The International Air Transport Association (IATA) says rising concerns over the Mexican swine influenza could have a significant impact on airline traffic.
“Safety, as always, is our number one priority,” says IATA CEO and director general Giovanni Bisignani. “IATA is working in close cooperation with the World Health Organisation to ensure an efficient response of the air transport industry to the challenges that swine influenza will present,” he adds.
“It is still too early to judge what the impact of swine flu will have on the bottom line. But it is sure that anything that shakes the confidence of passengers has a negative impact on the business. And the timing could not be worse given all of the other economic problems airlines are facing.”
Bisignani says passenger demand last month fell to 11.1% below March 2008 levels. Airlines cut international passenger capacity by 4.4% resulting in an average load factor of 72.1%. “This is 5.4 percentage points below the average load factor recorded in March 2008. Freight demand was relatively stable at -21.4% compared to March 2008,” he adds.
“The global economic crisis continues to reduce demand for international air travel,” said Bisignani explained.
IATA estimates that international revenues in March will be impacted with a decline of up to 20%. “Airlines cannot adjust capacity to match demand. Load factors have dipped sharply from last year. All of this is hitting revenues hard,” said Bisignani.
“The only glimmer of hope is that cargo demand has stabilised this month although at the shockingly low level of -21.4%,” said Bisignani. For the fourth consecutive month international cargo demand is hovering in the -21% to -24% region as a result of the sharp drop in world trade. “It`s not the end of the recession, but we may have found the floor,” said Bisignani.
The shift in Easter from March in 2008 to April in 2009 negatively distorts March 2009 passenger demand by about 2%, leading to an underlying fall in March demand of 9%, IATA figures show.
This shows a continued decline from February of about 1% (after February figures are adjusted for the impact of the leap year).
Among the major regions, carriers in Asia Pacific continued to lead the decline with a 14.5% fall in passenger demand, outstripping a 9.3% downward adjustment in capacity.
The region is particularly impacted by the fall-off in long-haul travel, which is contracting faster than short-haul.
North American carriers saw a decline in international passenger demand of 13.4% as travel was further discouraged by US unemployment reaching 8.5% in March and consumer confidence remaining weak.
European carriers saw their international demand fall by 11.6% where confidence has been dented by unemployment in key markets such as Germany and Spain increased to 8.6% and 17.4% respectively.
African carriers showed the weakest performance in March with a 15.6% fall in demand. But they did the best job at matching capacity to demand with an aggressive cut of 15.1%. While cross border travel within Africa grew during February, African carriers continued to lose market share.
Latin American carriers increased capacity by 2.2% as demand fell by 5.9%. Travel to and from Central America and from Latin America to North America was particularly weak.
Middle Eastern carriers were the only ones to experience growth in March (4.7%). This is an improvement from the 0.4% growth in February, and represented an expansion of market share. But this was out of balance with the 13.1% increase in capacity.
Air cargo demand has moved sideways in the -21% to -24% range since its plunge from -7.9% to -23.2% between October last year and January 2009.
The severity of air freight slump is at least partly driven by manufacturers seeking to correct large inventory overhangs that emerged in late 2008. The stabilisation of the inventory to sales ratio has in turn stabilised air freight demand. Recovery, however, depends on purchasing that can deplete the inventory overhang. Inventory levels remain high and final demand is weak.
Aside from swine flu Bisignani notes that airlines face a myriad challenges. “Like the rest of the economy, recovery in the air transport sector rests on a rise in consumer confidence and consumer spending. Shedding debt will be a major headwind. US households, for example, are leveraged at 130% of annual income. Even bringing this down by 5% erases US$500 billion in consumer spending. The challenge for governments is to turn stimulus funds into spending that fuels trade,” said Bisignani.
Noting the deteriorating financial situation of many airlines, Bisignani urged governments to move forward with liberalisation—particularly of the archaic ownership restrictions that prevent cross-border access to capital and consolidation. “Air transport is an economic catalyst and can play an important role in driving recovery, but only if we are financially sound. Access to global capital and the freedom to consolidate would go a long way to shoring up this industry—without government bailouts,” said Bisignani.
“Unfortunately, instead of using airlines to drive growth, many governments see us as a cash cow. It is shockingly disappointing that the UK Chancellor is continuing with plans to raise the UK Air Passenger Duty in the middle of this economic crisis.
“When the government should be doing everything possible to stimulate the economy, it makes no sense to dampen demand for air travel with increased taxation. Look no further than the Netherlands where collecting an extra €312 million in extra revenues with a new departure tax cost the economy up to €1.2 billion in lost revenue. The Dutch had the good sense to abolish the tax. Let`s hope that others will follow,” said Bisignani.