Demand for air travel stays firm but with regional variations: IATA

The International Air Transport Association (IATA) announced global passenger traffic results for April, showing a 3.2% increase in demand over the previous April.

Emerging markets are continuing to lead air travel growth, with all regions reporting year-over-year (YoY) gains. The timing of the Easter holiday which occurred in March 2013 and in April 2012 is largely responsible for the apparent decline from March performance, when (YoY) demand showed a 6.2% increase. The seasonally adjusted rate for April showed demand up almost 5%, which is in line with the long term historical trend.

“Passenger demand continued to grow in April, extending the positive trend that has been developing since late 2012. The increase, however, is concentrated in emerging markets. Airlines in Europe and North America reported a modest expansion compared to the strong growth seen in Africa, the Middle East and Asia.

While economic developments in Europe and the US certainly bear watching, most indicators continue to signal further expansion in air travel,” IATA Director General and CEO Tony Tyler said.

Capacity rose 4.4% on the previous April which was slightly ahead of demand. This pushed the industry load factor downwards by 0.9% points to 78.1%. If we adjust for the impacts of seasonality, the load factor remained near record highs of 80%.

 International passenger markets

 April international passenger demand was up 3.0% compared to the year-ago period. Capacity rose 4.3% versus April 2012 and load factor dipped 1.0% point to 77.8%. Asia-Pacific carriers recorded an increase of 2.4% compared to April 2012. This compared to a 5.7% rise in March YoY. In addition to seasonal factors, this likely reflects the softening in regional economic indicators.

China’s business confidence slipped in April to levels indicating stagnation in the manufacturing sector, and growth in Asian trade volumes has flattened after a pick-up toward the end of 2012. Capacity rose 3.7% and load factor slipped one percentage point to 76.9%.

European carriers recorded 2.0% growth compared to April 2012, down on March growth of 4.5% largely owing to the downward impact of the timing of the Easter holiday. Although capacity growth of 2.9% pushed load factor down 0.7% points to 79.4% compared to a year ago, the monthly trend showed improvement.

North American airlines’ international traffic shrank 0.5% in April versus the same month last year, the only region to experience a contraction in traffic growth. Capacity rose 1.3% and load factor fell 1.4% points to 79.5%, still the highest for any region. Although the underlying international growth trend for North American carriers had been showing improvement since late last year, more recently it has returned to levels in line with those of the fourth quarter of 2012.

The impact of Government spending cuts related to the federal budget sequestration are yet to be fully seen, but the initial impact on business confidence has been negative with a significant slip in the US Manufacturing Purchasing Manager’s Index (PMI) in April.

The Middle East carriers saw YoY demand expand by 10.9%, by far the strongest among all the regions. Capacity rose 12.9%, however, pushing down load factor 1.4% points to 76.8%. Demand for air travel has benefited from continued expansion in trade volumes in the Middle East and Africa since late 2011, with regional airlines embarking on network and capacity expansion to take advantage of that growth.

Latin American airlines posted YoY demand growth of 4.6% but capacity rose 7.9% and load factor dropped 2.4% points to 76%. However, the monthly trend shows an improvement in load factor.

African airlines’ traffic climbed 4.7% compared to April 2012, second best among the regions, while capacity rose 3.3%, causing load factor to rise 0.9% points to 67.8%. Africa was the only region to experience a rise in load factor compared to 2012. As with their counterparts in the Middle East, African airlines have seen solid growth in air travel as a result of a sustained increase in trade and rapid economic expansion in some local economies.

Domestic passenger markets

Domestic markets climbed 3.5% in April compared to a year-ago, driven primarily by strong demand in China, as other markets experienced declines with the exception of Australia, which rose 3.8%. Total domestic capacity was up 4.7% compared to April 2012 and load factor fell 0.9% points to 78.6%.

US traffic rose 1.1% in April compared to the year-ago period, but was down on the March growth of 3.1%. Results could have been negatively impacted by the timing of the Easter holiday.

However, based on month-to-month trend, which showed a 0.5% contraction, it does appear that earlier acceleration is starting to weaken, reflecting falls in business confidence. Capacity rose 2.4%, pushing load factor down one percentage point to 82.6% but still the highest for any region.

China’s domestic traffic jumped 10.8% compared to April 2012, although this was less than the 16.6% growth recorded in March. This decline likely reflects the reversal in the previous upswing of Chinese business confidence indicators, suggesting sluggishness in the service and manufacturing sectors. Capacity rose 12.7% and load factor slipped to 80.8%.

Japan’s domestic market contracted 1.1% in April over the year ago period. Capacity rose 1.8%. Load factor was down 1.7% points to 55.3%, by far the lowest for any region. Air travel is yet to reflect improvements in economic indicators, which show business confidence and exports on the rise.

Brazil saw traffic fall 3.4%, with airlines cutting capacity to offset downward pressure on profitability from slower than expected economic growth by. Capacity declined 4.8% and load factor improved one percentage point to 71.3%.

Indian domestic traffic slipped 0.3% in April compared to a year ago. This followed a sharp rise in March traffic attributable to fare discounting. April capacity fell 0.2% and load factor was unchanged at 75.5%.  Australia’s traffic rose 3.8% while capacity climbed 5.6% and load factor fell to 75.4%.

 The bottom line

 “In just a few days, the global air transport industry will gather in Cape Town, South Africa, for IATA’s 69th Annual General Meeting, from 2 to 4 June. High on the agenda will be addressing aviation’s environmental commitment to achieving carbon-neutral growth from 2020, as well as safety, distribution and financial sustainability, “Tyler said

“One of our key messages to governments will be that aviation should be treated like any other business. We don’t want a handout, but we also don’t want to be singled out for special fees and taxes, and commercial regulations that chill market creativity and initiative.”