Air cargo is taking off

The International Air Transport Association (IATA) has released data for global air freight markets showing that demand, measured in freight tonne kilometres (FTK), grew by 10.4% in the first half of 2017 compared to the first-half of 2016. This was the strongest first half-year performance since air cargo’s rebound from the Global Financial Crisis in 2010 and nearly triple the industry’s average growth rate of 3.9% over the last five years.
Freight capacity, measured in available freight tonne kilometres (AFTK), grew by 3.6% in the first half of 2017 compared to the same period in 2016. Demand growth continues to significantly outstrip capacity growth, which is positive for yields.
Air cargo’s strong performance in the first half of 2017 was confirmed by June’s results. Year-on-year demand growth in June increased 11% compared to the same year-earlier period. Freight capacity grew by 5.2% year-on-year in June.
The sustained growth of air freight demand is consistent with an improvement in global trade, with new global export orders remaining close to a six-year high. However, there are some signs that the cyclical growth period may have peaked. The global inventory-to-sales ratio has stopped falling. This indicates that the period when companies look to restock inventories quickly, which often gives air cargo a boost, may be nearing an end. Regardless of these developments, the outlook for air freight is optimistic with demand expected to grow at a robust rate of 8% during the third quarter of this year.
“Air cargo is flying high on the back of a stronger global economy. Demand is growing at a faster pace than at any time since the Global Financial Crisis. That’s great news after many years of stagnation. And, even more importantly, the industry is taking advantage of this momentum to accelerate much-needed process modernization and improve the value it provides to its many customers,” said Alexandre de Juniac, IATA’s Director General and CEO.
 
Regional performance
All regions experienced positive freight growth in the first half of 2017. Carriers in Asia Pacific and Europe accounted for two-thirds of the increase in demand.
Asia-Pacific airlines’ freight volumes grew 10.1% in June 2017 compared to the same period in 2016 and capacity grew by 7.8%. This contributed to a growth in freight demand of 10.1% in the first half of 2017 compared to the first half of 2016. Seasonally adjusted international freight volumes are now 4% above the level reached in 2010 following the global financial crisis bounce-back. Demand growth has been strongest, between 13-15%, on international routes within Asia as well as between Asia and Europe. Capacity in the region increased 4.8% in the first half of 2017.
North American carriers saw freight demand increase by 12.7% in June 2017 year-on-year and capacity increase by 3%. This contributed to strong growth in demand in the first half of 2017 of 9.3% in contrast to the negative growth seen during the same period in 2016. Capacity grew by 1.5% in the first half of 2017. Seasonally adjusted international volumes remain very strong, surging by an annualised rate of more than 30% in the second quarter. The strength of the US dollar continues to boost the inbound freight market but is keeping the export market under pressure.
European airlines posted a 14.3% year-on-year increase in freight demand in June 2017 and a capacity rise of 6.1%. The healthy results helped boost cargo volumes for the first half of 2017 by 13.6%. The ongoing weakness of the Euro persists in boosting the performance of the European freight market which continues to benefit from strong export orders. Capacity in the region increased by 5.4% in the first half of 2017.
Middle Eastern carriers’ freight volumes increased 3.7% year-on-year in June 2017 and capacity increased 2.2%. This contributed to an increase in demand in the first half of 2017 of 7.6%, well below the 10.8% average annual rate seen over the past five years. The slowdown in growth is mainly due to strong competition from carriers in other regions particularly on the Asia-Europe route rather than a significant decrease in demand which has continued to trend upwards at a solid rate of around 10% in annualized terms since early 2017. For the first time in 17 years the region’s share of total international freight flown in the first half of 2017 has fallen. Capacity in the region increased by 1.5% in the first half of 2017.
Latin American airlines experienced a growth in demand of 9.8% in June 2017 compared to the same period in 2016 – the fastest since November 2010 – and an increase in capacity of 2.9%. June’s positive results contributed to the region posting a marginal increase in demand of 0.3% for the first half of 2017. However, seasonally adjusted international volumes remain 10% lower than at the peak in 2014. Capacity fell by 0.6% in the first half of 2017. The region continues to be blighted by weak economic and political conditions, particularly in its largest economy, Brazil.
African carriers had the fastest growth in year-on-year freight volumes, up 31.6% in June 2017 and a capacity increase of 7.6%. This contributed to freight demand growing 25.9% in the first half of 2017 – the fastest of all regions. Demand has been boosted by very strong growth on the trade lanes to and from Asia which have increased by nearly 60% in the first five months of 2017. Capacity grew 11.2% in the first half of the year. Seasonally adjusted growth has levelled off in recent months; however, growth is set to remain in double digits for the remainder of 2017.

