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21 April 2024

2008 air traffic will feel credit crunch

By Shweta Jain


Middle East carriers recorded the world’s highest growth rate of 18.1 per cent in 2007 in passenger demand, continuing a four-year trend of double-digit increases, according to the International Air Transport Association (Iata).


This was the result of strong regional economies, growing oil wealth, expanded aviation capacity and new routes, the trade body said yesterday. However, Iata predicts that this strong growth will be dampened in 2008 due to the global credit crunch and high oil prices.


“Despite the ambiguity of strong passenger growth accompanied by weaker freight demand, we can say clearly that 2007 was the best in recent memory. We can state equally clearly that there will be no encore performance in 2008,” said Giovanni Bisignani, Director-General and Chief Executive Officer of Iata.


“Oil prices are higher than ever. Economic uncertainty accompanying the United States credit crunch is broadening. And the slower growth of passenger demand in December last year set the trend for the coming months. In a tough business environment the mantra remains the same: efficiency everywhere is everything.”


The Middle East carriers also led all regions in 2007 with a 10.1 per cent increase in freight demand, slowing from the 16.1 per cent growth rate of 2006.


With a cyclical downturn ahead in 2008, challenging times continue for the aviation industry, and not just in the Middle East. The global aviation industry is expected to witness a downturn in 2008, with overall profits dropping to $5 billion (Dh18.35bn), from $5.6bn in 2007. While Middle Eastern airlines will not increase their profit levels, they are expected to maintain the 2007 level of $200 million.


In its industry financial forecast for 2008, Iata had downgraded its profit forecast for 2008 by almost 36 per cent, compared to 2007. But it was still 10.7 per cent lower than last year’s expected earnings. The trade body had earlier estimated a profit of $7.8bn for 2008.


“The Middle East will remain stable at $200m supported by ambitious route expansion. We will also see the region’s capacity levels, which rest at 3.5 per cent at present, go up to about six per cent in the next five years. Capacity is driving revenues and profitability,” Bisignani told Emirates Business in December 2007.


Meanwhile, international passenger traffic demand grew by 7.4 per cent in 2007, up from the 5.9 per cent increase recorded during 2006, according to estimates by Iata. In December 2007 alone, the international passenger traffic demand rose 6.7 per cent, down from the 9.3 per cent jump recorded in November.


“This step down reflects the impact of rising prices and economic uncertainty that grew more acute in December,” Iata said.


Average international passenger load factors, meanwhile, reached an industry record of 77 per cent in 2007, up from 76 per cent in 2006 and 75.1 per cent in 2005. According to Iata, this trend will probably end in 2008 as demand growth is forecast to slow to five per cent while capacity rises 5.2 per cent.


“Strong passenger traffic growth of 7.4 per cent was a key component of the aviation industry’s $5.6bn profit in 2007 – the first black number since 2000,” said Bisignani.


“But it was not all good news. Freight slowed to 4.3 per cent, below the 4.6 per cent recorded in 2006. It was also below the 7.5 per cent at which global trade expanded, highlighting a competitiveness issue with shipping.”



Freight traffic


Global air freight traffic grew by 4.3 per cent in 2007, which is down slightly from growth of 4.6 per cent seen in 2006 and much lower than the 7 to 8 per cent growth trend of recent years, Iata said.


However, freight demand grew 4.7 per cent in December 2007 alone, up from 3.5 per cent in November, largely due to temporary, year-end related factors.


Iata said the air freight demand environment will remain challenging and that growth is expected to slow in the first half of 2008 before picking up with overall growth of four to 4.5 per cent projected for the year.


Airlines in Asia-Pacific, meanwhile, which account for 45 per cent of the international total, saw freight demand rise 6.5 per cent in 2007, driven by strong growth in several economies in the region, the aviation trade body said.