The International Air Transport Association (IATA) announced traffic results for August. While passenger demand was up 4.5% over the previous August, this represents a significant slowing from the 6.0% recorded in July. The decline in freight markets accelerated. The 3.8% contraction in freight markets recorded in August was more than double the pace of July’s 1.8% decline.

“The industry has shifted gears downward. The pace of growth in passenger markets has dipped and the freight business is now shrinking at a faster pace. With business and consumer confidence continuing to slump globally there is not a lot of optimism for improved conditions any time soon,” said Tony Tyler, IATA’s Director General and CEO.

Comparisons of July to August more clearly indicate the slowdown. The total passenger market fell by 1.6% in August compared to July. International markets declined by 1.8%, while already weak domestic markets shrank by 1.0%. The total cargo market fell by 1.3%.

Passenger load factors were high at 81.4%, almost as high as in July. While this is close to historically high levels reflecting the industry’s ability to efficiently allocate capacity, it too showed weakness—falling by 1.3% compared to July.

Aug 2011 vs. August 2010	RPK Growth	ASK Growth	PLF	FTK Growth	AFTK Growth
International	6.2%	6.6%	81.2	-3.5%	2.4%
Domestic	1.5%	1.3%	81.6	-5.7%	-1.8%
Total Market	4.5%	4.6%	81.4	-3.8%	1.5%
YTD 2011 vs. YTD 2010	RPK Growth	ASK Growth	PLF	FTK Growth	AFTK Growth
International	7.6%	8.8%	77.7	0.7%	6.4%
Domestic	3.6%	2.5%	79.3	-2.9%	0.3%
Total Market	6.1%	6.5%	78.2	0.2%	5.0%

 

International

International passenger demand was up 6.2% in August compared to the previous year. However, when compared to July, demand contracted by 1.8%.

• European airlines achieved the strongest growth in international passenger traffic in August with a 7.9% increase, just slightly below a capacity expansion of 8.2%. Although domestic economies and leisure travel are weak, strong exports have led to increased business travel on international markets. Load factors of 83.9% were at historically high levels. While the August growth was the strongest in the industry, it should be noted that this is below the 10.6% demand expansion reported for the first eight months of the year indicating that markets are softening.
• Middle Eastern carriers recorded the second highest demand growth at 6.7%, behind capacity expansion of 7.6%, leaving load factors down at 76.2%.
• North American carriers reported the weakest performance with growth of just 2.9%, which was partly a result of equally slow growth in capacity. This is a sharp downturn from stronger growth earlier in the year, as reflected in the 5.6% year-to-date demand expansion. The region’s carriers posted the highest load factor at 86.1%.
• Asia-Pacific carriers reported 5.3% demand growth for August, slightly below a 5.6% capacity expansion. This is slightly better than the year-to-date growth of 4.4%, reflecting the recovery in Japanese international travel. Load factors of 78.9% were below the industry average of 81.2%.
• Latin American carriers reported 5.6% growth for August, behind their 7.1% capacity expansion. This is well below the 10.9% demand growth recorded over the first eight months of the year. Load factors stood at 76.9%.
• African carriers reported 5.2% demand growth against a capacity expansion of 6.3%. The continent’s carriers had the lowest load factor at 70.0%.

Domestic

Year-to-date domestic demand is up 3.6% on 2010. However, domestic demand in August shrank by 1.0% compared to July, which brought the August 2011 growth rate down to 1.5%.

• The largest source of weakness in absolute terms was the 0.3% fall in the US compared to the previous year. US domestic travel accounts for about half of all domestic travel.
• Japanese domestic demand was down 12.4% compared to the previous August. Traffic was up strongly in August and has now recovered to within 9% of pre-earthquake and tsunami levels.
• Chinese domestic travel demand was up only 2.8% on the previous August. While positive, it is well below the double digit growth seen in 2009 and for much of 2010.
• India recorded demand growth of 19.7%, the top performer among domestic markets, followed by Brazil. Combined these markets represent 3% of worldwide air travel limiting the impact of their strong performance on the global industry.

Freight (Domestic + International)

Global freight markets are showing clear signs of decline. Compared to the same month in the previous year, the decline accelerated to -3.8% in August following the 1.8% drop recorded in July.

• During the second half of 2010, weakness in air freight represented a loss of market share to other transport modes. In 2011 air freight reflected the lack of growth in overall world trade volumes. This latest decline shows a further deterioration in global economic conditions.
• The decline has been most prominent in the largest markets. North American carriers reported a 7.0% fall in cargo volume for August (compared to the previous year), followed by carriers in Asia-Pacific (-5.4%) and Europe (-1.8%).
• Operators in Africa (+2.2%), Latin America (+5.4%) and the Middle East (+3.7%) remained positive.
• Overall, utilization on freight markets has declined 4 percentage points since the second quarter of 2010. Coupled with falling volumes this makes the freight business a very difficult market in which to sustain profitability.

The Bottom Line

August traffic results are in line with expectations for a decline in profitability heading into 2012. Airlines are expected to see total industry profits fall from $6.9 billion in 2011 to $4.9 billion. Historically, the airline industry has delivered collective losses when GDP growth (measured using current exchange rates) falls below 2.0%. GDP growth has fallen from 3.9% in 2010, to an expected 2.5% this year and 2.4% is projected for 2012.

“Airlines are bracing for tough times ahead. Economic uncertainty owing to the European sovereign debt crisis and the growing likelihood of a protracted period of slow growth in developed economies mean the industry will be even more focused on reducing costs and improving efficiency. To ensure that airlines can continue to catalyze economic activity, we need governments to review the often onerous tax burden that they place on aviation,” said Tyler.

Last week the UK government decided to reduce long-haul Air Passenger Duty (APD) for Northern Ireland to short-haul levels. “APD is the biggest tax that we face anywhere in the world. Reducing APD for Northern Ireland is a clear recognition of the economic damage that it does. But why stop with Northern Ireland? The competitiveness of the entire UK transport sector is suffering. As a priority, the same reduction must now be made for the whole of the UK, for the benefit of the UK. This would provide a much needed boost to the UK economy, businesses and travellers with more competitive connectivity,” said Tyler.