Oil uncertainties keep aviation in red despite demand improvements

27th Aug 2009
Oil uncertainties keep aviation in red despite demand improvements

The aviation industry remains in “intensive care” and the months ahead will be marked by many uncertainties, especially the price of oil, according to the International Air Transport Association.

In its latest report, IATA reported that international passenger demand fell 2.9% in July compared to July 2008 while freight demand was down 11.3%.

The 2.9% fall was a relative improvement over the 7.2% drop in June and the 6.8% decline recorded over the first seven months of the year.

July capacity was more in line with reduced demand than in previous months and load factors are similar to those recorded in July 2008. These positive developments, however, have come at the expense of yields which continue to fall sharply.

The 11.3% decline in cargo demand for July was also a relative improvement over the -16.5% recorded in June and the -19.3% average for the first seven months of the year.  Despite this improvement, the July freight load factor of 47.6% was lower than the 49% recorded in July 2008.


“Demand may look better, but the bottom line has not improved. We have seen little change to the unprecedented fall in yields and revenues. The months ahead are marked by many uncertainties, including the price of oil. The road to recovery will be both slow and volatile. In the meantime, the industry remains in intensive care,” said Giovanni Bisignani, IATA’s Director General and CEO.
All regions saw improved demand performance compared to June, but with significant regional differences.

Asia-Pacific carriers are experiencing the effects of the recession. Its 7.6% fall in passenger demand compared to July 2008, was the largest decline of any region.
European and North American carriers saw declines of 3.1% and 3.2% respectively. 

Passengers have been trading down to cheaper seats in the face of recession pressures. Airlines have also been leaving less expensive fares open for sale much closer to departures dates. The July improvement in travel demand was more the result of deep discounting than stronger incomes or greater economic confidence.

Middle Eastern carriers were the only region to grow in July. The 13.2% growth in July was slightly better than the 12.9% recorded in June. The growth is fuelled by increased capacity and greater market share in traffic between Europe and Asia.

Latin American carriers saw demand decline by 3.5%, and African carriers saw a fall of 5.5% compared to the seven month average of -8.6%.

Freight demand on international markets was 11.3% lower in July than a year earlier, but was a considerably up on the -16.5% recorded in June. All regions, except Africa, saw improvement in demand compared to June. The Middle East was the only region to grow (up 1%).

Falls by Asia-Pacific carriers, European carriers and North American carriers were 9.5%, 16.2% and 14.6% respectively. African carriers posted the worst performance at -25.9%.

The stabilization of air freight demand in the first quarter and its improvement in the second quarter has helped reduce the rate at which excess capacity has been growing.  But load factors are still lower than levels seen at the same time last year.  Downward pressure on freight rates and revenues continued to intensify in July.

“The freight numbers tell an interesting story. The sector is being boosted as companies re-stock depleted inventories. Once inventories are at desired levels in relation to sales, improvements in demand will level off until business and consumer confidence returns. Given the large amount of debt in all sectors of the economy, instant relief is not in the forecast,” said Bisignani.

“Airlines need to make their money in the June-August peak travel season. Planes are full. Load factors are high. But revenues are way down. Conserving cash, effectively managing capacity and cutting costs will be the long-term theme for every business in the air transport value chain,” Bisignani concluded.



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