The International Air Transport Association (IATA) announced global traffic results for March showing that total passenger demand rose 7.6% and freight demand climbed 0.3% compared to the same month last year.

Comparisons with March last year are affected by events that depressed passenger demand in 2011, including the Arab Spring, which disrupted travel in the Middle East and North Africa beginning in February 2011 and the earthquake and tsunami in Japan in March 2011 that impacted air travel across the Asia-Pacific region. IATA estimates that the year-on-year rise in air travel in March was about two percentage points higher than it would otherwise have been in the absence of these events.

Cargo demand, meanwhile, was affected by the timing of the Chinese New Year, which occurred in January this year—leading to stronger February shipments—but took place in February 2011—leading to stronger March 2011 shipments and weaker year-to-year comparisons. Compared to February 2012, March air cargo demand was significantly stronger by 2.2%.

“If we discount the industry’s growth by two percentage points as a result of the extraordinary events in 2011, airlines still managed an expansion in the range of 5-6%. Given the prevailing economic conditions with some European states returning to recession, passenger demand is holding up well. But this is bringing little relief to the bottom line because yields are not keeping pace with the continued very high price of oil,” said Tony Tyler, IATA’s Director General and CEO.

Oil prices have remained stubbornly above $100/barrel (Brent crude) for the past 14 months. In 2008, oil prices rose from $90/barrel in January to a peak of $147/barrel in late July. But by November, they had fallen back to less than $50/barrel. “We have not seen such sustained high oil prices previously. Jet fuel prices have risen 8% since January. Considering that fuel now accounts for 34% of average operating costs, it’s an increase that hurts,” said Tyler.

Total passenger capacity rose 4.4% compared to March 2011, resulting in a load factor of 78.3%, up 2.4 percentage points over the year-ago period. Freight capacity, however, climbed 1.7% year-on-year, above the rate of demand, placing pressure on load factors.

International Passenger Markets

International air travel rose 9.6% in March compared to the year-ago period, while capacity climbed 5%, resulting in a load factor of 77.7%, up 3.2 percentage points from March 2011.

European airlines recorded the strongest traffic growth among the major regions despite deepening recessions in parts of the continent, with demand up 8.8% year-on-year, on a 4.1% increase in capacity. Load factor rose to 78.5%. This growth is partly the result of expanding European exports to stronger Asian economies and the associated business travel.

Asia-Pacific carriers also experienced healthy growth, with demand up 8.1% on a 4.3% rise in capacity, pushing load factors up to 76.5%. Year-to-year comparisons were impacted by the March 2011 Japan earthquake and tsunami, which are estimated to have reduced 2011 demand by 3%, exaggerating year-over-year growth by a like amount.

North American airlines had a 5.3% rise in passenger traffic, a solid performance for the region and concurrent with better economic results from the US, particularly with increasing consumer confidence. Capacity rose at a much slower rate than demand, by 0.9%, pushing load factors up fractionally to 80.3%, the highest of all the regions. Very tight capacity control in this region is allowing airlines to boost asset utilization, helping to offset part of the rise in fuel costs.

Middle East airlines’ demand jumped 20.9% on a 12.4% rise in capacity, propelling load factors to 78.7%. This was the largest rate of growth for any region but mostly reflects the weakness of travel last year following the Arab Spring. IATA estimates this inflated traffic gains by seven percentage points.

Latin American carriers experienced the second-slowest demand growth among the regions, but traffic still rose 7.7% year-over-year on a 6.7% rise in capacity. Passenger load factor was 77.9%. It is among the regions least impacted by the distortions in 2011 and this latest expansion reflects a continuation of the steady growth seen since early 2009.

African airlines reported a 14.3% rise in traffic, of which an estimated 11 percentage points was attributed to traffic suppression in March 2011 owing to the Arab Spring. Capacity rose 10.7%, resulting in a load factor of 64.8%, which although an improvement year-over-year, was by far the lowest among the regions.

Domestic Passenger Markets

Domestic markets grew at less than half the rate of international markets, just 4.5%, in part owing to the timing of Carnival in Brazil but also owing to slower growth in India.

