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Air traffic: demand grows in May - good news on volumes, but risks remain.

The International Air Transport Association's (IATA) traffic results for May showed a 6.8 per cent increase in passenger traffic over May 2010. This is four per cent higher than the beginning of the year. Freight traffic showed a drop of four per cent against the post-recession peak of the re-stocking cycle in May 2010. However, recent months show a renewed upward trend with freight volumes two per cent higher than the start of the year.

"We saw positive developments for the air transport volumes in May. International passenger load factors rebounded by 0.8 percentage points to 75.8 per cent. Freight volumes improved by 1.2 per cent over April and passenger volumes were up by 1.8 per cent. These will help to alleviate some of the pressure on profits from continued high fuel prices," said Giovanni Bisignani, IATA's Director General and CEO.

"But there are risks associated with political unrest in the Middle East and the European currency crisis. We still expect the industry to make $4 billion this year. That is a pathetic 0.7 per cent margin and another shock could alter the industry's fortunes dramatically. It's another tough year for a very fragile industry," said Bisignani.

Asia-Pacific carriers recorded an expansion of 4.7 per cent, considerably below the global average of eight per cent. The IATA said it was due to continuing weakness in the post-earthquake/tsunami Japanese market. Compared to May 2010, capacity expanded five per cent and the load factor fell slightly to 73.4 per cent.

European carriers' traffic expanded by 10.9 per cent, boosted by increased northern European economic activity and a weaker Euro encouraging trade and inbound travel. Capacity expanded by 10.6 per cent, second only to Latin America, and the load factor strengthened to 77.7 per cent.

Middle East carriers grew international traffic by 7.8 per cent over May 2010, slightly below a 9.6 per cent capacity expansion that saw load factors slip to 70.8 per cent. While political unrest continues to have a dramatic impact on several of the region's smaller markets, the overall impact on the region's carriers is very limited.

North American carriers have cut capacity for two consecutive months (-0.4 per cent in April and -0.5 per cent in May). Year-on-year, traffic is up 4.5 per cent and capacity increased by 5.5 per cent. "This cautious approach to capacity expansion resulted in the highest load factor (81.8 per cent) among the major regions," the IATA said.

In China, demand was 10.4 per cent higher than the previous May. A capacity expansion of just 3.3 per cent resulted in load factors of 81.5 per cent. While this is still robust growth, the IATA said it is a major ramping down from the 14.6 per cent recorded in 2010- reflecting tighter economic policies.

India domestic demand was 13.8 per cent above previous-year levels against a capacity expansion 19.9 per cent. The load factor of 78.3 per cent was consistent with the global average of 79.4 per cent.

The mature US domestic demand grew by four per cent compared to the previous May. Against a 1.5 per cent increase in capacity, load factors were pushed to 84.6 per cent--the highest among domestic markets surveyed.

Air freight markets showed a four per cent decline in May. This is skewed as a result of the May 2010 peak for the post-recession restocking cycle. Since the beginning of the year, freight volumes have increased by a modest two per cent. This is lower than the 5.5 per cent IATA forecast for 2011.

"While the continued expansion of world trade at around six per cent annually could lend support to accelerated freight growth in the second half of 2011, the performance so far this year has been lower than expected," the association said.

Carriers in all regions except Latin America (up 1.5 per cent) and the Middle East (+8.1 per cent) saw air freight declines compared to May 2010. The largest fall was for Asia-Pacific carriers with a 9.2 per cent drop showing the impact of disrupted supply chains in Japan and tighter economic policies in China. Declines by African carriers (down 7.8 per cent) reflected the disruption in Egypt and Tunisia. European and North American carriers had modest falls of 2.2 per cent and 1.4 per cent respectively.

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Publication:CPI Financial
Date:Jul 13, 2011
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