Airlines are seeing international revenue falls of up to 30% at the start of the busy June-August period
Geneva, July 30, 2009. The International Air Transport Association (IATA) announced international scheduled traffic results for June showing passenger demand declining 7.2% compared to the same month in the previous year while freight demand was down 16.5%. International passenger load factors stood at 75.3%, down from 77.6% recorded in June 2008.
The 7.2% drop in international passenger demand was a slight improvement on the 9.3% fall in May. The capacity adjustment of -4.3% did not keep pace with the fall in demand leaving average fares and yields under significant pressure. As a result, June revenue on international markets fell by a shocking 25-30%.
Cargo demand remained weak at 16.5% below June 2008 levels. This is a moderate improvement, albeit from extremely weak levels, over May, which was 17.4% below 2008 levels. There has been some improvement in world trade and, after adjusting for seasonal fluctuations, freight volumes rose 6% from the low point recorded in December 2008. However, the utilization of air freight capacity on international routes remained very weak (47.3%) in June due to unbalanced trade flows with Asia and some market share loss to ocean transport.
“International passenger demand remains very weak,” said Giovanni Bisignani, IATA’s Director General and CEO. “While it appears that there is stabilization in some markets, this comes at a steep price. Capacity cuts have not kept pace with demand falls. Even with lower fares, the load factor remains 2.3% below last year’s levels. Airlines are seeing international revenue falls of up to 30% at the start of the busy June-August period when airlines traditionally make their money. The outlook remains bleak,” said Bisignani.
International Passenger Demand
The regional pattern of air travel was very mixed in June:
Asia-Pacific carriers recorded a 14.5% fall in demand in June compared with the same month a year ago, following a 14.3% drop in May. Fears about Influenza A(H1N1) have also contributed to delaying any early revival in air transport. Initial estimates suggest the impact of Influenza A(H1N1) took up to 4 percentage points off growth rates for the region’s airlines in June.
North American airlines reported a relative improvement in June, with demand falling 6.7% in June (compared to the 10.9% fall in May). The smaller decrease is likely due to discounting. Load factors of 82.6% were the highest of any region, but revenue from international markets was down about 29% in June, the same as the previous month.
International Air Freight
In June, freight demand remained relatively stable, but at a level 16.5% lower than the same month last year, traffic remains weak.
June marked the 13th consecutive month of contracting demand for international air cargo. Despite reaching a bottom in December, improvement has been slowed by high inventory levels and soft demand. At the current pace, it will likely take several years before demand returns to early 2008 levels.
Asia-Pacific airlines reported a 15.8% drop in June. While still extremely weak, this is an improvement compared to the 18.1% fall in May. This reflects improved economic conditions in a number of emerging Asian economies, such as China.
The economic recovery in Europe and North America is being held back as consumers choose to repay debt rather than increase spending. European carriers saw the weakest demand for freight in June at -20.3%. This was a softening in demand from the -19.2% experienced in May. North American carriers reported a 18.6% fall in June demand. This is relatively unchanged from the 18.8% fall in May.
Middle Eastern carriers reported a -4.2% decline in freight demand resulting in a 40.2% load factor.
African carriers saw demand decline by 20.2% while Latin American carriers saw demand fall by 14.2%. Freight load factors in these regions were the lowest at 26.6% and 31.6% respectively.
“These are extremely challenging times for airlines. There are no signs of an early economic recovery. Other external risks are potentially great, including rising oil prices and the impact of Influenza A(H1N1) on demand. Cash flow is threatened by weak demand, exaggerated by fare discounting. And, after years of cost reduction, the scope for further cuts is limited. Flexibility is critical in finding new sources of capital and new markets. This crisis highlights the need for governments to replace outdated restrictions on ownership and market access with modern commercial freedoms. Quick action is needed,” said Bisignani.