Japan experienced the strongest traffic growth, up 15.5% year-on-year. This, however, reflects the devastating impact on year-ago traffic of the natural disasters of March 2011. March 2011 traffic was down 27% on March 2010 and the performance would have been worse had the earthquake struck earlier in the month. While the market has significantly recovered, domestic traffic levels remain 10% below those of the pre-crisis period. In fact, since the end of last year, domestic travel has started to retreat. Capacity was 2.6% below previous-year levels and the load factor was 64.8%, the lowest of any domestic market.
China’s domestic traffic continued on its strong growth path with an expansion of 10.1% but this was exceeded by an 11.8% rise in capacity, with load factors slipping to 80.5%.
US March domestic traffic rose 1%, but capacity contracted 0.7%, pushing load factors to 84.3%, the highest for any market.
Airline traffic in Brazil was affected by the timing of Carnival, which occurred in February 2012, a month earlier than in 2011. March 2012 traffic growth of 2.9% is estimated to be about half what it would have been absent the distortion. Capacity rose 9.2%, pushing the load factor down to 65.2%.
India traffic rose 4% year-over-year, much slower than the last few months, reflecting the wider economic slowdown, while capacity climbed 4.8% and load factor was 72.2%.

Air Freight (Domestic and International)

Air freight markets are now showing signs of renewed expansion. Freight Tonne Kilometers (FTKs) were over 4% higher in March than they were in the fourth quarter of 2011. However, compared with March last year the size of the market was up just 0.3%. This is because the Chinese New Year occurred in February 2011, resulting in strong March 2011 shipments as factories reopened following the holiday period.
Asia-Pacific and European airlines saw their freight traffic decline 3.1% and 1.9%, respectively, compared to a year ago.
Middle Eastern carriers had a 15.1% rise in demand, the healthiest performance among the regions, with about four percentage points of that rise attributable to Arab Spring-related traffic suppression last year. Latin American carriers’ traffic climbed 4.9%, while African carriers saw a 3.9% rise compared to the year-ago period. North American airlines’ demand rose 1.6% year-on-year.

The Bottom Line

Both Spain and the UK have slipped into a double dip recession in recent weeks. From April this year, the UK hiked its Air Passenger Duty (already the most expensive aviation tax in the world) by 8% which is double the inflation rate. Spain, with an economy highly dependent on tourism, is contemplating a 50% increase in charges at its two main airports (Barcelona and Madrid).

“The goose that lays the golden eggs can only take so many knocks before she fails to produce. Even in the best of times, increasing the cost of connectivity dents competitiveness. When the economy is weak it puts at risk aviation’s ability to create jobs and growth. And in a recession it is economic nonsense,” said Tyler.

Aviation supports 56.6 million jobs and $2.2 trillion of economic activity according to the latest figures from Oxford Economics.

View full March traffic results

IATA press release No. 16, Geneva, 2 May 2012

Strong February Performance - But Outlook Remains Fragile

The International Air Transport Association (IATA) released global traffic results for February 2012 showing an 8.6% improvement in passenger demand and a 5.2% rise in cargo demand compared to the same month in the previous year.

Several factors inflated February 2012 results and distorted comparisons with the year-ago period. These included weaker traffic during the Arab Spring a year ago and the occurrence of Carnival in Brazil in February, a month earlier than in 2011. Cargo demand was also subject to positive distortion by the occurrence of Chinese New Year in January which pushed some deliveries into February. When comparing to January 2012 levels, the picture becomes much more moderate, with passenger demand growing by 0.4% and cargo demand declining by 1.2%.

Global passenger capacity expanded by 7.4% compared to previous-year levels, lagging behind the 8.6% increase in demand. This has had a positive impact on load factors, which airlines have maintained at 75.3%—better than the 74.4% recorded in February 2011.

Freight demand continued to be relatively stable. This trend started to develop in September 2011 and is consistent with improvements in business confidence.

“The outlook is fragile. Improvements in business confidence slowed in February. This will limit the potential for business class travel growth and it implies that an uptick for cargo is not imminent. At the same time, airlines trying to recoup rising fuel costs could risk reduced volumes on price sensitive market segments. Weak economic conditions and rising fuel costs are a double-whammy that an industry anticipating a 0.5% margin can ill-afford,” said Tony Tyler, IATA’s Director General and CEO.

International Passenger Markets

International air travel stood 9.3% above February 2011 levels. Capacity expanded by 7.3% and load factors stood at 74.4%. It should be noted that except for Asia-Pacific, all regions saw demand expand ahead of capacity when compared to February 2011.

