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February 5, 2013

Airline Passenger Demand Grew in 2012 According to the IATA

airplaneThe airline industry is entering 2013 with some guarded optimism with business confidence up, says Tony Tyler, the International Air Transport Association's (IATA) director general and CEO. "The Eurozone situation is more stable than it was a year-ago and the US avoided the fiscal cliff."

Despite this, significant headwinds remain, Tyler said. "There is no end in sight for high fuel prices and GDP growth is projected at just 2.3 percent. But improved business confidence should help cargo markets to recover the lost ground from 2012. And the momentum built-up at the year-end should see the passenger business expand close to the 5 percent historical growth trend. 2013 will not be a banner year for profitability, but we should see some improvement on 2012,” said Tyler.

In its December outlook for 2013, IATA projected that 2013 would see 4.5 percent growth in passenger markets and 1.4 percent growth for cargo demand. That will contribute to an improvement in profitability from $6.7 billion (1.0% net profit margin) in 2012 to $8.4 billion (1.3% net profit margin) in 2013.

The 5.3 percent increase in passenger demand was slightly down on 2011 growth of 5.9 percent but above the 5 percent twenty-year average. Load factors for the year were near record levels at 79.1 percent. Demand in international markets expanded at a faster rate (6.0%) than domestic travel (4.0%). In both cases emerging markets were the market drivers, IATA said.

“Passenger demand grew strongly in 2012 despite the economic bad news that dominated much of the last twelve months. This demonstrates just how integral global air travel is for today’s connected world. At the same time, near-record load factors illustrate the extreme care with which airlines manage capacity. Growth and high aircraft utilization combined to help airlines deliver an estimated $6.7 billion profit in 2012 despite high fuel prices. But with a net profit margin of just 1.0 percent the industry is only just keeping its head above water,” said Tyler. 

“In contrast to the growth in passenger markets the air cargo market contracted by 1.5 percent. The industry suffered a one-two punch. World trade declined sharply. And the goods that were traded shifted towards bulk commodities more suited for sea shipping. The outstanding bright spot was the development of trade between Asia and Africa which supported strong growth for airlines based in the Middle East (14.7%) and Africa (7.1%),” said Tyler. 

International passenger demand grew by 6.0 percent in 2012. The strongest growth came from emerging markets, particularly the Middle East (15.4%), Latin America (8.4%) and Africa (7.5%). Capacity grew more slowly than demand (4.0%) supporting a near record level international load factor of 78.9 percent, IATA said.

North American carriers reported the slowest international passenger growth of any region at 1.3 percent (down from 4.1% in 2011). Restructuring, consolidation, and tight capacity management (down 0.3% for the year) delivered the highest load factor (82.0%), contributing to an estimated $2.4 billion profit.

Domestic air travel grew by 4.0% in 2012. China (9.5%) and Brazil (8.6%) were the strongest performers. India was the weakest with a 2.1% contraction on 2011 levels. Total capacity growth (3.8%) was in line with demand (4.0%) and the domestic load factor stood at 79.5%.

US traffic expanded by 0.8 percent in 2012 (down from 1.5% in 2011), and capacity grew by just half of that at 0.4 percent. This supported an 83.4 percent load factor—the strongest among the major markets. The slowdown reflects the maturity and subdued economic growth of the US market which accounts for about half of all domestic travel.

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