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European airlines stocks down after IATA figures show weak growth in air traffic.

The European airlines stocks fell as they recorded weakest growth in passenger demand in May at 8.3 percent in IATA report that was released early during the day. British Airways declined 3.06 percent, Lufthansa airlines and Air France-KLM fell 4.04 percent and 4.43 percent, respectively.

Europe's growth was weak compared with the overall global airline passenger traffic that was up by 11.7 percent and freight traffic up by 34.3 percent compared with May 2009, show IATA statistics.

"Demand rebounded strongly in May following the impact of the European volcanic ash fiasco in April. Passenger traffic is now 1% above pre-recession levels, while the freight market is 6% bigger," said Giovanni Bisignani, IATA's Director General and CEO.

Load factors remained same, despite capacity additions for the sixth time in a row in May. The report says toning up the capacity to surging demand will be a challenge in the coming months. It also finds aircraft utilization rates still below the pre-crisis levels.

"Aircraft utilization remains 5% below pre-recession levels for single-aisle aircraft and 8% for longer-range twin-aisle aircraft," the report concludes.

<strong>Passenger demand</strong>

Among all the regions in scheduled passenger demand, European airlines have shown the weakest demand growth of 8.3 percent in May on yearly basis.

"Weak economic growth, questions over financial stability and sharply tightening fiscal policies will likely result in continued slower demand growth than is experienced in other parts of the world," the report said.

Demand for Latin American carriers increased by 23.6 percent in May, the highest among all the carriers globally, as a result of robust economic recovery in the region.

Asia-Pacific carriers recorded a 13.2 percent increase in demand, North American carriers saw a 10.9 percent increase, Middle Eastern carriers recorded a 17.5 percent growth and African carriers reported a demand increase of 16.9 percent.

<strong>Freight demand</strong>

While the Latin and African carriers witnessed a sharp growth in demand of 60.2 percent and 58.2 percent respectively, European carriers witnessed a weak growth of 21.9 percent, staying behind all other regional carriers.

"It is anticipated that the 15% fall in the value of the Euro will stimulate outbound traffic with cheaper European exports," the IATA said.

Revival in manufacturing in the Asia-Pacific helped the airlines to see demand increase of 38.7 percent in the region. North American and Middle East airlines registered as growth of 35.3 percent and 38.6 percent respectively

As a result of strong demand growth, IATA projects a profit of $2.5 billion for the industry in 2010 against $9.9 loss in 2009.

"This is good news, but it is only a 0.5 percent margin. We are still a long way from sustainable profitability," said Bisignani. He also points outs that airlines should lay emphasis on matching capacity to improve demand and controlling costs.

The airlines stocks in the United States too declined as North American carriers recorded 10.9 percent growth, the weakest after European airlines in May over the same month last year. US Airways declined 2.42 percent and Delta Air Lines fell 3.22 percent. Pinnacle Airlines Corp. and Southwest Airlines fell 3.29 percent and 2.7 percent, respectively on Tuesday.
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Publication:International Business Times - US ed.
Date:Jun 29, 2010
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