Asia-Pacific carriers saw a 5.9% increase in demand with a 6.2% increase in capacity. Load factors stood at 75.4%. Following a small spike in international travel over the Chinese New Year period in January (6.4% growth) February traffic declined.
European carriers saw a 7.6% increase in international demand, well ahead of the 5.0% increase in capacity. This growth occurred despite the continuing sovereign debt crisis and weakened consumer confidence. Load factors stood at 74.4%, up significantly from the 72.6% recorded for February 2011.
North American carriers showed the weakest growth in demand at 4.9%, which was still ahead of 4.3% growth in capacity over the previous year. The average load factor was the lowest among the major regions at 72.1%. While this performance was weak in comparison to other regions, it was significantly better than January, when international demand contracted by 0.3%. This improvement follows strengthened consumer confidence and economic conditions.
Middle East carriers posted 23.4% international growth which is distorted by the poor performance in February 2011 owing to the impact of the Arab Spring. Capacity growth stood at 16.1%. Average load factors for the region showed the most dramatic improvement to 76.9% in February 2012 compared to 72.4% in the previous year. Stripping out the distortions, we estimate that the region has now fully recovered.
African carriers also saw a positively distorted performance in February due to the Arab Spring with 24.7% growth in demand and 20.2% growth in capacity. The first impacts of the Arab Spring were felt in the Northern Africa region—primarily Egypt and Tunisia. Load factors for the region stood at 62.7%. Although this was the lowest among all the regions, it was significantly better than the 60.5% for February 2011. Our estimate is that African carriers have fully recovered from the traffic losses resulting from the Arab Spring.
Latin American airlines posted a 13.3% increase in demand against a 10.8% increase in capacity. Load factors stood at 78.3%, the highest among the regions and well ahead of the 76.6% achieved for February 2011. Carriers in the region benefitted most from the traffic spike on Brazil routes associated with Carnival.

Domestic Passenger Markets

Overall domestic demand expanded by 7.6%, only slightly ahead of the 7.5% increase in capacity. Average load factor was 76.7%, which was higher than the 74.4% achieved on international routes.

Brazil experienced the fastest growth in February compared to the previous year. Demand was up by 17.9%, but lagged behind the 20.9% increase in capacity. Load factors stood at 66.5%, the weakest with the exception of Japan.
India experienced the second strongest growth among the major domestic markets at 12.3%. This lagged behind the 16.3% increase in capacity over previous-year levels. Nonetheless, India’s carriers filled 75.4% of seats. The strong traffic growth masks financial weakness resulting from high operating costs and taxation.
China’s domestic market stood at 10.1% above previous-year levels. This is significantly down from the 17.3% growth in January owing to strong Chinese New Year traffic. Load factors were the highest among domestic markets at 79.3%.
The US domestic market saw considerably improved performance in February with 5.2% demand growth. After keeping capacity flat for several months, demand improvements were met with a 4.4% increase in capacity. Load factors strengthened to 78.8%
Japanese domestic performance continues to suffer from the impact of last year’s earthquake and tsunami combined with a tightening of capacity due to industry restructuring. Demand was 8.8% below previous-year levels while capacity stood at -6.0%. Load factors were the weakest among the major domestic markets at 61.4%.

Air Freight (Domestic and International)

Air freight volumes increased in February from a year ago by 5.2%. This was largely as a result of cargo shipments that were postponed in January due to the Chinese New Year holiday and the comparison to the previous year which was impacted by weak demand associated with the Arab Spring. Air freight volumes showed a decline on January’s performance of 1.2%.
Cargo growth was led by Middle East carriers with an 18.2% increase in demand which was matched exactly with an 18.2% increase in capacity. The largest volume contributor to February’s growth, however, was the Asia-Pacific region which posted a 10.2% year-on-year gain.
European and North American carriers saw year-on-year declines in cargo traffic of 1.4% and 0.3% respectively. Latin American airlines saw the most significant decline with a 3.6% fall compared to previous-year levels.
African carriers posted growth of 3.2%% over the previous year demand levels but on very small volumes.

The Bottom Line

“We are ending the first quarter with a considerable amount of uncertainty. While the threat of a European financial meltdown seems more remote than it did only a few months ago, the political risks that aviation faces are growing. The rapid increase in the price of oil is already biting hard. The UK is increasing the onerous Air Passenger Duty. Europe is adding to the burden with the inclusion of international aviation in its emissions trading scheme—the extra-territorial aspects of which are creating the possibility of a trade war that nobody can afford. The exact conditions vary from country to country, but around the world we see ill-conceived policy initiatives that over-regulate, excessively tax or otherwise restrain the aviation industry. This prevents it from being the catalyst for economic growth that it can be,” said Tyler.

The latest study by Oxford Economics on the global benefits of aviation calculates that the industry supports 56.6 million jobs and enables $2.2 trillion of economic activity. With 35% of the value of goods traded internationally travelling by air, the connectivity provided by air transport is one of the key enablers of global business.

“Aviation has transformed the world into a global village. We did this even while making profit margins of less than 1% in a policy framework best described as ‘tax-and-restrict’ in many markets. Aviation could achieve much more with competitiveness-enabling policies that support sustainable growth,” said Tyler.

View full February traffic results

IATA press release No. 12, Geneva - 3 April 2012