AIR TRANSPORT MARKET ANALYSIS MAY 2011

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1 AIR TRANSPORT MARKET ANALYSIS MAY 2011 KEY POINTS May saw a renewed expansion in both air travel and freight, after a soft patch during the previous three months. Air travel volumes were 6.8% higher than a year ago, and the level of the market in May was 4% up on the start of the year. Year on year comparisons remain distorted for freight volumes, which were 4% lower in May on this basis. However, a renewed upward trend is visible in the chart below and the level of FTKs in May was 2% higher than the start of the year. Air transport demand continued to expand during the second quarter, but it is clear that the expansion of air travel has entered a slower phase since Q4 last year. Up to that point the post recession expansion had been at an average annualized pace of over 8%. Since Q4 the trend, through a very volatile month-to-month path, has been at an annualized pace of 4%. The freight data also now shows a clearer upward trend since the beginning of this year, at an annualized pace close to 4%; Load factors also improved during May, as capacity growth was held below the expansion of demand. The situation on passenger markets looks markedly better than the past three months. However, both passenger and freight markets saw load factors peak last year. Assets are starting to be under-utilized, particularly on freight markets, putting downward pressure on airline profitability compared to the peak in 2010Q3; 430 Total Air Freight and Passenger Volumes Monthly RPK (Billions) Monthly FTK (Billions) RPK FTK Year on Year Comparison vs. May 2010 YTD 2011 vs. YTD 2010 RPK ASK PLF FTK AFTK FLF RPK ASK PLF FTK AFTK FLF International % 75.8% -4.3% 3.6% 51.8% 8.4% 10.2% 75.2% 2.6% 8.5% 51.7% Domestic 4.8% % -2.3% -0.1% 28.1% 4.2% 2.8% 77.6% -2.1% 1.3% 27.8% Total Market 6.8% 5.8% 77.1% % 46.6% 6.8% 7.4% 76.1% % 46.4% RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor; All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the specific month. IATA Economics 1

2 Most domestic travel markets were up strongly in May. The large US domestic market saw relatively good growth, rising to a level 4% higher than a year ago, despite the concerns expressed recently about a faltering in the US economy. Japan s domestic recovery from the March earthquake and tsunami could have started in May with a 4.4% month-to-month rise though there is a long way to go with the market still down around one quarter. Strong growth continued to be evident in the Indian domestic market, boosted by the strong economy, with year-to-date growth of 18.5% - the strongest domestic market in 2011 so far; International travel markets were stronger than domestic markets in May. This is partly due to a strong rebound in the traffic carried by African airlines, following the sharp decline in February at the onset of the unrest in Egypt and Tunisia. Flights and travel remain below normal for those markets but for the African airlines traffic volumes have rebound 16% from February lows to a point just under 5% weaker than pre-unrest levels. Airlines from other emerging regions in Asia-Pacific and Latin were also expanding strongly in May. A divergence is developing between airlines in Europe and North. European airlines, despite some very weak home economies, expanded both capacity and traffic strongly in May by over. In contrast North n airlines have been cutting international capacity for the past two months and seeing much slower growth in traffic. COMPARING MAY TO APRIL Month on Month Comparison vs. April 2011 RPK ASK PLF pt FTK AFTK FLF pt International 1.8% 0.7% 0.8% 1.2% 0.4% 0.4% Domestic 1.2% -0.1% % -0.4% 0.1% Total Market 1.7% 0.5% % 0.2% 0.2% Data are seasonally adjusted. All figures are expressed in % change month on month except, PLF pt and FLF pt which are the percentage point difference between load factors of two consecutive months. The month on month comparisons are particularly helpful for understanding freight market developments, because of the distortions in May last year. Domestic freight was soft but there was an encouraging rise in international freight volumes. Slower capacity additions allowed a small improvement in load factors; Both international and domestic air travel rose strongly in May, partly due to rebounds from earlier demand shocks. Moderate capacity expansion led to a significant improvement in load factors. PASSENGER MARKET Total Market (Domestic + International) Total Passenger Market 3 25% Total Passenger Growth by Region 27.3% 24.5% Monthly RPKs (Billion) % Growth in RPKs 15% 5% 5.4% 4.8% 9.9% 20.4% 11.4% 7.3% 4.7% 4.1% % % -0.1% 280-5% Africa Asia/Pacific Europe Latin Middle East North Air travel volumes rebounded to the trend, albeit around a very volatile monthly path, established since the end of Q3 last year. Seasonally-adjusted, the size of the air travel market in RPK terms was 4% higher in May than the end of last year, and 6.8% higher than May last year. Annualized growth in the recent trend has been close to 4%. If growth in the remaining seven months of the year carries on at that pace then average 2011 growth would be 5.9%. IATA s current forecast of 4.4% for 2011 anticipates slower growth in the trend during the second half of this year, due to slower economic growth and the impact of high fuel prices; IATA Economics 2

