Trade War Impacting Air Freight Demand; A Soft Start to the Peak Travel Period

- Geneva, Switzerland

The International Air Transport Association (IATA) released data for global air freight markets showing that demand, measured in freight tonne kilometers (FTKs), contracted by 3.2% in July 2019, compared to the same period in 2018. This marks the ninth consecutive month of year-on-year decline in freight volumes.

Air cargo continues to suffer from weak global trade and the intensifying trade dispute between the US and China. Global trade volumes are 1.4% lower than a year ago and trade volumes between the US and China have fallen by 14% year-to-date compared to the same period in 2018.

The global Purchasing Managers Index (PMI) does not indicate an uptick. Its tracking of new manufacturing export orders has pointed to falling orders since September 2018. And for the first time since February 2009 all major trading nations reported falling orders.

Freight capacity, measured in available freight tonne kilometers (AFTKs), rose by 2.6% year-on-year in July 2019. Capacity growth has now outstripped demand growth for the 9th consecutive month.

Trade tensions are weighing heavily on the entire air cargo industry. Higher tariffs are disrupting not only transpacific supply chains but also worldwide trade lanes. While current tensions might yield short-term political gains, they could lead to long-term negative changes for consumers and the global economy. Trade generates prosperity. It is critical that the US and China work quickly to resolve their differences,” said Alexandre de Juniac, IATA's Director General and CEO.

July 2019 (% year-on-year)

World share1

FTK

AFTK

FLF (%-pt)2

FLF (level)3

Total Market

100.0%

-3.2%

2.6%

-2.7%

45.0%

Africa

1.6%

10.9%

17.0%

-1.8%

32.3%

Asia Pacific

35.4%

-4.9%

2.5%

-4.0%

51.9%

Europe

23.3%

-2.0%

4.2%

-3.1%

48.5%

Latin America

2.7%

3.0%

2.7%

0.1%

35.4%

Middle East

13.2%

-5.5%

0.2%

-2.7%

45.3%

North America

23.8%

-2.1%

1.6%

-1.4%

37.3%

 

1 % of industry FTKs in 2018 2 Year-on-year change in load factor 3 Load factor level

Regional Performance

Airlines in Asia-Pacific and the Middle East suffered sharp declines in year-on-year growth in total air freight volumes in July 2019, while North America and Europe experienced more moderate declines. Africa and Latin America both recorded growth in air freight demand compared to July last year.

Asia-Pacific airlines saw demand for air freight contract by 4.9% in July 2019, compared to the same period in 2018. The US-China trade war and weaker manufacturing conditions for exporters in the region have significantly impacted the market. With the region accounting for more than 35% of total FTKs, this performance is the major contributor to the weak industry-wide outcome. Air freight capacity increased by 2.5% over the past year.

North American airlines saw demand decrease by 2.1% in July 2019, compared to the same period a year earlier. Capacity increased by 1.6% over the past year. Despite a sound economic backdrop supporting consumer spending, the US-China trade tensions continue to weigh on the region’s carriers. Freight demand between Asia and North America have fallen by almost 5% in year-on-year terms.

European airlines posted a 2.0% decrease in freight demand in July 2019 compared to the same period a year earlier. Weaker manufacturing conditions for exporters in Germany, heightened recession fears, and ongoing uncertainty over Brexit, have impacted the recent performance. Capacity increased by 4.2% year-on-year.

Middle Eastern airlines’ freight volumes decreased 5.5% in July 2019 compared to the year-ago period. This was the sharpest drop in freight demand of any region. Capacity increased by 0.2%. Escalating trade tensions, the slowing in global trade and airline restructuring have impacted the recent performance.

Latin American airlines experienced an increase in freight demand growth in July 2019 of 3.0% compared to the same period last year and capacity increased by 2.7%. The recovery of the Brazilian economy, to avoid a recession, was a positive development; however, concerns regarding the outlook for some key Latin American countries including Argentina remain.

African carriers posted the fastest growth of any region in July 2019, with an increase in demand of 10.9% compared to the same period a year earlier. This continues the upwards trend in FTKs that has been evident since mid-2018 and makes Africa the strongest performer for the sixth consecutive month. Capacity grew 17% year-on-year. Strong trade and investment linkages with Asia have underpinned a double-digit increase in air freight volumes between the two regions over the past year.

A Soft Start to the Peak Travel Period

The International Air Transport Association (IATA) announced slowing global passenger demand growth for July. Total revenue passenger kilometers (RPKs) rose 3.6%, compared to the same month in 2018. This was down from 5.1% annual growth recorded in June. All regions posted traffic increases. Monthly capacity (available seat kilometers or ASKs) increased by 3.2% and load factor rose 0.3 percentage point to 85.7%, which is a new high for any month. 

July’s performance marked a soft start to the peak passenger demand season. Tariffs, trade wars, and uncertainty over Brexit are contributing to a weaker demand environment than we saw in 2018. At the same time the trend of moderate capacity increases is helping to achieve record load factors,” said Alexandre de Juniac, IATA’s Director General and CEO.

