Two Years of Lost Growth - Slow Improvement Trend

The improvement that started since passenger traffic hit bottom in March is similar to the pace of growth in 2006 and 2007. Without an exaggerated rebound from pent-up demand, there will be no rapid catch-up to the growth trend established in the 2005 to early-2008 period. The crisis has cost the industry two years of growth. Adjusting costs and capacity to meet that reality will be challenging, said Giovanni Bisignani, IATAs Director General and CEO. The improvement in load factors to pre-recession levels is largely the result of careful capacity management. Compared to October 2008, overall passenger capacity was down 3.3%. Stripping out seasonal fluctuations, passenger capacity has been essentially flat throughout 2009. Responding to the precipitous fall in cargo demand, October cargo capacity was 7.4% below the previous years levels. Cargo capacity adjustments have come with many freighters being put into storage or retired, resulting in a fleet reduction of 4.9%. In contrast, the passenger fleet continues to expand by 1.8% as new deliveries more than offset those being stored or retired. Aircraft utilization for both wide and narrow-body aircraft is now 6% below early 2008 levels. This low asset utilization is increasing operating costs. Yields remain under severe pressure. Although there has been a modest rise in air fares since mid-year, it remains around 20% less expensive to fly in real terms today than it was a year ago. International Scheduled Passenger Demand

Passenger demand is now 6% better than the low point reached in March 2009, but 5% below the peak recorded in early 2008.

Compared to September, seasonally adjusted passenger volumes rose by 0.8%. Carriers in all regions except the Asia-Pacific, Middle East and North America saw improved demand in October compared to September.

Asia-Pacific carriers saw demand grow 0.9%, lower than the 2.1% recorded in September. The carriers in this region, together with the European carriers, have seen demand rise the most from their low points.

While European carriers saw a demand decline of 3% in October, it is an improvement from the -4.2% in September. European carriers demand is still below the levels from last year due to weakness across the Atlantic and within Europe.

North American carriers saw significant growth in international traffic through the middle of 2009. Very significant capacity cuts across both the Atlantic and Pacific have reduced traffic carried in October to -2.6% below 2008 levels.

Middle Eastern carriers saw demand grow 14.3% (compared to 18.2% in September), the highest among the regions. The regions carriers continue to add capacity, increasing 15.3% in October and outpacing the growth in demand.

Latin American carriers saw significant increases in the demand for air travel, growing 9% compared to 3.4% in September. The regions carriers continue to add capacity, growing 3.7% compared to 2008

African carriers saw the demand decline 2.6% in October, an improvement from Septembers -4.2%

International Scheduled Cargo Demand

Cargo traffic is 14% above the December 2008 low point, but remains 15% below the early 2008 peak.

Compared to September 2009, seasonally adjusted cargo volumes rose by 2.5%. Carriers in all regions experienced improved demand conditions in October compared to September.

European carriers saw the biggest weakness in demand with a fall of 11.3% compared to October 2008 - relatively unchanged from the 13% drop in September. The regions carriers were also the most aggressive in adjusting capacity with a 12.4% cut compared to previous year levels.

Middle Eastern carriers saw demand growth of 18.4%. This is significantly better than the 3.6% growth experienced in September and outpaced a capacity increase of 11.2%.

North American carriers saw a 0.5% growth in demand against a 12% fall in capacity.

Latin American carriers recorded a 6.7% growth, significantly higher than the 1.8% in September.

Carriers in Asia-Pacific saw demand grow 1.9% compared to -3.1% in September. The regions carriers have benefited from the air freight generated by the earlier and stronger economic revival in the region, with industrial production now rising strongly in a number of economies.

African carriers saw demand decline 3.8%, an improvement from the -6.9% in September.

This recession is re-emphasizing a structural weakness in the industry. The inability to merge across political borders has created a hyper-fragmented industry. The industry is financially sick, and the medicine of cross-border consolidation is off limits due to an archaic regulatory structure. Market forces should guide our commercial operations. Instead the bilateral system, established in the 1940s, puts governments in control of which markets can be served and limits access to global capital with ownership restrictions. No other industry faces such regulatory manacles, said Bisignani. Earlier this month, Chile, Malaysia, Panama, Singapore, Switzerland, the US, the UAE, with the endorsement of the European Commission, signed a multilateral statement of policy principles focused on aviation liberalization. These principles aim to promote normal commercial freedoms for market access, access to capital (ownership) and pricing on a level playing field. The economic impact of such liberalization could add 0.86% to national GDPs according to studies by InterVISTAS. Managing through this crisis will require all commercial tools that every other industry takes for granted. The principles have been developed by governments covering 60% of global aviation. Now the challenge is two-fold. States that signed need to apply the principles themselves while bringing more states on board. The statement of policy principles is not a panacea, but it is a historic step in the right direction at a critical time. A financially sustainable aviation industry is a necessary catalyst for the global economy, said Bisignani. View complete October figures