IATA: Moderate Freight Growth Continues in July, Up 2.1%; Solid Traffic Growth, Record Load Factor

The International Air Transport Association (IATA) released data for global air freight markets showing that demand, measured in freight tonne kilometers (FTKs), rose 2.1% in July 2018, compared to the same period the year before. This was the slowest pace of growth seen since May 2016 and well below the five-year average growth rate of 5.1%.

Freight capacity, measured in available freight tonne kilometers (AFTKs), grew by 3.8% year-on-year in July 2018. This was the fourth time in five months that capacity growth outstripped demand growth.

While the temporary grounding of the Nippon Cargo Airlines fleet may have exaggerated a slowdown in growth at the beginning of July, there are three indications that slower growth will continue:

• The inventory re-stocking cycle, which requires quick delivery to meet customer needs, ended at the beginning of the year.
• There has been a broad-based weakening in manufacturing firms’ export order books. Specifically, export order books in Europe started weakening in February and have fallen in China and Japan in recent months.
• Longer supplier delivery times are being reported by manufacturers in Asia and Europe, the top two global trading areas by volume. This typically means that they have less need for the speed afforded by air freight.

"July demand for air cargo grew at its slowest pace since 2016. We still expect 4% growth over the course of the year, however the downside risk has increased. The tariff war and increasingly volatile trade talks between the world’s two largest trading nations – China and the US - are rippling across the global economy putting a drag on both business and investor sentiment. Trade wars only produce losers," said Alexandre de Juniac, IATA's Director General and CEO.  

¹% of industry FTKs in 2017   ²Year-on-year change in load factor   ³Load factor level              

Regional Performance    

All regions reported year-on-year demand growth in July 2018, except Africa which contracted. All regions, except Africa and Latin America, reported that capacity growth exceeded growth in demand.

• Asia-Pacific airlines saw demand for freight lose momentum in July 2018. Growth slowed to 0.9% compared to the same period last year. Capacity increased by 3.9%. As the largest freight-flying region, carrying one-third of the total, the risks from protectionist measures impacting the region are disproportionately high.
• North American airlines’ freight volumes expanded 2.6% in July 2018 compared to the same period a year earlier. Capacity increased by 4.0%. The recent momentum of the US economy and the US dollar has helped strengthen demand for air imports. A sharp pick-up in supply chain bottlenecks, which is typically alleviated by the speed of air freight, may also be benefiting the demand. 
• European airlines posted a 2.6% increase in freight volumes in July 2018. This is a significant slowdown from the five-year average annual growth rate of 5.6%. Despite this and the weakening of manufacturers’ order books, seasonally-adjusted air freight volumes have resumed their upward trend in recent months. Capacity increased 4.4%.
• Middle Eastern carriers’ carriers posted the fastest growth of any region in July 2018 with an increase in demand of 5.4% compared to the same period a year earlier. Capacity increased 6.3%. Seasonally-adjusted freight volumes continue to trend upwards, however, at a comparatively modest pace by the region’s standards.
• Latin American airlines experienced a slowdown in freight demand growth in July 2018 to 3.0%. This was only a quarter of the growth rate seen in June 2018 (11.4%) but still above the 5-year average pace of 2.1%. Capacity decreased 7.8%. 
• African carriers saw freight demand contract by 8.3% in July 2018, compared to the same month last year. This was the fourth time in five months that demand contracted. Capacity decreased by 0.7%. After a surge in international FTK volumes last year, seasonally-adjusted international freight volumes have now trended downwards at an annualized pace of 18% over the past six months. This reflects a softening in demand on markets to/from Asia and the Middle East.

View July air freight results (pdf)

Passenger

The International Air Transport Association (IATA) announced healthy global passenger demand for July with all regions reporting growth. Total revenue passenger kilometers (RPKs) rose 6.2%, compared to the same month last year. While this was down from 8.1% year-over-year growth in June, it nevertheless marked a solid start to the peak passenger demand season. Monthly capacity (available seat kilometers or ASKs) increased by 5.5% and load factor rose 0.6 percentage point to a record high for July of 85.2%.

