragged year-to-date air freight volume to 0.8% below the same period in 2007. Forecasted declines in key air cargo sectors such as semi-conductors indicate that weakness is expected to continue.

Asia Pacific carriers, which account for 44.7% of the international cargo market, saw international freight traffic decline by 11%, reflecting the sharp drop in the region’s exports. 

North American and European carriers saw less precipitous declines of 7.6% and 5.4% respectively.

In sharp contrast to passenger performance, African carriers saw a 3.0% improvement in cargo during October. This reflects trade growth within Africa.

Latin American carriers saw the largest decline (11.4%).

Middle Eastern carriers were the only others to report growth (1%) in October.

“As the global economic downturn re-shapes the world’s financial industry, policy makers must also understand that change is needed in air transport. Unlike the finance industry, airlines are not asking for handouts. Commercial freedom, efficiency and a fair treatment in taxes are needed,” said Bisignani.

“We need commercial freedoms to run this as a normal business. IATA’s Agenda for Freedom is building momentum among governments for access to markets and equity capital and the ability to merge or consolidate where it makes business sense. We need efficiency everywhere. At the top of the list is a Single European Sky by 2012 that would save 16 million tonnes of CO2 and over EUR 5 billion in operating costs. And we need common-sense in taxation. It was good news that the Belgian government has backed away from its plans to introduce a new departure tax. But the UK’s decision to hike its Air Passenger Duty is a major step in the wrong direction. Air transport is a catalyst for economic growth. But plugging budget gaps with gratuitous travel taxes is bad policy that is not sustainable. This must change,” Bisignani concluded.

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