3 Large regional differences remain. The passenger traffic carried by African airlines has rebounded strongly since February but since the decline was significant, the year on year comparisons still look weak. Asia-Pacific airlines show much variation within the region but overall the still weak Japanese markets are holding down growth for the region as a whole. Latin n airlines saw the fastest growth in their markets in May, as strong economic growth and expanding trade boosted both domestic and international markets for these airlines. In between were airlines from Europe and the Middle East. Unusually, in May European airlines added capacity and passenger traffic at a faster rate than airlines from the Middle East. Passager Load Factor on Total Market 85% Total Passenger Load Factor by Region 83.4% 82.4% 79% 78% 76.9% % 77.1% % of ASKs 77% 76% % of ASKs % 74.6% 67.2% 72.7% 72.2% 71.3% 74% 65% % 73% 72% Africa Asia/Pacific Europe Latin Middle East North Passenger load factors rebounded strongly in May, continuing the partial recovery seen in April. This is partly the result of a more stable addition of capacity compared to the recent fall then rise in traffic. During April and May almost all of the previous losses were recovered. Nonetheless, passenger load factors were no higher than a year earlier and slightly down on Q3 last year. If sustained this would help to sustain profitability. However, planned aircraft deliveries and announced schedules look set to expand capacity at a slightly faster pace than demand. International Market International Passenger Market International Passenger Growth by Region % 25.9% % 21.3% Monthly RPKs (Billion) % Growth in RPKs 15% 5% % 5.7% 4.7% 10.9% 12.2% 11.9% 7.8% 4.5% 16.7% Africa Asia/Pacific Europe Latin Middle East North Travel growth on international markets was stronger than domestic growth. International passenger markets have grown 8% over the past year, compared to 4.8% growth on domestic markets. International markets are 5% higher than the end of last year, compared with an expansion of just over 1% for domestic markets. Still robust international trade and investment flows have sustained business travel and the growth of international air travel. European airlines have been a beneficiary of this growth, despite parts of Europe falling back into recession. The weak Euro and the strength of exports from Northern European economies boosted business travel and strengthened overall passenger traffic for the region. Latin n airlines have benefited from traffic within the continent, to the North and across the Pacific all stimulated by strong economies rather than weak exchange rates. There is also an interesting contrast between European airlines, expanding traffic and capacity IATA Economics 3

4 by more than in May and North n airlines who are pursuing a much more cautionary approach on international markets. Passenger Load Factor on International Market 85% International Passenger Load Factor by Region 82.5% 81.8% 78% 77.5% 77.7% % 75.8% % of ASKs 76% % ASKs % 73.4% 72.2% 71.9% 70.8% 74% 65% 64.8% 64.1% 72% Africa Asia/Pacific Europe Latin Middle East North As traffic has rebounded sharply, load factors have also recovered the majority of previous losses on international markets. Seat utilization on international markets is still slightly down on the peaks last year, but the impact on unit revenues and supply-demand conditions will be very positive for second quarter results compared to the first; With the most consistently cautious capacity additions on international markets, airlines from North have also sustained the highest load factors. Load factors remain the weakest for the African airlines which will make it much harder, in the face of high fuel costs, to sustain profitability. Domestic Market Monthly RPKs (Billion) Domestic Passenger Market % Growth in RPKs % 6.3% Domestic Passenger Growth by Country 23.8% 21.6% 10.8% 10.4% 12.8% 13.8% 1.7% % 4.8% Australia Brazil China, P.R % -29.9% India Japan USA Domestic air travel markets have picked up in May but growth is clearly much less dynamic overall than on international markets. The size of domestic markets in May was no higher than it was at the end of Q3 last year. However, within that total there are very different market experiences. The Japanese market saw the start of a rebound in May, but level remains almost 3 lower than a year ago. At the other extreme is the volatile Brazilian market, up over. India has also seen a very solid double figure expansion over the past year, as the Indian economy booms and capacity continues to expand at a rapid pace. The Chinese market has slowed, although remains more than up on last year, under the influence of tightening economic policy. The US market, which represents half of the total, showed stronger growth in May in spite of increasing gloom over the US economy. However, by contrast with the emerging markets this very mature market is still growing very slowly. Load factors remain much lower than late last year on average for domestic markets. A significant part of this is due to the situation in Japan, where load factors were only 54% in May. Despite the rapid expansion of capacity in the Indian domestic market the growth in travel demand has been so strong that load factors remain high at close to. In China airlines have sharply slowed capacity additions keeping their load factors even higher. IATA Economics 4