Strong 2010 but uncertainties in 2011: severe weather dents aviation recovery

The International Air Transport Association (IATA) reported full-year 2010 demand statistics for international scheduled air traffic that showed an 8.2% increase in the passenger business and a 20.6% increase in freight.

 

Demand growth outstripped capacity increases of 4.4% for passenger and 8.9% for cargo. Average passenger load factor for the year was 78.4%, a 2.7 percentage point improvement on 2009. The freight load factor saw a 5.2 percentage point improvement to 53.8%.

 

Compared to the pre-recession levels of early 2008, December air travel volumes were 4% higher. Air freight was 1% higher than pre-recession levels, however, volumes have fallen 5% since the peak of the post-recession inventory re-stocking boom in early 2010.

 

“The world is moving again. After the biggest demand decline in the history of aviation in 2009, people started to travel and do business again in 2010. Airlines ended the year slightly ahead of early 2008 volumes, but with a pathetic 2.7% profit margin. The challenge is to turn the demand for mobility into sustainable profits,” said Giovanni Bisignani, IATA’s director general and CEO.

 

Severe weather Europe and North America in December put a dent in the industry’s recovery. It is estimated that this shaved 1% off of total traffic demand for the month. As a result passenger demand dipped to 4.9% growth on December 2009 levels, significantly lower than the 8.2% growth recorded in November. Hardest hit was Europe, which saw December growth slow to 3.3%.

 

International passenger demand

 

Asia-Pacific carriers recorded a 9% year-on-year increase in passenger demand in 2010. While December 2010 passenger demand growth slowed to 2.9%, it is 11% higher when compared to December 2008, just ahead of the industry’s 9-10% improvement over the same period. The economies of China and India continue to lead the region’s recovery.

 

European carriers saw year-on-year passenger demand increase 5.1%. This is double the capacity increase of 2.6%, which shored-up the passenger load factor at 79.4%. But the continent’s economic uncertainty and continuing debt crisis limited yield improvements. Moreover, Europe was the hardest hit by December’s severe weather which slowed demand growth to 3.3%, less than half the 7.8% growth recorded in November.

 

North American carriers recorded year-on-year increases in passenger demand of 7.4% in 2010. A key feature in 2010 was the capacity discipline, where full-year capacity was up by just 3.9% (leading to a sharp recovery in profits). The passenger load factor at 82.2% for the full year (up from 79.6% in 2009) may prove difficult to maintain if capacity additions accelerate over the period ahead. Passenger demand in December increased 6.7%.

 

Middle Eastern carriers reported the strongest full year growth at 17.8% on the back of a 13.2% capacity increase fuelled largely by aircraft deliveries to Gulf-based airlines. Load factors for the region showed a 3 percentage point increase to 76.0%. December demand was 14.1% above previous year levels and 35% higher than in December 2008, illustrating the structural shift that is taking place in the industry as a result of the region’s expansion.

 

Latin American carriers saw the whole year demand grow 8.2% despite a 1.1% decrease in December, a reflection of the demise of Mexicana. But the reality is that for 2010 overall, the total is almost 8% more than 2008.

 

African carriers experienced a sharp rebound of nearly 12.9% in 2010, although load factors remained well below the industry average, at 69.1%. Their year ended with December demand at 11.7% above previous year levels.

 

International freight demand

 

Freight demand growth varied wildly over the year from a high of 35.2% in May to a low of 5.8% in November. Overall the industry is trending towards normal growth pattern in line with the historical growth rate of 5-6%.

 

The regional variation in growth remains particularly marked. Latin American carriers recorded the highest full-year growth rate of 29.1%, followed by Middle East carriers (accounting for 11% of the market) at 26.7%, Asia Pacific airlines (with a 45% market share) grew by 24.0%, Africa at 23.8% and North America by 21.8%. Against these industry gains, Europe’s 10.8% growth stands out as exceptionally weak.

 

Oil prices

 

“The story this month is the sharp rise in oil prices. We predicted that 2011 would see a consecutive second year of profitability but with industry profits falling by 40% to $9.1 billion. This was based on an oil price of $84 per barrel (Brent). Fuel accounts for 27% of operating costs and a sustained rise in the oil price could spoil the party. With uncertainties in the Middle East, oil prices are now hovering near the $100 per barrel mark. For every dollar increase in the average price of a barrel of oil over the year, airlines face the difficult task of recovering an additional $1.6 billion in costs,” said Bisignani.

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