US-China Trade War Weighs Heavily on Air Cargo; August Sees Moderate Pick-up in Passenger Demand

- 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 3.9% in August 2019, compared to the same period in 2018. This marks the tenth consecutive month of year-on-year decline in freight volumes, the longest period since the global financial crisis in 2008. 

Freight capacity, measured in available freight tonne kilometers (AFTKs), rose by 2% year-on-year in August 2019. Capacity growth has now outstripped demand growth for the 16th consecutive month.

Air cargo continues to face strong headwinds from the intensifying trade war between the US and China, as well as weakness in some of the key economic indicators and rising political uncertainties worldwide. Global trade volumes are 1% lower than a year ago. 

Trade in emerging countries has been underperforming that of advanced nations throughout most of 2019. This is due to higher sensitivity of the emerging economies to trade tensions, rising political instability and sharp currency depreciation in some of the key emerging markets. 

Global export orders continue to fall. The global Purchasing Managers Index (PMI) remains in contraction territory. Its tracking of new manufacturing export orders has pointed to falling orders since September 2018. And for the second month in a row, all major trading nations reported falling orders.

“The impact of the US-China trade war on air freight volumes was the clearest yet in August. Year-on-year demand fell by 3.9%. Not since the global financial crisis in 2008 has demand fallen for 10 consecutive months. This is deeply concerning. And with no signs of a détente on trade, we can expect the tough business environment for air cargo to continue. Trade generates prosperity. Trade wars don’t. That’s something governments should not forget,” said Alexandre de Juniac, IATA's Director General and CEO. 

August 2019 (% year-on-year)

World share1

FTK

AFTK

FLF (%-pt)2

FLF (level)3

Total Market

100.0%

-3.9%

2.0%

-2.7%

44.6%

Africa

1.6%

8.0%

17.1%

-2.5%

30.2%

Asia Pacific

35.4%

-5.0%

2.3%

-4.0%

51.6%

Europe

23.3%

-3.3%

3.3%

-3.3%

47.7%

Latin America

2.7%

0.1%

-2.9%

1.1%

37.2%

Middle East

13.2%

-6.7%

-0.8%

-2.7%

43.5%

North America

23.8%

-2.4%

1.3%

-1.5%

37.7%

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 August 2019, while North America and Europe experienced more moderate declines. Africa and Latin America both recorded growth in air freight demand compared to August last year. 

·        Asia-Pacific airlines saw demand for air freight contract by 5% in August 2019, compared to the same period in 2018. The US-China trade war along with the slowdown in the Chinese economy have significantly impacted this region. The temporary shutdown of Hong Kong International Airport – the largest cargo hub in the world –added additional pressure. 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 2.3% over the past year.  

·        North American airlines saw demand decrease by 2.4% in August 2019, compared to the same period a year earlier. Capacity increased by 1.3%. The US-China trade war and falling business confidence continue to weigh on the region’s carriers. Freight demand has contracted for the largest routes between Asia and North America, where seasonally-adjusted volumes are down almost 5% compared to their level in July 2018.

·        European airlines posted a 3.3% decrease in freight demand in August 2019 compared to the same period a year earlier. Weaker manufacturing conditions for exporters in Germany, softer regional economies, and ongoing uncertainty over Brexit, have impacted the recent performance. Capacity increased by 3.3% year-on-year. 

·        Middle Eastern airlines’ freight volumes decreased 6.7% in August 2019 compared to the year-ago period. This was the sharpest drop in freight demand of any region. Capacity decreased by 0.8%. Escalating trade tensions, the slowing in global trade and airline restructuring have impacted the region’s performance since the fourth quarter of 2018. Economic uncertainty from oil price volatility among the region’s oil reliant markets has added additional pressure.

·        Latin American airlines experienced an increase in freight demand in August 2019 of 0.1% compared to the same period last year and a capacity decrease of 2.9%. Low economic growth compounded by the US-China trade war and political instability in some countries have impacted the region’s performance. Recent currency volatility in the region’s key economies have also contributed.  

·        African carriers posted the fastest growth of any region in August 2019, with an increase in demand of 8% 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 17.1% 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. China recently confirmed a further $60 billion investment into the continent. 

View August Air Freight Results (pdf)

PASSENGER

The International Air Transport Association (IATA) announced global passenger traffic data for August 2019 showing that demand (measured in total revenue passenger kilometers or RPKs) climbed 3.8% compared to the year-ago period. This was above the 3.5% annual increase for July. August capacity (available seat kilometers or ASKs) increased by 3.5%. Load factor climbed 0.3% percentage point to 85.7%, which was a new monthly record, as airlines continue to maximize asset use. 

“While we saw a pick-up in passenger demand in August compared to July, growth remains below the long-term trend and well-down on the roughly 8.5% annual growth seen over the 2016 to Q1 2018 period. This reflects the impact of economic slowdowns in some key markets, uncertainty over Brexit and the trade war between the US and China. Nonetheless, airlines are doing a great job of matching capacity to demand. With passenger load factors reaching a new high of 85.7% this is good for overall efficiency and passengers’ individual carbon footprint,” said Alexandre de Juniac, IATA’s Director General and CEO.
 