5 Passager Load Factor on Domestic Market 9 Domestic Passenger Load Factor by Country 79% 85% 81.5% 82.5% 82.6% 84.6% % of ASKs 78% 77% 76% % ASKs 7 65% 74.8% 73.8% % 76.3% 78.3% 61.8% 77.3% 79.4% 74% 55% 54.7% 73% 5 72% 45% Australia Brazil China, P.R. India Japan USA FREIGHT MARKET Total Market Total Freight Market 25% Total Freight Growth by Region 20.6% Monthly RPKs (Billion) % Growth in FTKs 15% 5% -5% -1.5% % 4.8% 1.5% 8.1% 2.1% -1.4% 4.3% % -8.5% -7.8% -9.2% Africa Asia/Pacific Europe Latin Middle East North Having stagnated for almost a year, after peaking in May 2010, the air freight market is finally showing signs of renewed expansion. Since world trade has been expanding strongly over the past six months it has been surprising that this has not happened before. The trend now visible through the volatility of January and February shows annualized growth of just over 4% between Q and May. If this pace of growth persisted through the remaining seven months of this year then average growth in 2011 would be less than 3%, which is considerably weaker than the 5.5% growth IATA is currently forecasting. Since world trade is still growing at a pace of 6% there remains the scope for a second half acceleration in air freight. However, at present it certainly looks as though our current forecast for freight growth looks too high. 52% 5 Freight Load Factor on Total Market % Total Freight Load Factor by Region 58.9% 53.5% % of AFTKs 48% 46% 44% % of AFTKs % 26.7% % % 44.9% 36.7% 34.5% % 42% 4 38% Africa Asia/Pacific Europe Latin Middle East North IATA Economics 5

6 International Market 15 International Freight Market International Freight Growth by Region 14 25% 20.8% Monthly FTKs (Billion) % Growth in FTKs 15% 5% -5% % -8.6% -1.4% -9.8% 13.4% % 1.4% 8.2% 5.2% 5.4% -1.2% -4.3% 8-15% Africa Asia/Pacific Europe Latin Middle East North International air freight markets are doing better than domestic markets. The start of the year was very volatile but between the end of Q3 last year and international air freight volumes have been growing at a pace of over 6%, which is close to the trend of the past twenty years. Air freight carried by African and Asia-Pacific airlines continued to be severely reduced by recent events. The sharp fall in the year-on-year comparison for European airlines reflects the upwards distortion last month by the comparison with the volcanic ash affected month the previous year. In addition strong export growth from Northern European capital goods producers, benefiting from the weak Euro, have also boosted air freight for airlines based in this region. Continued strong cargo growth for airlines in Latin n and the Middle East reflects the strong economic growth in many of the economies in these regions. Load factors rose a little in May on international air freight markets. However, the level of freight capacity utilization in May was still 4% points lower than the peak in May last year. More importantly the trend over the past six months still appears to be downward, as capacity is brought on to the market at a faster pace than the rebound in traffic volumes. 58% 56% Freight Load Factor on International Market % International Freight Load Factor by Region 54% 63.5% % of AFTKs 52% 5 48% % AFTKs % % 42.7% 48.1% 45.6% 45.3% 41.5% % 46% 44% % 27.1% 42% Africa Asia/Pacific Europe Latin Middle East North IATA Economics 6

