Source: The Australian Author: Derek Sadubin 05/09/2008
Subject Concerned: Opinion
A review of first-quarter worldwide airport and airline traffic performance reveals a reasonably healthy increase in demand, despite the growing economic challenges.
But Asia's key markets are slowing and the global aviation outlook for the remainder of 2008 is much less favourable. One factor to note is that Easter, unusually, fell in March this year. The Easter holidays have an almost global effect.
The International Air Transport Association (IATA) reports that worldwide scheduled international passenger traffic, measured in terms of revenue passenger kilometres, rose 5.8 per cent in March 2008, although, adjusting for the early Easter, growth in the month was 4 per cent with an adjusted industry load factor of 76.1 per cent, down 1.7 percentage points year-on-year.
IATA says Asia-Pacific's traffic growth slowed in March to 4.3 per cent. The figure includes the flattering impact of an extra day in February this year and the early Easter.
The industry body said that the slower figure was significant in that the region's booming economies "were expected to immunise them from the US slowdown".
The Association of Asia Pacific Airlines reported that international passenger traffic of its members grew by 3.8 per cent year-on-year (unadjusted), in line with capacity growth, keeping the average passenger load factor unchanged at 78.5 per cent.
Load factors were steady in February 2008 as well, meaning the AAPA members have lost the cushion of traffic growth outstripping capacity that they enjoyed for the previous two years.
A tipping of the balance (into falling load factors) would exacerbate an already extremely difficult environment as fuel costs surge. Airports Council International reports continued growth in airport passenger traffic in March this year, again fuelled by a substantial rise of over 7 per cent year-on-year (unadjusted).
Domestic passenger traffic growth however was flat at 1 per cent, which held down the overall traffic gain to 3.5 per cent.
ACI reported some "isolated phenomena" that affected results in some markets.
The airport body observed a "substantial drop" in the sensitive Japanese travel market in March, particularly to China. Asia's major emerging domestic passenger markets, India, China and Indonesia, are likely to experience sharp slowdowns this year after a decade-long growth.
China's CAAC reported domestic passenger numbers expanded by 11.2 per cent in the first quarter to 41.5 million - well below the 15.7 per cent expansion in 2007 to 168.4 million. The first quarter result was dragged down by the March increase of just 6.8 per cent.
After February's snowstorms upset travel patterns, China's international passenger numbers actually fell 1.1 per cent in March 2008, due to the "Tibet issue", according to the CAAC, with particular weakness in the Japanese market.
India's domestic market growth slowed to 11.2 per cent - a massive slowdown from the 29 per cent rate achieved in calendar year 2007 (to 42.4 million passengers), as new aircraft arrivals slowed and consolidation rumours continued.
Domestic fares and fuel surcharges both increased a further 10 per cent or more this month, which slow the growth rate in India even further.
Meanwhile, Indonesia's domestic market picked up momentum in first quarter of 2008, expanding 25.6 per cent year-on-year to 8.3 million passengers. However, demand in the previous corresponding period was heavily subdued, in the wake of the Adam Air crash on New Year's Day 2007.
The Indonesian National Air Carriers Association expects the overall domestic growth rate to slow, due to the rising costs of travel, as airlines raise fares and fuel surcharges to mitigate surging fuel costs. The closure last month of Adam Air, which held a 15 per cent domestic market share, is also having a major impact on the market.
Whether we are seeing a spill-over from the US, or the impact of rising costs of travel - or a combination of the two - it is clear Asia's big emerging air travel markets will have a soft year, which is of concern to the airlines based in these countries and serving them.
IATA director general and chief executive Giovanni Bisignani said the traffic figures "only tell part of the story".
The fortunes of the airline industry have, according to him, "taken a major turn for the worse", with "astronomical oil prices hitting hard", while the "buffer of an expanding economy has disappeared". Consequently, industry consolidation had become critical, he said.
AAPA director-general Andrew Herdman said clear evidence of a slowing global economy, coupled with "cripplingly high" fuel prices, meant the outlook for the remainder of the year was "decidedly less optimistic".
He said the doubling of the oil price compared to a year ago had already triggered the collapse of several carriers around the world, "and even well-capitalised and well-run airlines are bracing themselves for further turbulence in the months ahead".
Derek Sadubin is the chief operating officer of the Centre for Asia Pacific Aviation