July 2019
(% year-on-year)

World share1

RPK

ASK

PLF (%-pt)2

PLF (level)3

Total Market 

100.0%

3.6%

3.2%

0.3%

85.7%

Africa

2.1%

4.0%

5.8%

-1.3%

73.5%

Asia Pacific

34.5%

5.2%

5.1%

0.0%

83.1%

Europe

26.8%

3.3%

3.1%

0.2%

89.0%

Latin America

5.1%

2.8%

1.8%

0.8%

85.3%

Middle East

9.2%

1.3%

0.8%

0.4%

81.2%

North America

22.3%

2.7%

1.6%

0.9%

88.8%

1% of industry RPKs in 2018  2Year-on-year change in load factor 3Load Factor Level

 

International Passenger Markets

July international passenger demand rose 2.7% compared to July 2018, which was a deceleration compared to the 5.3% growth recorded in June. Capacity climbed 2.4%, and load factor edged upward 0.2 percentage point to 85.3%. All regions reported growth, led by airlines in Latin America.

Asia-Pacific airlines’ July traffic rose 2.7% over the year-ago period, a slowdown compared to June growth of 3.9% and their weakest performance since early 2013. Capacity increased 2.4% and load factor rose 0.2 percentage point to 82.6%. US-China and Japan-South Korea trade tensions as well as political tensions in Hong Kong all have weighed on business confidence. 

European carriers registered a modest 3.3% annual growth in July, down from a 5.6% year-over-year increase in June. This is the slowest rate of growth since mid-2016. Continuing uncertainty over Brexit and slowing German exports and manufacturing activity contributed to a weakening in business and consumer confidence. Capacity rose 3.2%, and load factor climbed 0.1 percentage point to 89.0%, highest among the regions. 

Middle East carriers had a 1.6% increase in demand for July, well down on the 8.3% growth recorded for June, after the end of Ramadan. Weakness in global trade, volatile oil prices and heightened geopolitical tensions have been negative factors for the region. July capacity climbed 1.0% compared to a year ago and load factor rose 0.4 percentage point to 81.3%.

North American airlines’ traffic climbed 1.5% compared to July a year ago. This was down from 3.5% growth in June, reflecting the slowdown in the US and Canadian economies and the trade disputes. July capacity rose 0.7% with the result that load factor climbed 0.7 percentage point to 87.9%, second highest among the regions.

Latin American airlines experienced a 4.1% rise in traffic in July, which was the strongest growth among the regions but a decline from 5.8% year-over-year growth in June. It occurred amid continued disruption following the demise of Avianca Brasil and more challenging business conditions in some key regional economies. Capacity rose 2.7% and load factor climbed 1.1 percentage points to 85.6%.
 
African airlines’ July traffic rose 3.6%, a significant decline from 9.8% growth recorded in June, as weakening business confidence in South Africa offset solid economic conditions elsewhere on the continent. Capacity rose 6.1%, and load factor slipped 1.7 percentage points to 72.9%.

 

Domestic Passenger Markets

Domestic travel demand outperformed international growth in July, as RPKs rose 5.2% in markets tracked by IATA, up from 4.7% growth in June. Domestic capacity climbed 4.7%, and load factor rose 0.4 percentage point to 86.5%.

July 2019
(% year-on-year)

World share1

RPK

ASK

PLF (%-pt)2

PLF (level)3

Domestic

36.1%

5.2%

4.7%

0.4%

86.5%

Australia

0.9%

-0.9%

0.1%

-0.8%

82.1%

Brazil

1.1%

-6.1%

-6.9%

0.7%

84.7%

China P.R.

9.5%

11.7%

12.3%

-0.4%

84.9%

India

1.6%

8.9%

7.1%

1.4%

88.3%

Japan

1.1%

4.7%

5.8%

-0.8%

71.7%

Russian Fed.

1.5%

6.8%

6.3%

0.5%

92.2%

US

14.0%

3.8%

2.6%

1.1%

89.4%

 

1% of industry RPKs in 2018  2Year-on-year change in load factor 3Load Factor Level

China’s domestic traffic rose 11.7% in July—an acceleration over the 8.9% growth recorded in June and the strongest domestic performance. Growth is benefitting from lower fares and more connections.

Japan’s domestic traffic climbed 4.7% in July, up from 2.6% in June. Business confidence and economic growth are relatively positive at the moment.
 

The Bottom Line

Over the peak northern summer period millions of people took to the skies to reunite with families, to explore the world or to simply enjoy well deserved vacations. The aviation industry is working hard to ensure that the environmental costs of all travel are minimized. 

The carbon footprint of the average air journey this year is half what it would have been in 1990. From 2020 overall net emissions will be capped. And realizing the full potential of sustainable aviation fuels will play a major role in our 2050 target to cut overall net emissions to half 2005 levels. Unfortunately, with a host of environmental taxes planned or under consideration in Europe, it seems that governments are more interested in taxing aviation than partnering with industry to make it sustainable,” said de Juniac. 

 

 

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