Although the international scheduled traffic statistics for July showed continued strengthening of demand for both passenger and cargo traffic, a contraction in the latter's activity is seen in the second half of this year, the International Air Transport Association (IATA) said on Wednesday. In the passenger sector, Middle Eastern carriers continue to add the largest amount of capacity (12.8 percent in July and 13.2 percent over the first seven months of the year), it said. The region's carriers have managed to increase demand at even higher levels (16.8 percent in July and 19.4 percent over the first seven months of the year). Load factors and financial performance will record improvements this year, IATA said in the report sent to the Saudi Gazette. Compared to July 2009, international passenger demand was up 9.2 percent. These airlines are now benefiting from long-haul expansion in 2010. In July, passenger demand was up by 6.2 percent over the same month in 2009. But the region's slow start in the recovery process has seen it deliver the weakest demand performance among all the regions over the first seven months of the year (+3.6 percent). “The recovery in demand has been faster than anticipated. But, as we look towards the end of the year, the pace of the recovery will likely slow. The jobless economic recovery is keeping consumer confidence fragile, particularly in North America and Europe. This is affecting leisure markets and cargo traffic. Following the boost of cargo demand from inventory re-stocking, further growth will be largely determined by consumer spending which remains weak,” said Giovanni Bisignani, IATA's director general and CEO. Asia-Pacific carriers outperformed the industry average with a 10.9 percent growth in July. This is consistent with the region's 10.6 percent growth measured year-to-date. A July capacity increase of less than half the demand growth (5.1 percent) pushed load factors higher. Leading the industry recovery, the region's carriers are expected to report a profit of $2.2 billion. This will be the largest gain in dollar terms in 2010 compared to 2009. Yet, in the airfreight sector, despite its 22.7 percent improvement, “a slowdown is expected in the second half of the year as the economic cycle moves into a new phase.” Extraordinary freight growth rates in late 2009 and early 2010 were supported by businesses re-stocking their inventories. With the re-stocking cycle completed, airfreight demand will be driven by consumer spending and business capital expenditure. Weak consumer confidence in Europe and North America will be a negative factor. But strengthening corporate profits are supporting an increase in capital expenditure that could continue to drive robust freight growth. The two-speed recovery continues to see weak growth by European carriers of 12.1 percent in July, less than half the 25.3 percent increase by Asia-Pacific carriers or the 27.1 percent growth recorded by North American carriers. Improving demand is an important component of the recovery. But it must translate to the bottom line. The anticipated 2010 profit of $2.5 billion is only a 0.5 percent return on revenues. Hence, the financial situation of the industry remains fragile. We must go beyond recovery to secure sustainable profitability at levels exceeding the 7-8 percent cost of capital. For this, we need a change in the industry's structure,” said Bisignani. “Costs are a critical element. This year has been marked by strikes and threats of strikes at airlines, and with airports and air navigation service providers. Avoiding strikes at BAA and AENA, Spain's provider of air navigation services, were major accomplishments. We are all in this together-including all our partners in the value chain and those who work in this financially fragile industry. It is not the time for strikes. We must work together to secure our future by finding solutions to reduce costs,” Bisignani added. He also noted the need for a regulatory structure that facilitates consolidation across political borders. “The crisis has seen consolidation in Europe and the US. This month's merger announcement by LAN and TAM brings Latin America into the picture. And trans-national brands are serving customers effectively in many parts of the world. But we remain an industry of over a thousand players with only very limited opportunities to consolidate as a result of the antiquated bilateral system's restrictions on ownership. The business realities of the industry are changing. It is critical that governments find a modern regulatory structure that is free of outdated ownership restrictions and able to facilitate opportunities for consolidation globally - something that other industries take for granted,” Bisignani further said. European airlines, beleaguered by the region's weak economy, saw little growth when the recovery took off in the second half of 2009. North American carriers recorded a 7.9 percent improvement in passenger demand in July over the same month in the previous year. Over the first seven months of the year, the region's carriers recorded a 6.3 percent increase, but kept capacity expansion to just 1.0 percent, raising load factors to 82.0 percent and producing strong gains in unit revenues that will support the region's return to profitability this year. African airlines are now benefiting significantly from economic and travel upturn, outperforming the industry with 13.0 percent growth in passenger demand in July, which is consistent with the year-to-date improvement of 13.1 percent. Capacity is quickly coming back into the market with a 10.4 percent increase in July, limiting improvements in both load factors and financial performance.
