Stocks edge higher on IATA report

Stocks edge higher on IATA report

IATA has announced international scheduled traffic results for August with passenger demand down 1.1% on August 2008. However, this is an improvement on the 2.9% decline in July and points towards cautious recovery. Airline stocks edged higher on Tuesday as a result of the improving trend.
Compared to August 2008, passenger load factors improved by 1.2 percentage points to 80.9%. But despite the tighter supply and demand conditions average fares continue to be depressed (-22% for premium seats and -18% for economy). Freight demand fell by 9.6% (also an improvement compared to the 11.3% drop in July).

“Demand continues to improve, but profitability remains ever distant,” said Giovanni Bisignani, IATA’s Director General and CEO. “Fares have stabilized, but at profitless levels. Meanwhile cost pressures are mounting from reduced aircraft utilization and rising oil prices. The industry is not out of the woods yet,” said Bisignani.

To match capacity with demand, airlines have reduced daily aircraft utilization in recent months. For example, average daily hours for the global Boeing 777 fleet dropped by 2.7% to 11.1 hours per day through the first eight months of the year.  Lower utilization helps load factors, but spreading fixed asset costs over fewer hours in the air pushes up unit costs.

Compared to the low point of March 2009, seasonally adjusted passenger demand has improved by 6%, but traffic levels remain 5% below May 2008 when the fall in demand began. All regions, except the Middle East, saw improved demand conditions in August compared to July. Asia-Pacific carriers recorded the most significant improvement moving from a -7.6% drop in July to -1.6% in August.

European and North American carriers saw smaller improvements driven by exposure to more robust long-haul markets, rather than local economies. Middle Eastern carriers were the only region to show year-on-year growth with demand expanding by 10.8%. Latin American carriers saw demand improve to -2.3% in August (from -3.5% in July). African carriers showed the weakest demand at -4.9% in August. This was a slight improvement on the -5.5% recorded in July.

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“Even with improving demand, there are few bright spots in the industry. This must point us to the need for some fundamental re-thinking. At the top of the list for change are the industry’s antiquated rules of the game which restrict access to markets and to international capital. This industry needs to operate as a normal business. Liberalization of ownership rules could be a lifeline for airlines as we approach a difficult fourth quarter,” said Bisignani.