IATA AGM opens against mixed signals from industry

Miami Beach (FL), June 7, 2015: The International Air Transport Assn. (IATA) Annual General Meeting (AGM) opens against a backdrop of conflicting signals from the industry, including from the organization itself.

On the one hand, IATA said last week freight traffic declined in April after a robust start through the first three months of the year. Freight traffic is usually a harbinger of passenger traffic.

On the other hand, IATA said April passenger traffic was up higher than usual.

At the same time, Delta Air Lines warned its passenger revenue per available seat mile was falling on weaker short-term business bookings and Southwest Airlines continued a fare sale that, given typically strong load factors and going into the historically strong third quarter, indicates weaker traffic.

Delta’s PRASM guidance was accompanied by a forecast that it may adjust downward its US domestic capacity. Southwest, which contributed to a frenzy over airline stocks two weeks ago with statements that it would grow its capacity by up to 8% (thus sparking fears of a market share war), walked this back.

Helene Becker, the aerospace analyst of Cowen and Co., tried to put perspective to the conflicting information.

As expected, Delta stated they will consider reducing their domestic capacity in the fall and as of now the current bias is for downward revisions. We believe this is hugely bullish for Delta and the airline industry. Over the last several weeks, the investment community was overly fixated on domestic capacity growth. We have now seen Southwest walk back their 2015 capacity plans and Delta at least think about cutting capacity growth. Delta currently forecasts 3Q15/4Q15 domestic capacity up 4%/2%. If Delta makes an adjustment to their 4Q domestic capacity it is more than likely they move to flat growth. In terms of who is next, we believe American could make a reduction, while United has already made their reductions. The action by Delta give us more comfort that PRASM will turn positive in 4Q15. Delta and the industry already addressed the international weakness reducing growth as a result of currency headwinds. That said, demand in the summer months continues to remain encouraging, especially to Europe given the strong dollar.

IATA said April passenger growth was up in April, “showing robust demand growth compared to April 2014. Total revenue passenger kilometers (RPKs) rose 5.9%. April capacity increased by 6.1%, and load factor slipped 0.1 percentage points to 79.4%.”
IATA said domestic traffic grew by 7.2%, much greater that international demand, which grew by 5.2% year-over-year.

“Demand for connectivity remains strong. That’s positive news. But the performance of the industry is multi-tiered. Middle East and Asia-Pacific based carriers led with growth well above the 5.9% average, while carriers in Europe and the Americas were below it. And African airlines reported a contraction compared to the previous year,” said Tony Tyler, IATA’s DG and CEO.

But freight traffic growth has lost momentum, IATA said. Global air freight markets showed a 3.3% increase in cargo volumes in April compared with a year ago. “While there is growth compared to the same month in 2014, there has been no actual growth in aggregated global cargo volumes since late last year,” IATA said.

“At a regional level, only the Asia-Pacific and Middle Eastern airlines reported growth in April. North American carriers reported essentially flat demand, while Europe, Latin America and Africa all reported declines when compared to 2014. April data also revealed a slowdown from the growth for the first quarter of 2015, which averaged 5.3%, in line with a recent weakening in world trade growth. Despite a cyclical pick-up in the global economy, acceleration in trade and air freight demand is unlikely in the near term as business confidence and export orders are flat or declining.

“After a volatile start to 2015, the market is settling down, and it is clear that momentum in air freight growth is being lost. First there is the structural challenge of world trade no longer expanding at a faster rate than domestic production. Layered on top of that trend we now see a weakening of economic indicators in the crucial air cargo markets of Asia-Pacific and Europe,” said Tyler.

The US domestic economic growth actually turned negative in the first quarter, IATA noted.

Boeing is counting on recovering in the freighter market to breathe new life into its 777F and 747-8F programs.

3 Comments on “IATA AGM opens against mixed signals from industry

  1. The genesis of airfreight demand is twofold : push and pull. The “classically” generated demand (push) is from established forwarders in the airfreighting sector, those who did it yesterday and will do it again tomorrow … no surprises, no tsunamis, no market upheavals. Just BUA – business as usual. The growth rate is within expected margins, pending geographical region and types of freight. IATA pronostics are strictly related to said classical freight patterns …

    Much more interesting is the hidden potential of (pull) non-classical spurring of airfreight demand, in substance : demand related directly with Modal Change Revolution nº 2 from shipping (Triple E …) to airfreighting. Remember : world’s containerised cargo transits 98 % (10 trillion FTK per annum) by sea, only 2 % (200 billion FTK) go by air. 1 % Modal Change equates to a potential 50 % upsurge in annual ICAO airfreighting statistics.

    The take hereof is this : airfreight demand is not haphazard, enigmatic, out-of-the-hat … but the response to POLICY : you want airfreight to grow, you do what is needed to cause airfreight to do so, ie you pull the economic levers to trigger Modal Revolution nº 2 … steering the market, ie deciding the level of growth desired by adequately setting the controls of Modal Shift ?

    All you need is a good understanding of the mechanisms triggering modal shift from shipping to air freight for containerised merchandise …

  2. IATA people seem to believe that probing “airfreight demand” identifies with sitting back and waiting until your appointed air freight forwarder picks up his phone to push his next consignment … which of course he will do sooner or later and at a greater pace from one year to the next …

    With IATA leadership profiled likewise, the profession of Dedicated Airfreighters is getting nowhere, because the available freight is carried by belly-freighters whose commercial offering position is based upon cost levels 35 % below the cost levels of said dedicated freighters. Possibly, IATA (to be renamed IAATP, with “P” for Passengers) have made up their mind to advantage paxliners and belly-freight, wherefore the rest of the club should re-organise, swarming into separate IAATF, with “F” for Freight. You can’t have an “Association” where the diet of a group of Members consists of phagocyting the other Members…

  3. Pingback: » Daily Aviation Brief – 09/06/2015

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