With the global aviation traffic showing an 8.2% increase in January, the growing oil prices has become an emerging worry for the industry as each dollar increase in oil prices add burden of recovering $1.6 billion on the industry, according to an estimate.
The International Air Transport Association (IATA) announced international scheduled traffic results for January showing an 8.2% increase in passenger traffic and 9.1% growth in air freight compared to January 2010.
“We begin the year with some good news. January traffic volumes are up—8.2% on January 2010 and 2.6% on December. With most major indices pointing to strengthening world trade and economic growth, this is positive for the industry’s prospects. But we are all watching closely as events unfold in the Middle East. The region’s instability has sent oil prices skyrocketing. Our current forecast is based on an average annual oil price of $84 per barrel (Brent). Today the price is over $100. For each dollar it increases, the industry is challenged to recover $1.6 billion in additional costs. With $598 billion in revenues, $9.1 billion in profits and a profit margin of just 1.5%, even with good news on traffic 2011 is starting out as a very challenging year for airlines,” said Giovanni Bisignani, IATA’s Director General and CEO.
By January 2011, air travel volumes were 18% higher compared to the low point reached in early 2009 and some 6% above the pre-recession peak of early 2008. Air freight in January was 39% above the low point reached at the end of 2009 and some 6% above the pre-recession peak of early 2008. Freight has, however, fallen 2% since its May 2010 peak at the height of the re-stocking bubble.
The 8.2% growth in passenger traffic shows a recovery from December’s slowdown (with 5.4% growth) that was related to severe weather in Europe and North America which reduced total traffic by 1-2%.
Passenger load factors are high, but there is evidence that supply growth is beginning to run ahead of demand. Compared to the previous January, the 8.2% demand increase was outstripped by a 9.1% increase in capacity, resulting in an average load factor of 75.7%. Adjusting for seasonality this is equates to a 77.7% load factor. This is a 1.1 percentage point drop from the October 2010 peak.
Middle East carriers saw demand grow 11.7% in January compared to January 2010. The post recession recovery has been the strongest – some 45% higher compared to the low point in September 2008. The region’s economy looks positive with a predicted 4.2% GDP growth which is likely to sustain growth in the air traffic market. Political instability in parts of the region is expected to dampen demand in the affected areas. Egypt, Libya and Tunisia combined comprise around a fifth of the region’s international passenger traffic.
Air freight volumes expanded at a robust 9.1% in January after a revised 7.3% in December and 6.9% in November.
Freight load factor stood at 49.2%. All regions reported levels relatively unchanged from a year ago. The seasonally-adjusted freight load factor of 53% reported in January is within a range of 52-54% since mid 2010, as demand and supply conditions are now stabilizing.
“As if the rising price of oil was not challenging enough, governments are increasing the cost of mobility with a growing contagion of taxes. In 2010 the industry was hit with billions of dollars of new or increased taxes in the UK, Austria and Germany. Now we see South Africa and Iceland planning increases. Governments need to improve their finances and restart their economies. Mobility is a catalyst for economic growth. Governments must understand that taxing air transport out of the range of price sensitive travelers and businesses makes very little economic sense,” said Bisignani.
IATA’s forecast for 2011 was made in December 2010 and anticipates an industry profit of $9.1 billion or a 1.5% net profit margin on $598 billion in revenues. This is based on an average annual oil price of $84 per barrel, a demand increase of 5.3%, flat cargo yields and a 0.5% increase in passenger yields. IATA will revise this forecast on today (March 2).