Passenger growth accelerates on rising business confidence

The International Air Transport Association (IATA) announced global passenger traffic results for February showing that demand growth is accelerating on the back of stronger business confidence, particularly in emerging regions. Passenger demand rose 3.7% compared to February 2012.

 The 3.7% growth masks improvements in recent months where October 2012 appears to have been a turning point for air travel markets. Since October, passenger demand has been growing at an annualised rate of 9%, almost double the growth trend over the first nine months of 2012.

 “February’s performance was good news. Demand for air travel continues to rise on economic optimism and improved business confidence but that comes with a few caveats. Much of the growth is concentrated on emerging markets. Europe continues to be a laggard and the handling of the banking crisis in Cyprus has reminded all of us that the deep problems in the Eurozone economies still remain,” IATA Director General and CEO Tony Tyler said.

 Capacity was up 1.0% from the previous February and the industry load factor stood at 77.1%. “Airlines are carefully managing capacity expansion, which is keeping the load factor at a record high. This is helping the industry to remain profitable despite persistently high oil prices,” Tyler stated.

 International passenger markets

February international passenger demand was up 3.6% compared to the year-ago period and 0.9% compared to January. Capacity rose 1.1% versus February 2012 and load factor climbed 1.8% to 76.3%.

Asia-Pacific carriers recorded an increase of 4.5% compared to February 2012. Continuing improvements in China’s economy and growth in intra-Asian trade provided strong support to the passenger business of the region’s airlines. With this robust performance, demand associated with Asia-Pacific’s emerging markets has been a major driver of the stronger growth in international traffic seen recently.

European carriers recorded 0.8% growth compared to February 2012. Reflecting the contraction of the Eurozone economy in the fourth quarter of 2012, European carriers have not seen any growth in international demand since October. They have responded by tightly managing capacity, which declined 2.0% year-on-year in February. This pushed the load factor up to 76.5%.

North American airline international traffic rose just 0.3% in February compared to February 2012; however this doesn’t reflect the significant underlying growth trend over recent months. International revenue passenger kilometres for North America are up 3% in February compared to October. The load factor rose to 76%, reflecting a 4.6% reduction in capacity year-on-year.

Middle East carriers saw year-on-year demand expand by 10.6% - the strongest among all the regions. Capacity expansion was held to 9.7% with the result that load factor rose 0.7% points to 77.7%, the highest for any region.

Latin American airlines posted year-on-year growth of 7%, a 9.9% rise in capacity, however, pushed load factor down 2.1 percentage points to 76.7%. Robust economic growth in countries such as Colombia, which is experiencing strong demand for commodities exports, is contributing to rising air travel. African airline traffic climbed 7.7% compared to February 2012, second best among the regions, while capacity rose 3.9%, boosting the load factor 2.3 percentage points to 65.2%. The rise in load factor commenced in mid-2012, supported by an increase in demand and also from tighter capacity management.

The bottom line

On 20 March, IATA raised its outlook for the industry’s earnings performance to a net profit margin of 1.6% from 1.3%. “The industry’s fortunes appear to be moving in the right direction. But the margins are wafer thin and any shock, with the continuing Eurozone crisis or budget sequestration in the US, could negatively impact the outlook,” said Tyler.

 Budget sequestration measures began to take effect on Monday, 1 April. Alongside the economic impact of uncertainty and reduced government spending, operational concerns are significant. Passengers in the US could face flight delays and even longer lines then usual at security and border control.   “It’s unfair that air travellers should suffer the impact of sequestration given that airlines and passengers already pay around US$ 4.5 billion a year in fees and taxes for the essential services of border control and airport security. It is unlikely that the savings that will be achieved from sequestration will offset the damage to the economy if air travel is discouraged by these cutbacks. Aviation is an important catalyst for economic growth and prosperity.

“The cost of the shocks, uncertainty and unpleasant surprises can only hamper efforts to revive the economy. The government’s priority should be on extracting the greatest economic benefit possible from aviation – not making it more difficult to do business,” said Tyler.