Last year passenger traffic finally got back on track with a surge of growth, although as growth rates now settle down, worries persist about the impact of high oil prices and slowing economies
It has been a long hard downturn since 2001, but last year officially marked the end of the gloom. A resounding rebound in world passenger traffic finally put the numbers decisively ahead of the previous peak in 2000. While most predict that traffic will, at last, now settle down to something like its former long-term growth rates, oil prices and slowing economies could still spoil the outlook.
There is little doubt that 2004 was a rebound year, with the carriers in the latest Top 200 survey posting a thumping traffic rise of 13.8% (see rankings pages 72-80). The year before the world had come close to regaining the peak, and may have done so but for War in the Gulf and the even more severe impact of the SARS epidemic in Asia. Now that the recovery has arrived, after the most prolonged dip in air transport memory, the consensus is for growth to ease. “We are past the peak,” says IATA chief economist Brian Pearce, predicting growth rates at a more steady 5-6% for the next few years.
The Top 200 ranking, compiled by Air Transport Intelligence, the sister online service to Airline Business, demonstrates the extent of the rebound in Asia-Pacific, which put on more than 19% growth last year as it recovered from SARS and as the Chinese economy continued to power ahead. The Middle East too turned up sharply after the Gulf War, while the major markets of North America and Europe also managed highly respectable double digit growth.
The low-cost sector continued to forge ahead, although with a rise of under 18% it did not quite reach the heady heights of 2003 when budget carriers pushed up traffic by 30%. Nevertheless, Chris Avery, analyst at JP Morgan’s London office, still sees huge market opportunities ahead for low-cost as it continues to develop in Europe. “The low-cost fleet has the potential to triple in the next few years,” he says.
More than one in ten passenger journeys are now made on low-cost carriers worldwide and 20 budget airlines are now making their way up the rankings.
Regional rise
But the most spectacular growth in 2004 was reserved for the regional carriers, who saw traffic rise by nearly 28% again last year, bolstered in large part by traffic passed down from mainline carriers. This is particularly evident in the USA, where regional carriers are flying ever-longer stage lengths and taking over routes previously operated by their mainline masters.
A glance down the list of strongest risers last year shows a strong mix of US regionals and new-wave low-cost carriers, led by Australian Airlines, the Qantas Airways medium-haul offering (see growth league page 79).
Joining them in the high-growth league are a host of Chinese carriers. Including Cathay Pacific and Dragonair in Hong Kong, virtually half of the Top 25 fastest growing airlines last year were from China. One of the most dramatic movers last year was Hainan Airlines, which has roared up the traffic rankings and is close to making it into the Top 50, having put on 46% growth last year. China’s other mainline carriers are following suit, putting in robust performances.
Broken down by regions, the Middle East led the pack, but the Asia-Pacific has shown remarkable resilience, recovering from the effects of the SARS outbreak with vigour. As IATA’s Pearce notes: “Regional traffic patterns are changing, with much of the growth coming out of emerging markets like China and India, rather than the mature markets like the USA and Europe.”
Load factors are up across the board, an encouraging sign that there is some capacity control in the market despite the rapid growth across all sectors. Yields too appear to have edged up another 2.6% overall last year. However, this figure comes with a warning attached. The dramatic weakening of the US dollar against most major currencies gives an artificial boost to such headline dollar numbers. Looking at yields in local currency terms shows that of the carriers in the ranking for which data is available, two thirds actually experienced a decline.
While passenger traffic booms, a sharp downturn in cargo in May is causing a few nerves to jangle. Trends in cargo are always closely monitored as economic fluctuations are reflected faster in freight volumes than they are in passenger numbers. “There has been a very abrupt slowdown, reflecting market conditions,” says Pearce, suggesting the beginnings of an economic slowdown. Observers are watching cargo figures very closely, but so far most are not convinced that the May fall was anything other than a blip. Andrew Herdman, Association of Asia-Pacific Airlines director general, says: “May was down a bit. But the year to date for AAPA cargo carriers is up 3.4%, so don’t read too much into it at the moment.”
Avery, however, is concerned about falling load factors for Europe’s cargo carriers. He says that the strength of the euro has made the region uncompetitive and says there are “worrying signals” for economic growth in the euro currency zone.
The major factor affecting the outlook for the industry is certain to be the price of fuel and whether it will rise far enough to trigger a global economic slowdown. Whether through fuel surcharges or yield management tactics that reduce the number of the cheapest tickets being sold, most carriers are reacting to high oil prices. But, according to Pearce, the surcharges do not cover the price rises, with on average only about a third of the hike passed on to passengers.
So far it appears that the direct impact of high prices has not suppressed demand for air travel, says Herdman. “The risk is not this direct impact but the indirect effect of high oil prices and whether they precipitate an economic slowdown that would feed through to weaker demand for air cargo and business travel.” An encouraging sign for Pearce is the relative stability of the global economy, with a bust looking less likely to follow the boom. “The comforting thing about this cycle is that even though oil prices are high there is not an inflation problem,” he says. A few quiet years would no doubt suit the industry down to the ground.
Source: Airline Business
