IATA Reports Strong 2010 But Warns of Uncertainty for Year Ahead

Richard Maslen February 03, 2011

IATA REPORTS STRONG 2010 BUT WARNS OF UNCERTAINTY FOR YEAR AHEAD

The International Air Transport Association (IATA) has reported full-year 2010 demand statistics for international scheduled air traffic that showed an 8.2 per cent increase in the passenger business and a 20.6 per cent growth in freight. Demand clearly outstripped capacity increases of 4.4 per cent for passenger and 8.9 per cent for cargo. According to IATA, average passenger load factor for the year was 78.4 per cent which is a 2.7 percentage point improvement on 2009. The freight load factor saw a 5.2 percentage point improvement to 53.8 per cent.

Compared to the pre-recession levels of early 2008, December air travel volumes were 4 per cent higher. Air freight was 1 per cent higher than pre-recession levels; however volumes have fallen 5 per cent since the peak of the post-recession inventory re-stocking boom in early 2010, said IATA.

“The world is moving again,” said Giovanni Bisignani, IATA’s Director General and Chief Executive Officer. “After the biggest demand decline in the history of aviation in 2009, people started to travel and do business again in 2010. Airlines ended the year slightly ahead of early 2008 volumes, but with a pathetic 2.7 per cent profit margin. The challenge is to turn the demand for mobility into sustainable profits.”

However, severe weather in Europe and North America in December put a dent in the industry’s recovery. It is estimated that this shaved 1 per cent off of total traffic demand for the month. As a result passenger demand dipped to 4.9 per cent growth on December 2009 levels, significantly lower than the 8.2 per cent growth recorded in November. Hardest hit was Europe which saw December growth slow to 3.3 per cent.

International Passenger Demand by Region

* Asia Pacific carriers recorded a 9 per cent year-on-year increase in passenger demand in 2010. While December 2010 passenger demand growth slowed to 2.9 per cent, it is 11 per cent higher when compared to December 2008, just ahead of the industry’s 9-10 per cent improvement over the same period. The economies of China and India continue to lead the region’s recovery.

* European carriers saw year-on-year passenger demand increase 5.1 per cent. This is double the capacity increase of 2.6 per cent, which shored-up the passenger load factor at 79.4 per cent. But, the continent’s economic uncertainty and continuing debt crisis limited yield improvements. Moreover, Europe was the hardest hit by December’s severe weather which slowed demand growth to 3.3 per cent, less than half the 7.8 per cent growth recorded in November.

* North American carriers recorded year-on-year increases in passenger demand of 7.4 per cent in 2010. A key feature in 2010 was the capacity discipline, where full-year capacity was up by just 3.9 per cent (leading to a sharp recovery in profits). The passenger load factor at 82.2 per cent for the full year (up from 79.6 per cent in 2009) may prove difficult to maintain if capacity additions accelerate over the period ahead, according to IATA. Passenger demand in December increased 6.7 per cent.

* Middle Eastern carriers reported the strongest full year growth at 17.8 per cent on the back of a 13.2 per cent capacity increase fuelled largely by aircraft deliveries to Gulf-based airlines. Load factors for the region showed a 3 percentage point increase to 76.0 per cent. December demand was 14.1 per cent above previous year levels and 35 per cent higher than in December 2008, illustrating the structural shift that is taking place in the industry as a result of the region’s expansion.

* Latin American carriers saw the whole year demand grow 8.2 per cent despite a 1.1 per cent decrease in December, a reflection of the demise of Mexicana. But the reality is that for 2010 overall, the total is almost 8 per cent more than 2008.

* African carriers experienced a sharp rebound of nearly 12.9 per cent in 2010, although load factors remained well below the industry average, at 69.1 per cent. Their year ended with December demand at 11.7 per cent above previous year levels.

International Freight Demand

* Freight demand growth varied wildly over the year from a high of 35.2 per cent in May to a low of 5.8 per cent in November. Overall the industry is trending towards normal growth pattern in line with the historical growth rate of 5-6 per cent.

* The regional variation in growth remains particularly marked. Latin American carriers recorded the highest full-year growth rate of 29.1 per cent, followed by Middle East carriers (accounting for 11 per cent of the market) at 26.7 per cent, Asia Pacific airlines (with a 45 per cent market share) grew by 24.0 per cent, Africa at 23.8 per cent and North America by 21.8 per cent. Against these industry gains, Europe’s 10.8 per cent growth stands out as exceptionally weak.

The figures speak for themselves but there is concern looking ahead. “The story this month is the sharp rise in oil prices,” said Giovanni Bisignani. “We predicted that 2011 would see a consecutive second year of profitability but with industry profits falling by 40 per cent to $9.1 billion.”

This figure was based on an oil price of $84 per barrel (Brent), but this is now hovering around the $100 per barrel mark. Fuel accounts for 27 per cent of operating costs and a sustained rise in the oil price “could spoil the party”, warned Bisignani. “For every dollar increase in the average price of a barrel of oil over the year, airlines face the difficult task of recovering an additional $1.6 billion in costs,” he said.