Strong 2010 but Uncertainties in 2011

The International Air Transport Association (IATA) reported full-year 2010 demand statistics for international scheduled air traffic that showed an 8.2% increase in the passenger business and a 20.6% increase in freight. Demand growth outstripped capacity increases of 4.4% for passenger and 8.9% for cargo. Average passenger load factor for the year was 78.4% which is a 2.7 percentage point improvement on 2009. The freight load factor saw a 5.2 percentage point improvement to 53.8%.

Compared to the pre-recession levels of early 2008, December air travel volumes were 4% higher. Air freight was 1% higher than pre-recession levels; however volumes have fallen 5% since the peak of the post-recession inventory re-stocking boom in early 2010.

The world is moving again. After the biggest demand decline in the history of aviation in 2009, people started to travel and do business again in 2010. Airlines ended the year slightly ahead of early 2008 volumes, but with a pathetic 2.7% profit margin. The challenge is to turn the demand for mobility into sustainable profits, said Giovanni Bisignani, IATAs Director General and CEO.

Severe weather Europe and North America in December put a dent in the industrys recovery. It is estimated that this shaved 1% off of total traffic demand for the month. As a result passenger demand dipped to 4.9% growth on December 2009 levels, significantly lower than the 8.2% growth recorded in November. Hardest hit was Europe which saw December growth slow to 3.3%.
Asia-Pacific carriers recorded a 9% year-on-year increase in passenger demand in 2010. While December 2010 passenger demand growth slowed to 2.9%, it is 11% higher when compared to December 2008, just ahead of the industrys 9-10% improvement over the same period. The economies of China and India continue to lead the regions recovery.
European carriers saw year-on-year passenger demand increase 5.1%. This is double the capacity increase of 2.6%, which shored-up the passenger load factor at 79.4%. But the continents economic uncertainty and continuing debt crisis limited yield improvements. Moreover, Europe was the hardest hit by Decembers severe weather which slowed demand growth to 3.3%, less than half the 7.8% growth recorded in November.

North American carriers recorded year-on-year increases in passenger demand of 7.4% in 2010. A key feature in 2010 was the capacity discipline, where full-year capacity was up by just 3.9% (leading to a sharp recovery in profits). The passenger load factor at 82.2% for the full year (up from 79.6% in 2009) may prove difficult to maintain if capacity additions accelerate over the period ahead. Passenger demand in December increased 6.7%.

Middle Eastern carriers reported the strongest full year growth at 17.8% on the back of a 13.2% capacity increase fueled largely by aircraft deliveries to Gulf-based airlines. Load factors for the region showed a 3 percentage point increase to 76.0%. December demand was 14.1% above previous year levels and 35% higher than in December 2008, illustrating the structural shift that is taking place in the industry as a result of the regions expansion.

Latin American carriers saw the whole year demand grow 8.2% despite a 1.1% decrease in December, a reflection of the demise of Mexicana.  But the reality is that for 2010 overall, the total is almost 8% more than 2008.

African carriers experienced a sharp rebound of nearly 12.9% in 2010, although load factors remained well below the industry average, at 69.1%. Their year ended with December demand at 11.7% above previous year levels.
  • Freight demand growth varied wildly over the year from a high of 35.2% in May to a low of 5.8% in November. Overall the industry is trending towards normal growth pattern in line with the historical growth rate of 5-6%.
  • The regional variation in growth remains particularly marked. Latin American carriers recorded the highest full-year growth rate of 29.1%, followed by Middle East carriers (accounting for 11% of the market) at 26.7%, Asia Pacific airlines (with a 45% market share) grew by 24.0%, Africa at 23.8% and North America by 21.8%.  Against these industry gains, Europes 10.8% growth stands out as exceptionally weak.
The story this month is the sharp rise in oil prices. We predicted that 2011 would see a consecutive second year of profitability but with industry profits falling by 40% to $9.1 billion. This was based on an oil price of $84 per barrel (Brent). Fuel accounts for 27% of operating costs and a sustained rise in the oil price could spoil the party. With uncertainties in the Middle East, oil prices are now hovering near the $100 per barrel mark. For every dollar increase in the average price of a barrel of oil over the year, airlines face the difficult task of recovering an additional $1.6 billion in costs, said Bisignani.

View full December traffic results.
Anthony Concil


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