Air traffic volumes improve, but costs rising

The International Air Transport Association (IATA) today announced international scheduled traffic results for August. Compared to August 2008, passenger demand was down 1.1%, (an improvement compared to the 2.9% decline in July), and freight demand fell by 9.6% (also an improvement compared to the 11.3% drop in July).

Compared to August 2008, passenger load factors improved by 1.2 percentage points to 80.9%. Despite the tighter supply and demand conditions average fares continue to be depressed (-22% for premium seats and -18% for economy).

To match capacity with demand, airlines have reduced daily aircraft utilization in recent months. For example, average daily hours for the global Boeing 777 fleet dropped by 2.7% to 11.1 hours per day through the first eight months of the year. Lower utilization helps load factors, but spreading fixed asset costs over fewer hours in the air pushes up unit costs.

Demand continues to improve, but profitability remains ever distant,said Giovanni Bisignani, IATA's Director General and CEO. "Fares have stabilized, but at profitless levels. Meanwhile cost pressures are mounting from reduced aircraft utilization and rising oil prices. The industry is not out of the woods yet,"said Bisignani.

Freight Demand:

Compared to the low point of December 2008, seasonally adjusted freight demand has improved by 12%, but remains exceptionally weak at 16% below April 2008 levels when the fall in demand began. All regions saw improved demand conditions in August compared to July:

- Latin American and the Middle Eastern carriers were the only regions to report growth of 3.9% and 3.0% respectively.

- Asia Pacific carriers, representing 44% of the global freight market, saw year-on-year demand improve marginally from -9.5% to -9.0% in August compared to July.
- North American carriers saw a slightly larger improvement from -14.6% in July to -12.1% in August. This is similar to the -16.2% to -14.5% improvement registered by European carriers.

- African carriers saw the largest improvement from -25.9% in July to -5.1% in August.
The region's small market size exaggerates any shifts.

- For 2010 IATA's industry outlook anticipates average international freight growth of 5.5%, compared to an expected full-year decline in 2009 of 14.5%.

Even with improving demand, there are few bright spots in the industry. This must point us to the need for some fundamental re-thinking. At the top of the list for change are the industry's antiquated rules of the game which restrict access to markets and to international capital. This industry needs to operate as a normal business. Liberalization of ownership rules could be a lifeline for airlines as we approach a difficult fourth quarter,"said Bisignani.