News
Politcal unrest slows global growth

February demand growth was down significantly from the revised 8.4 per cent and 8.7 per cent expansion recorded in January for passenger and cargo traffic respectively. The political unrest in the Middle East and North Africa during February is estimated to have cut international traffic by about 1 per cent. As such it is responsible almost entirely for the slippage in passenger demand growth.

In addition to the political unrest in the Middle East and North Africa, the more dramatic fall in cargo growth (from 8.7 per cent in January 2011 to 2.3 per cent in February) was impacted in part by factory shutdowns due to the Chinese New Year period which fell in the first part of February in 2011.

“Another series of shocks is denting the industry’s recovery from the recession. As the unrest in Egypt and Tunisia spreads across the Middle East and North Africa, demand growth across the region is taking a step back. The tragic earthquake and its aftermath in Japan will most certainly see a further dampening of demand from March. The industry fundamentals are good. But extraordinary circumstances have made the first quarter of 2011 very difficult,” said Giovanni Bisignani, IATA’s Director General and CEO.

February marked a decline in load factors in both the cargo and the passenger business. February passenger load factors stood at 73.0 per cent. On a seasonally adjusted basis they have lost 2.2 percentage points on peak levels as capacity additions have consistently exceeded demand growth. Freight load factors have deteriorated even faster to 51.6 per cent. This is 4 percentage points below their peak in May 2010, on a seasonally adjusted basis.

International Passenger Traffic

By February 2011, air travel volumes were 16 per cent higher compared to the low point reached in early 2009 and some 5 per cent above the pre-recession peak of early 2008.

Europe’s carriers recorded 7.4 per cent growth compared to February 2010 against a 9.8 per cent increase in capacity. This was slower than the 7.9 per cent demand growth reported for January showing the impact of fall off in trans-Mediterranean traffic to North Africa due to the unrest in the region.

North American airlines reported 6.7 per cent year-on-year growth for February and a capacity expansion of 11.9 per cent. In recent months, the region’s airlines have seen dampened demand due to several factors starting with disruptive winter conditions in December and January, followed by political unrest last month in the Middle East and North Africa. As a result, there is a widening gap between supply and demand pushing the load factor down to 71.7 per cent, significantly below the 82.2 per cent recorded for the full year in 2010.

Asia-Pacific airlines reported a major slowdown to 3.0 per cent growth, half of the 6.3 per cent recorded for January. A capacity increase of 6.6 per cent pushed the load factor down to 75.4 per cent. Chinese New Year fell at the beginning of February, pushing some of the holiday traffic into late January.

Middle East airlines saw demand growth fall from 12.0 per cent in January to 8.4 per cent in February. A capacity increase of 11.0 per cent resulted in a load factor of 72.2 per cent. Political unrest in Bahrain, Yemen and Syria is expected to have an impact on the region’s markets in March. These three countries represent about 6 per cent of Middle Eastern traffic and 0.3 per cent of global capacity.

Africa saw traffic fall by 1.3 per cent compared to February 2010. Against a capacity expansion of 6.9 per cent, load factors fell to 60.4 per cent. Egypt and Tunisia account for 18 per cent of the African market and 0.6 per cent of worldwide capacity. Libya is a further 3 per cent of the African market and 0.1 per cent of global capacity. The impact of political unrest has been severe with absolute traffic (measured by RPKs) falling by 13.1 per cent compared to January levels.

Latin American airlines were least exposed to volatility in February. Passenger demand increased by 11.8 per cent. This was virtually matched with a capacity expansion of 12.9 per cent allowing the region’s carriers to maintain the strongest load factor among regions at 76.4 per cent.

Freight Demand

February air freight volumes stood at the same level as the pre-recession cycle peak in early 2008. But it was down almost 7 per cent on the high reached in May 2010 at the peak of business re-stocking.
The industry’s fundamentals are strong. Business confidence, as measured by the purchasing managers’ index, reached its second highest level ever in February.

Air freight carried by Asia-Pacific carriers fell by 4.5 per cent in February. This reflects plant closures associated with Chinese New Year as well as the impact of inflation-fighting measures in the Chinese economy. In terms of volumes, this had the largest impact in slowing global growth to 2.3 per cent–the weakest growth since the beginning of the third quarter in 2009 when annual growth rates turned positive again out of the recession.  Compared to January, freight carried by the region’s carriers fell by 6.6 per cent.

On the back of unrest in Egypt and Tunisia, cargo carried by African carriers fell by 5.7 per cent. In absolute terms, the freight carried by the region’s carriers fell by 8.4 per cent in February compared to January.
North American carriers saw freight expand by 11.8 per cent, second only to the robust 12.1 per cent expansion byLatin American carriers. European carriers showed weak growth of 6.3 per cent, reflecting the region’s proximity and trade connections with North Africa and the continuing weakness in the European economy.

“The industry situation is volatile and we are watching higher fuel prices carefully. Capacity increases ahead of demand are bringing down load factors for both passenger and cargo operations. Demand is still supported by strong economic fundamentals. But with looser supply and demand conditions, it will be a challenge for airlines to recover the added costs of fuel. Our pathetic 1.4 per cent expected margin for 2011 is under considerable pressure,” said Bisignani.

Based on an average oil price of $96 per barrel, IATA is forecasting fuel to account for 29 per cent of average operating costs with a total fuel bill of $166 billion. For every dollar increase in the price of a barrel of oil, the industry must recover an additional $1.6 billion in added costs.