“The industry posted another month of solid traffic growth. And the record load factor shows that airlines are becoming even more efficient in terms of deploying capacity to meet demand. However, rising costs -- particularly fuel -- will likely limit the stimulus we would expect from lower airfares. Therefore, we do expect to see a continued slowing of growth compared to 2017,” said Alexandre de Juniac, IATA’s Director General and CEO.      
     

   ¹% of industry RPKs in 2017   ²Year-on-year change in load factor   ³Load factor level   

International Passenger Markets

July international passenger demand rose 5.3% compared to July 2017, which was a deceleration compared to the 8.2% growth recorded in June. Total capacity climbed 4.7%, and load factor edged up half a percentage point to 85.0%. All regions reported growth, led by Asia-Pacific for the first time in three months.

• Asia-Pacific airlines’ July traffic rose 7.5% over the year-ago period, a slowdown compared to June growth of 9.6%. Capacity increased 6.0% and load factor rose 1.1 percentage points to 82.1%. Growth is being supported by a combination of robust regional economic growth and an increase in route options for travelers.
• European carriers posted a 4.4% rise in traffic for July compared to a year ago, down from 7.1% annual growth in June. On a seasonally-adjusted basis, passenger volumes have been tracking sideways for the past three months, reflecting mixed developments on the economic front and possible traffic impacts related to air traffic control strikes across the region. Capacity rose 3.9%, and load factor climbed 0.5 percentage point to 89.1%, highest among the regions. 
• Middle East carriers had a 4.8% increase in demand for July, well down on the 11.2% growth recorded for June, although this mainly is attributable to volatility in the data a year ago, rather than any major new developments. The region has been negatively impacted by a number of policy measures over the past 18 months, including the ban on portable electronic devices and travel restrictions. July capacity climbed 6.5% compared to a year ago and load factor dropped 1.3 percentage points to 80.3%.
• North American airlines’ traffic climbed 4.1% compared to July a year ago. This was down from 6.0% growth in June, but still ahead of the 5-year average pace for carriers in the region as strong momentum in the US economy is helping underpin a pick-up in international demand for airlines there. July capacity rose 2.8% with the result that load factor climbed 1.1 percentage points to 87.2%, second highest among the regions. 
• Latin American airlines experienced a 3.8% rise in traffic in July, the slowest growth among the regions and a decline from 5.6% year-over-year growth in June. Capacity rose 4.6% and load factor slid 0.6 percentage point to 84.2%. Signs of softening demand have come alongside disruption from the general strikes in Brazil.
• African airlines’ July traffic rose 6.8%, second highest among the regions. Although this represented a decline from 11.0% growth recorded in June, the seasonally-adjusted trend remains strong. Capacity rose 3.9%, and load factor jumped 2.1 percentage points to 76.0%. Higher oil and commodity prices are supporting economies in a number of countries.

Domestic Passenger Markets             

Domestic travel demand grew by 7.8% year-on-year in July, broadly in line with 8.0% growth recorded in June. All markets saw annual increases, with China, India and Russia posting double-digit growth rates. Domestic capacity climbed 6.9%, and load factor rose 0.8 percentage point to 85.6%.

¹% of industry RPKs in 2017   ²Year-on-year change in load factor   ³Load factor level  *Note: the seven domestic passenger markets for which broken-down data are available account for 30% of global total RPKs and approximately 82% of total domestic RPKs                        

• Russia’s domestic traffic soared 10.8% in July--a 13-month high--as rising world oil prices are helping support economic activity as well as incomes and jobs.
• US domestic traffic also surged to a 5-month high of 5.6%, well above the 5-year average of 4.2%, boosted by the rising US economy. 

The Bottom Line

"The second half of the year got off to a solid start. The strong demand we experienced in July is confirmation that summer is when people want to travel, to explore new places and to reunite with friends and family. Unfortunately, for air travelers in Europe, summer also brought delays and disappointment, while for airlines, it meant accepting schedule inefficiencies and longer flight times. That’s because air traffic capacity has not kept pace with demand and because some controllers used the opportunity of the peak traffic period to launch strikes and work slowdowns. Travelers want to get to their holidays on time. It’s past time for the European Commission, Member States and air navigation service providers to take urgent action to eliminate European airspace bottlenecks and to discourage air traffic controllers from penalizing air travelers when they are unhappy over a contract,” said de Juniac.

View full July passenger traffic analysis