Airlines are slowly gaining from the global economic recovery - IATA

The International Air Transport Association (IATA) said on Thursday the global economy was recovering more slowly than expected, but was inching upward based on air traffic data, a key barometer of growth. High oil prices, the crisis in the Middle East and Japan's earthquake and tsunami dented growth, but the global economy appeared to be slowly overcoming the effects, said Giovanni Bisignani, director general of the global air industry body.

"From the numbers, the recovery is moving," he told a news conference in Singapore. "It is moving slower than expected because the recovery this year has been affected by many, many different situations (such as) the situation in the Middle East and the situation with the oil price. "What got spoilt in the situation is the price of fuel, because the record (average) price of USD$110 per barrel is not just affecting the profitability of aviation, but it’s affecting the profitability of the entire system."

According to the latest IATA figures, passenger traffic in April grew 11.9 percent year-on-year while freight traffic grew 3.3 percent. But these numbers were distorted because April 2010 was hit by severe air traffic disruptions following the volcanic ash eruption in Iceland. Air freight, which accounts for about one-third of global trade by value, was down 6 percent from a post-recession peak in May last year.

"The speed-up of last year was because you have to build the inventories," Bisignani said. "Once you have rebuilt your inventories, you have to sell your stuff. Now we have slowed down because of that reason." The airline industry itself will remain profitable, but IATA plans to revise its estimates from the latest forecast of USD$8.6 billion and will likely lower that estimate.

"Since (the last forecast), much has happened to make us less optimistic," Bisignani said. "Eliminating all distortions (passenger traffic) is growing at 3-4 percent. Unfortunately, two things are spoiling the party, demand shocks and high jet fuel prices." IATA has 230 member airlines and will hold its annual general meeting in Singapore next week and will announce its latest forecasts at that time.

When the group made the industry-wide profit forecast of USD$8.6 billion in March, it assumed an average oil price of USD$96 per barrel for Brent crude, but the year-to-date average of the oil price now has reached USD$110 per barrel. Load factors, or the amount freight or passenger capacity used, are key to airline profitability. In April, the overall passenger load factor was 77.4 percent, but the freight load factor was only 46.5 percent.

"Maintaining the high load factors needed to support profitable growth will be difficult given the ongoing challenge of matching capacity to volatile demand," Bisignani said. Disrupted supply chains after the Japan earthquake and tsunami disaster, slower growth in China and political unrest in Africa contributed to the slow take-up of freight space, IATA said.

Bisignani said airlines had built up freight capacity last year believing a strong recovery was imminent. "That was slowed down because of the cost of fuel, the Middle East, and all those kind of things. And it takes some time to adjust capacity to the new reality," he said.