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Aviation Industry Records Mixed Fortunes

by Ulrika Lomas, Tax-News.com, Brussels

09 August 2011


The International Air Transport Association (IATA) has announced traffic results for June, which showed a slight softening in demand for both air travel and freight markets. Compared to June of last year, passenger demand was up 4.4% while freight demand was 3% lower.

IATA said that the trend for passenger travel remains upwards, but at a slower pace than the post recession rebound, which was at an annual rate close to 10%. The slowdown reflects slower economic growth and increased costs resulting from higher jet fuel prices, and increased taxation (in some countries).

According to IATA's figures, freight volumes have not grown since July-August 2010. May 2010 was the post-recession re-stocking peak, compared to which the June 2011 international freight market was 6% smaller.  While world trade is expanding at 7% a year, the benefit is being realized more by modes of transport other than air.

“Compared to May both passenger and cargo markets contracted by about 1%. For passenger traffic, this is a speed-bump in a gradual post recession improvement. But air cargo continues in the doldrums at 6% below the post-recession peak,” said Tony Tyler, IATA’s new Director General and CEO.

Overall demand for international passenger services grew by 5.9% and capacity expanded by 7.2%. While load factors were maintained at an impressive 79.0%, this is 0.9 percentage points below the June 2010 performance.

On a regional basis, IATA said:

  • Latin American carriers experienced the highest growth levels with a 14.3% increase over June 2010. Disruptions following Chile’s Puyehue Volcano eruption contributed to a drop from the 21.3% increase recorded in May. Load factors for the region rose to 77.3% (from 73.8% in June 2010) which will help the region’s carriers deal with higher fuel costs.
  • European carriers are showing the second most robust expansion of demand with 8.9% growth compared to June 2010. The weak euro is supporting a strong inbound travel trend and business travel associated with growing exports. Load factors for the region stood at 80.6%, the second-highest among regions.
  • Middle East carriers recorded a 6.4% increase in demand against a capacity increase of 8.4% for a load factor of 74.8%. For the second consecutive month both demand and capacity increases by Middle East carriers have fallen behind those of Europe and Latin America. North American carriers saw May’s 4.5% demand growth fall to 2.4%. With tight capacity discipline, airlines there delivered a load factor of 85.3% - the highest among the regions.
  • Asia Pacific carriers saw demand grow by 3.3%. Demand growth was held at about half the global average due to tightening economic policies and the effects of the earthquake and tsunami in Japan. The weakness in Japan’s international market has knocked 0.5% percentage points off the region’s growth. Asia Pacific carriers recorded a load factor of 76.9% which is 2.1% below the global average.
  • African carriers continue to experience the weakest demand with a 2.9% fall compared to June 2010 levels. The continued political unrest in North Africa is the primary driver of the poor performance which is also reflected in load factors which stood at 64.7%, which is 3.9% below the previous year’s levels.

“The industry is living in several different realities. With high load factors and an upward growth trend, the passenger business is doing better than cargo. But regional growth patterns are shifting. The Middle East carriers have moderated to a single digit expansion and tighter economic conditions have slowed China’s growth. Meanwhile, Latin America is leading the industry expansion followed by Europe which is growing strongly despite its currency crisis. And North America is underperforming the industry on growth but leading on load factors,” said Tyler.

“What is clear is that the rising jet fuel price is putting pressure on the bottom line. The average price for the second quarter was USD133/barrel which is an increase of USD10 over the first quarter. With an expected profit margin of only 0.7%, the ability of airlines to recoup this cost is critical to staying in the black for the year. Slower economic growth makes these challenges all the more difficult. It is certainly not the time to burden the industry with increases in other costs, including taxation,” Tyler added.

IATA is forecasting an industry profit of USD4bn for 2011 which is a 78% fall from the USD18bn that the airlines made in 2010. On anticipated revenues of USD598bn, this translates to a net industry margin of 0.7%.

Based on a forecast average oil price of USD110 per barrel for 2011 and a jet fuel price of USD126.5 per barrel, the industry fuel bill is expected to be USD176bn, accounting for 30% of costs.

TAGS: aviation

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