Fuel and competition constrain air traffic growth

Middle East is star performer ALAN PEAT WHILE GLOBAL air traffic growth slowed somewhat in 2006, the latest figures just released by the International Air Transport Association (Iata) show that the aviation industry managed to prune extra profitability out of their efforts for the year. The cargo growth rate increased from 3.2% in 2005 to 4.6% in 2006, but it remained below the historical growth trend of 5.6%. Meanwhile, passenger growth slowed from the 7.6% recorded in 2005 to 5.9% in 2006. But, said Giovanni Bisignani, Iata’s CEO, “The lesson for 2006 is that pursuing profitable growth pays off.” The industry showed an estimated operating profit of US$10.2-billion for 2006 while net losses were reduced to a projected US$500-million. “Cost reduction, improved efficiencies and careful capacity management have positioned the industry to achieve a projected net profit of US$2.5-bn in 2007,” Bisignani added. The Middle East was the year’s star performer. It was the fastest growing region for both passenger and cargo traffic – recording full-year growth of 15.4% and 16.1% respectively. The cargo growths in the key markets of Europe and Asia, however, were relatively subdued – at 1.7% and 4.7% respectively. Iata cited high fuel costs and strong competition from other transport modes (particularly in Europe) for the constrained growth in 2006. North America was the most improved market as freight growth increased from 0.4% to 6.0% as airlines switched capacity towards cargo. At the other end of the scale, Latin America was the poor performer, with a negative growth rate of -2.6%. In passenger traffic, only the Middle East saw better growth in 2006 than 2005. The largest decline was in Latin America where 11.4% growth turned to a 2.4% contraction in 2006, primarily due to restructuring of the industry in the region. North America saw the second largest decline – from 8.9% to 5.7% – as carriers withdrew unprofitable capacity. Better load factors were what brought the smiles to the faces of the passenger airlines. They hit a record high average of 76.0% in 2006 – up from 75.1% in 2005. The situation in the North American aviation industry – in which major passenger players had gone bust in numbers, and seen a frantic switch from non-profit passenger capacity to cargo carrying – took a tremendous swing from the previous disastrous years. It led the industry with an 80.2% load factor, up from 79.5% in 2005. Indeed, load factors improved in all regions except the Middle East and Africa. “The focus for 2007 is efficiency,” Bisignani added – with slower traffic growth rates and a less buoyant global economy expected to impact revenue growth. “Industry-wide we expect revenue growth to slow from 8.0% in 2006 to 4.5% in 2007,” he said. And, while lower oil prices are a welcome relief for the aviation industry, they remain around double the price in 2000. Bottom line improvement depends on achieving further efficiencies across the board, according to Iata reckoning.