First quarter 2008 traffic review †positive start to the year, but outlook troubled

ACI – domestic passenger numbers weaken

Airports Council International (ACI) reports continued growth in airport passenger traffic in Mar-08, again fueled by a very substantial increase of over 7% year-on-year (unadjusted for the impact of the early Easter). Domestic passenger traffic growth was flat at 1%, which has held down overall traffic gain to 3.5%. During 1Q08, unadjusted worldwide passenger traffic rose 4.5% year-on-year, led by international (+7.6%), while domestic rose 2.3%.

ACI reported some “isolated phenomena” that affected results in some markets.

The airport body reported a “sharp decline” in domestic traffic across Europe for a variety of reasons. Business travel was reduced due to the Easter holiday, but this was not compensated by more increased leisure travellers to traditional destinations within weekend reach, due to the early March date and poor weather. European operations also suffered from bad late winter weather, industrial action and the temporary knock-on effects from flight cancellations experienced during the London Heathrow terminal 5 opening.

The airport body observed a “substantial drop” in the highly sensitive Japanese travel market in Mar-08, particularly to China, which appears to be linked to food poisoning fears in China and the political situation in Tibet.

Freight traffic for Mar-08 was flat, with a 4% rise in international freight and a “stark decrease” of 7% in domestic freight. Only Asia Pacific showed positive domestic growth in the freight sector.

ACI added that the US and Europe air freight segment continues to compete with rail and road transport, due to high fuel prices, in particular a transfer of small, lower value package shipping from air to surface.

IATA – US slowdown spreads to Asia

The International Air Transport Association (IATA) announced global scheduled international passenger traffic (RPKs) rose 5.8% in Mar-08, although adjusting for the early Easter, growth in Mar-08 was 4%, with an industry load factor of 76.1%, down 1.7 ppts year-on-year.

For the first three months of the year, the unadjusted increase in worldwide international RPKs (including the flattering impact of an extra day in Feb-08 and the early Easter) was 6.6% year-on-year. But capacity (ASKs) rose 6.9% in the period, and leading to a slight fall in average load factor to 75.6%, reflecting the slowdown in the demand growth that began in Dec-07.

International freight growth remains “sluggish”, rising 3.2% in Mar-08, and well below the 4.3% growth recorded in 2007, according to the airline body.

IATA reports the (unadjusted) traffic (RPKs) slowdown growth in Mar-08 to 4.3% was “significant - in that the region’s booming economies were expected to immunise them from the US slowdown”. Middle East carriers saw a double-digit increase of 15.4% reflecting the expanding economies in the region, but even this is a “significant downward step” from the 20.4% recorded in 2007, according to IATA.

IATA reports that as North American carriers shift traffic from low-yielding domestic markets, their international traffic grew by 6.3% (unadjusted) in Mar-08. The impact of high valued Euro saw US carriers capitalise on the North Atlantic, with a 10% increase in traffic, while European carriers’ operations in the same area contracted by 2%. Overall European carrier passenger traffic grew by 3.7% - below the year-to-date increase of 4.2%.

AAPA – losing cushion of demand outstripping supply

The Association of Asia Pacific Airlines (AAPA) stated that international passenger demand trends “remained positive” in 1Q08, with traffic (RPKs) growing by 4.6%. However, the continued weakness in the airfreight market meant that AAPA cargo FTKs grew by only 2.9% for the quarter”.

The Mar-08 data told a similar story. International passenger traffic (RPKs) grew by 3.8% year-on-year, in line with capacity growth, keeping the average passenger load factor unchanged at 78.5%. International freight traffic (FTKs) expanded by just 2.0% in FTK terms. The cargo load factor, however, improved 0.7 percentage points to 67.9% on marginal capacity growth of 0.9%.

Overall, AAPA members have lost their cushion of traffic growth outstripping capacity in the past two months. A tipping of the balance (ie an easing of load factors) would exacerbate an already extremely difficult environment as fuel costs surge.

Outlook - warning bells being sounded

IATA Director General and CEO, Giovanni Bisignani, stated that the traffic figures “only tells a part of the story”. The fortunes of the airline industry have, according to Mr Bisignani, “taken a major turn for the worse”, with “astronomical oil prices hitting hard”, while the “buffer of an expanding economy has disappeared”

In the face of such dramatic shifts in the global economy, Mr Bisignani added that industry consolidation has become “critical”.

While welcoming proposed consolidation moves in the US, Mr Bisignani stated, it “makes no sense” that consolidation is limited to domestic partners”. He again called on US-EU open skies negotiators to deliver a “modern approach to ownership rules” in their second stage talks this month.

AAPA Director General, Andrew Herdman, stated that “clear evidence” of a slowing global economy coupled with “cripplingly high” fuel prices meant the outlook for the remainder of the year is “decidedly less optimistic”. He added the doubling of the oil price compared to a year ago has 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”.

ACI Economics Director Andreas Schimm, expressed further concerns about passenger and freight market, stating, “in addition to the overall negative effect of global financial and economic data, airports report a direct impact on traffic from freight carrier business decline, as well as fewer scheduled passenger flights, which also lowers volume capacity”.