Thursday, July 28, 2011

Environmental And Financial Problems Hit Air Freight Bottom Line

Cargo Levels Fall Off Due To Disasters and Economic Downturn
Shipping News Feature

WORLDWIDE - The International Air Transport Association (IATA) has published its findings on air freight traffic for June based on results gleaned from the organizations 230 members. Year on year air cargo fell globally by around 3% for the month meaning freight volumes have not grown since July-August 2010. May 2010 was the post-recession re-stocking peak, compared to which the June 2011 international freight market was 6% smaller. While world trade is expanding at 7% a year, the benefit is being realized more by modes of transport other than air according to IATA.

The Asia Pacific group of carriers are the biggest players in the air freight sector with a 40.5% market share and a downturn in Chinese economic growth plus the disastrous earthquake and tsunami which impacted on supply chains in Japan are blamed for a 5.8% fall in traffic levels. IATA say the strength of the region however is shown in the maintenance of the highest load factors (58.6%) well ahead of the 45.7% industry average for the month.

Of the losers Europe was least affected having already suffered falls over recent months and only a 1.3% drop against June 2010 was recorded. The US market fell off 3% whilst more positive news came from air freight carriers in the Middle East, Latin America and Africa showing year-on-year growth for June, recording demand increases of 3.7%, 2.8% and 0.3% respectively. Tony Tyler, IATA’s Director General and CEO commented:

“Compared to May both passenger and cargo markets contracted by about 1%. For passenger traffic, this is a speed-bump in a gradual post recession improvement. But air cargo continues in the doldrums at 6% below the post-recession peak.

“The industry is living in several different realities. With high load factors and an upward growth trend, the passenger business is doing better than cargo. But regional growth patterns are shifting. The Middle East carriers have moderated to a single digit expansion and tighter economic conditions have slowed China’s growth. Meanwhile, Latin America is leading the industry expansion followed by Europe which is growing strongly despite its currency crisis. And North America is underperforming the industry on growth but leading on load factors.

“What is clear is that the rising jet fuel price is putting pressure on the bottom line. The average price for the second quarter was $133/barrel which is an increase of $10 over the first quarter. With an expected profit margin of only 0.7%, the ability of airlines to recoup this cost is critical to staying in the black for the year. Slower economic growth makes these challenges all the more difficult. It is certainly not the time to burden the industry with increases in other costs, including taxation.”

IATA is forecasting an industry profit of $4 billion for 2011 which is a 78% fall from the $18 billion that the airlines made in 2010. On anticipated revenues of $598 billion, this translates to a net industry margin of 0.7%. Based on a forecast average oil price of $110/barrel for 2011 and a jet fuel price of $126.5/barrel, the industry fuel bill is expected to be $176 billion which accounts for 30% of costs.