 
 

August 2019
(% year-on-year)

World share1

RPK

ASK

PLF (%-pt)2

PLF (level)3

Total Market 

100.0%

3.8%

3.5%

0.3%

85.7%

Africa

2.1%

4.0%

6.1%

-1.5%

75.5%

Asia Pacific

34.5%

4.9%

5.4%

-0.4%

83.9%

Europe

26.8%

3.6%

3.3%

0.2%

88.9%

Latin America

5.1%

3.4%

0.8%

2.1%

83.3%

Middle East

9.2%

2.6%

1.1%

1.2%

82.1%

North America

22.3%

3.1%

2.3%

0.7%

87.5%

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

 

International Passenger Markets

 

August international passenger demand rose 3.3% compared to August 2018, improved from a 2.8% year-over-year growth achieved in July. With the exception of Latin America, all regions recorded increases, led by airlines in Africa. Capacity climbed 2.9%, and load factor edged up 0.3 percentage point to 85.6%.
 

·        Asia-Pacific airlines’ August traffic increased 3.5% compared to the year-ago period, which was an acceleration compared to a 2.6% rise in July. However, this remains well below the long-term average growth rate of around 6.5%, reflecting slowing economic growth in India and Australia as well as the impact of trade disputes. Capacity rose 3.9% and load factor slid 0.4 percentage point to 82.8%.  

·        European carriers saw August demand climb 3.7% year-to-year, fractionally up over a 3.6% increase for July. Capacity rose 3.4%, and load factor climbed 0.2 percentage point to 89.0%, which was the highest among regions. Slowing economic growth in key markets such as the UK and Germany, as well as uncertainties and disparate business confidence outcomes are behind the softer conditions for the continent’s air carriers. 

·        Middle Eastern airlines posted a 2.9% traffic increase in August, which was an increase from a 1.7% rise in July. While this was better than the average of the past twelve months, it remains far below the double-digit growth trend of recent years. Falling business confidence in parts of the region, combined with some key airlines going through a process of structural change and geopolitical tensions are all likely to be contributing factors. Capacity increased 1.3%, with load factor rising 1.3 percentage points to 82.4%.   

·        North American carriers’ international demand rose 2.5% compared to August a year ago, up from a 1.4% increase in July. Capacity rose 1.3%, and load factor grew by 1.0 percentage point to 88.3%. As with the Middle East and Asia Pacific, this performance represents an improvement from July, but remains relatively soft compared to long-term norms, most likely reflecting trade tensions and slowing global demand. 

·        Latin American airlines experienced a 2.3% demand increase in August compared to the same month last year, down from a 4.0% annual growth in July. Argentina’s financial and currency crises, combined with challenging economic conditions in Brazil and Mexico, contributed to the depressed performance. Capacity fell 0.3% and load factor surged 2.1 percentage points to 83.9%. 

  • African airlines’ traffic climbed 4.1% in August, up from 3.2% in July. This solid performance comes after South Africa – the region’s second largest economy – returned to positive economic growth in Q2 2019. Capacity rose 6.1%, however, and load factor dipped 1.4 percentage points to 75.6%.

 

Domestic Passenger Markets

Demand for domestic travel climbed 4.7% in August compared to August 2018, unchanged from the previous month. Capacity rose 4.6% and load factor increased 0.1 percentage point to 85.9%. 

August 2019
(% year-on-year)

World share1

RPK

ASK

PLF (%-pt)2

PLF (level)3

Domestic

36.1%

4.7%

4.6%

0.1%

85.9%

Australia

0.9%

-0.4%

-0.2%

-0.2%

79.4%

Brazil

1.1%

-1.4%

-4.4%

2.5%

82.5%

China P.R.

9.5%

10.1%

11.5%

-1.1%

87.6%

India

1.6%

3.7%

1.4%

1.9%

85.5%

Japan

1.1%

2.1%

2.4%

-0.2%

80.9%

Russian Fed.

1.5%

6.0%

6.8%

-0.7%

91.0%

US

14.0%

3.9%

3.2%

0.6%

87.1%

 

  • Australian airlines’ domestic traffic slipped 0.4% in August compared to August a year ago, which was a reversal from a 0.7% annual increase in July. Economic growth in Australia slipped to its lowest level in several years during the second quarter.
     
  • Russian airlines saw domestic traffic climb 6.0% in August, down from 6.8% growth in July and below the long-term average growth rate in the market of around 10%.
     

The Bottom Line

The 40th Assembly of the International Civil Aviation Organization (ICAO) ended last week with significant progress made by governments in support of the industry’s environmental goals. The Assembly passed a resolution that reaffirmed and strengthened its support for the successful implementation of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)—the world’s first global carbon offsetting scheme—that begins in 2020. It also directed the ICAO Council to report to the next Assembly on options for the adoption of a long-term aspirational goal for reducing carbon emissions from international aviation.

“It’s been 10 years since the aviation industry agreed a long-term goal to cut aviation emissions to half the levels of 2005 by 2050. This Assembly marks the first time that ICAO member states have agreed to consider a long-term goal for governments to reduce aviation emissions—a move that is strongly welcomed by airlines, who recognize that sustainability is critical to earning aviation’s license to grow and to continue spreading its many economic and social benefits. 

“From 2020—with the help of CORSIA—the sector’s growth will be carbon-neutral. And with the strong support of governments in areas such as commercializing sustainable aviation fuels and improving the efficiency of air traffic management, we will continue working toward our long-term goal,” said de Juniac. 

View full August passenger results (pdf)

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