7 ANNEX Year on Year Comparison vs. May 2010 YTD 2011 vs. YTD 2010 Air Transport Market Analysis May 2010 RPK ASK PLF FTK AFTK FLF RPK ASK PLF FTK AFTK FLF Africa 1.1% 2.3% 64.1% -7.4% -2.1% 27.1% -0.7% 4.5% 64.1% -2.8% 2.4% 27.1% Asia/Pacific 4.7% % -9.8% -2.7% 63.5% 3.8% 6.5% 75.1% -2.7% 3.7% 62.6% Europe 10.9% 10.6% 77.7% % % 75.8% 6.3% 10.5% 51.2% Latin 21.3% 15.2% % 3.4% 42.7% 18.2% 14.8% 77.1% 7.9% 5.4% 42.5% Middle East 7.8% 9.6% 70.8% 8.2% 14.2% 45.6% % 73.6% 11.3% 15.2% 45.1% North 4.5% 5.5% 81.8% -1.2% 7.9% 41.5% 7.3% 10.5% 77.3% 5.8% 12.3% 42.1% International % 75.8% -4.3% 3.6% 51.8% 8.4% 10.2% 75.2% 2.6% 8.5% 51.7% Australia 6.3% 4.9% 74.8% 4.9% % Brazil 21.6% 7.2% 65.7% 15.2% 7.2% 71. China 10.4% 3.3% 81.5% 8.3% 3.1% 81.6% India 13.8% 19.9% 78.3% 18.5% 18.5% 75.6% Japan -29.9% -20.8% 54.7% -21.6% -12.8% 55.4% US % 84.6% 2.8% % Domestic 4.8% % -2.3% -0.1% 28.1% 4.2% 2.8% 77.6% -2.1% 1.3% 27.8% Africa -0.1% 0.4% 64.6% -7.8% -2.6% 26.7% -1.6% 2.4% % 1.5% 26.6% Asia/Pacific 4.8% 3.7% 74.6% -9.2% -2.7% 58.9% 4.3% 5.1% 75.5% -2.8% 3.1% 57.9% Europe 9.9% 9.7% % 4.7% % 11.9% % 10.1% 50.1% Latin 20.4% 11.4% 72.7% 1.5% -0.3% % 11.8% 75.3% % 40.7% Middle East 7.3% 8.6% 71.3% 8.1% 13.6% 44.9% % 73.9% 11.2% 14.5% 44.4% North 4.1% 2.9% 83.4% -1.4% 4.9% 34.5% 4.1% 4.7% 79.8% 2.8% 7.1% 34.7% Total Market 6.8% 5.8% 77.1% % 46.6% 6.8% 7.4% 76.1% % 46.4% RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor; All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the specific month. IATA Economics 7

8 May 2010 Month on Month Comparison vs. April 2011 Market Share RPK ASK PLF FTK AFTK FLF RPK FTK Africa 2.9% -0.5% 2.2% 1.3% -0.9% 0.6% 2.9% 1.2% Asia/Pacific 2.4% -0.2% % -0.8% 0.4% 25.5% 42.1% Europe % 0.9% 1.2% -0.8% % 25.6% Latin 0.2% % -1.7% -1.1% -0.3% 4.5% 3.1% Middle East -0.4% 0.4% -0.6% 1.2% 0.4% 0.4% 10.5% 11.4% North -1.3% -0.5% -0.6% 1.3% -0.2% 0.6% 15.2% 16.7% International 1.8% 0.7% 0.8% 1.2% 0.4% 0.4% Australia 0.4% 0.2% 0.2% 3.2% Brazil -5.7% 0.9% -4.8% 3.3% China 1.1% 0.3% 0.7% 17.4% India 3.6% 1.5% 1.5% 3.4% Japan 4.4% % 2.3% US 2.1% -0.1% 1.8% 50.4% Domestic 1.2% -0.1% % -0.4% 0.1% 100. Africa 2.5% -0.7% 2.1% 1.2% -0.7% 1.9% 2.1% 1.1% Asia/Pacific 1.6% -0.5% 2.1% -0.4% % 27.3% 39.9% Europe 1.2% 0.8% 0.4% 1.3% -0.8% 2.1% 29.3% 22.7% Latin 0.9% 0.9% % -1.3% -0.9% 5.2% 2.9% Middle East -0.4% 0.5% -0.9% 2.5% 0.6% 1.8% % North 1.7% -0.8% 2.4% -0.2% -0.3% 0.1% 29.1% 23.5% Total Market 1.7% 0.5% % 0.2% 0.2% Data are seasonally adjusted. All figures are expressed in % change month on month except, PLF pt and FLF pt which are the percentage point difference between load factors of two consecutive months. IATA Economics economics@iata.org 30 th June 2011 FURTHER ANALYSIS AND DATA Access video commentary and chart data related to this briefing NEW RELEASE ALERTS To receive notification of new analysis from IATA Economics, through the Enhanced Edition: select Economic Briefings from: IATA Economics